American Income Inequality and its Discontents

Brad DeLong excerpts extensively from a Paul Krugman article the NYT is making available only to economic ignoramuses subscribers noting the fact that, as the old adage goes, the rich keep getting richer.

Krugman:

What we’re seeing isn’t the rise of a fairly broad class of knowledge workers. Instead, we’re seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite.

[…]

So who are the winners from rising inequality? It’s not the top 20 percent, or even the top 10 percent. The big gains have gone to a much smaller, much richer group than that. A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, “Where Did the Productivity Growth Go?,” gives the details. Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn’t a ticket to big income gains. But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that’s not a misprint.

Just to give you a sense of who we’re talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn’t give a number for the 99.99th percentile, but it’s probably well over $6 million a year.

So, shockingly, only the very rich are very rich. Or, to put it another way, not that many people make $6 million a year. Or, to put a number on it, only 29,821 Americans make that amount.

That’s just wrong.

DeLong believes that “five things are going on:”

1. The rise of a very powerful, successful, exploitative upper class.
2. Further increases in inequality as the tax and transfer system becomes less progressive.
3. Increases in risk that threaten to move middle-class families sharply downward in the wealth distribution.
4. Skill-biased technical change that sharply raises the benefits to education.
5. Holes in the safety net–the fall in the value of the minimum wage, time-limited welfare, and so forth.

Those people in the exploitative upper class are clearly screwing me out of some serious cash. I want another $5.9 million and I want it now. Or, failing that, I want the government’s safety net to fork over $5.9 mil. Frankly, I don’t care so long as the exploitation stops.

Dan Drezner suggests that the reason we aren’t seeing a massive public uprising over this distribution disparity is the fact even the serfs have more assets, leisure time, and purchasing power than ever before and have the (obviously delusional) idea that rich people worked hard and maybe deserve compensation for that.

That may be. But that’s not going to get me that $5.9 mil.

Show me the money.

FILED UNDER: General,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. yetanotherjohn says:

    So since we are tracking from 2000 to 2004, and I seem to remember a dot com bust in there somewhere chewing up a lot of stock market wealth, and then a recovery pushing the stock market back up. Since I suspect a few of those really wealthy may have even seen a negative income at the bottom of the market as measured by the money you had on paper at the beginning of the year vs the money you had on paper at the end of the year, wouldn’t you expect to see a huge increase?

    I know a person who worked hard for 40 years as an engineer and later management in an engineering dominated firm. Same company, 40 years. He spent less than he earned, saved his money, invested most wisely and had a couple of long shots pay off (e.g. $40K investment returning over $1M). He is now retired and “manages his money” full time. He has made more since the start of the year (on paper at least) that I will for the whole year. He makes well below the 99th percentile, but he sure ain’t doing bad. And I would hope that people who save, invest and work hard do make money in those situations. But I also know that any law that Krugman would like would also hit him hard. While the top 300,000 Americans could move their money outside of the US, out of reach of the Krugmans, this hard working retired US citizen would be the won hurt.

    Unless you just hit the absolute right time, you will never be as rich as Gates. But if you invested wisely (including investing in an education that can be financially rewarding like engineering), you can live pretty nicely. If the democrats don’t get their hands on the tax levers at least.

  2. John Burgess says:

    Better keep buying those Power Ball tickets…

  3. eNone says:

    It’s very simply called redistribution of wealth. It’s been going on for some time now but picked up speed during the Reagan years. A recent article showed that it now takes two incomes, man and woman, to keep up with what a single income had in 1970. So much for family friendly strategies. Just look at the “Bush Tax Cuts” where do they really go? How about the “death tax”. Hmmm, effects me alot don’t it? Look at the distribution of wealth in this country over time. One day soon you people will realize what’s really going on here. I just hope it’s not too late.

    The aristocracy/oligarchy didn’t like it when the US became the US and has been hard at work to turn it back to what they believe is it’s rightful place…feudal England. We’ll see…

    As Frank Zappa said “and number one ain’t you, you ain’t even number two…”

  4. Christopher says:

    Hey eNone, I’ve just had a revelation. I used to believe, and still do, that the easiest way to tell if someone was a complete moron was if they were a professional wrestling fan. Now I can add a second rule: those that believe like you and Paul Krugman do are also complete morons. No thinking required.

    Wait, maybe I should say: all liberals like you.

    (by the way, are you a professional wrestling fan?)

  5. Anderson says:

    The namecalling is not doing much to persuade me that Krugman and DeLong are mistaken.

    eNone’s point about dual-income families sounds like a pretty good one. I don’t mind the rich being richer; what I mind is the rich getting richer out of all proportion to any increase in our prosperity. Because my work, and that of the rest of us, is contributing to the super-rich’s wealth.

    Mr. Verdon, or other economically knowledgeable folk — got anything to say?

  6. eNone says:

    Christopher, I think I’ve had this conversation with you before. Please, the “liberal” label means nothing. Do you have a point? I am neither a liberal nor a conservative, I just care about the country/world my children have to survive in.

    The truth is obvious to all who watch these things. If you don’t believe me, go to the OMB or the BLS and do some research. You will find that what I say is not just the truth but more simply fact. You may choose to ignore it but you do so at your own peril. History has proved that there is nothing more dangerous than people who are cold and hungry. They have nothing and nothing to lose.

    It is, to me (the liberal), appearing so bad that I am buying extra weapons and ammo and have put in place an exit strategy of my own.

    “Be prepared”

  7. eNone says:

    P.S.
    Wrestling is akin to NASCAR to me. Let me rephrase, wrestling is akin to republican politics.

  8. Christopher says:

    “eNoneÂ’s point about dual-income families sounds like a pretty good one”?!?!?

    (you prob also think the ports deal is a bad idea because that “seems” logical)

    Well, just to give a few examples, maybe the duel income family can get by on a single income if: they all didn’t have cell phones with large monthly expenses they can’t really afford; they didn’t smoke so many cigerettes or drink so many cappacinos; they didn’t have cable TV with all of the premium cannels; they didn’t have the very latest computer or hi-speed internet with its $40-$50 monthly costs; they didn’t have 2 cars, at least one of which is probably newer and on a lease with no money down and both cars are more than they can really afford; if they didnt live in a newer home; they didn’t take vacations to Vegas or Atlantic City and lose lots of money gambling (one of the largest and fastest growing industries in the country) or even didn’t stay home and play video poker or lottery (one of the largest growing sourcs of revenue for liberal state govt’s.); they didnt have all the latest electronic equipment or every new rap/pop CD that gets issued every 45 seconds. And instead of all the TV watching & music listening and gambling & phone talking, they worked to improve themselves and their lives instead of hoping that the government pass a law that says everyone should be rich.

    In other words, if they weren’t mindless liberals.

  9. Matt says:

    Mr. Joyner, it seems safe to say that Krugman’s point is not that only the very rich are very rich. Rather, that extra point and a half or so difference between Europe’s growth rate and ours is not improving your (or my) life except for the cool new shows about the uber-rich like “Sweet 16” on MTV.

    Not to be a zero-sum advocate, but I’m really surprised at the breezy dismissals of this worrisome (to me) trend – this cannot be what a functioning market economy looks like, can it?

  10. ken says:

    If Joyner is going to take on Krugman and DeLong he should do it with something more than just attitude.

    They are two of the best and most widely read economists in the nation and taking a sophoric swipe at them shows that Joyner is unable to make a real point or engage in a meaningful debate.

  11. Buddy says:

    The ‘two income’ myth is just that: A myth. Its all a matter of choosing to live without the hummer, cell phones for your 4 year old, your 10 year old, and your dog, the multiple vacation homes, thousand dollar diamond rings, etc etc. I work, my wife stays home. She likes it that way. We don’t make a huge amount of money. We live simply, buy what we need, and some things we ‘want’ and do just fine.

  12. Herb says:

    Anderson:

    Sit Down,

    Hold on to your chair tight,

    Take a deep breath,

    I totally AGREE with you.

  13. eNone says:

    Buddy, the two income myth is not a Myth. Please take a look at :http://news.yahoo.com/s/csm/20060227/ts_csm/agenerations_1

    Yes, you can get by if you make a good salary but it used to be that someone working at a local store could support his family AND send his kids to college.

    Good luck with that. It’s not that people today are consuming more, even though they are, it’s that in order to maintain the same standard of living, families need two or more incomes.

    I feel lucky. I’m in the top 2-3% but that doesn’t mean I don’t see what’s happening. Don’t let the propaganda fool you! While you lose, someone wins…that’s the truth.

  14. Ian D-B says:

    I’m just gonna make one little point and then go(unless anybody has any questions). What we thought was far more important in that paper than the data on how rich the rich are (I couldn’t care less) is how wage growth links to productivity growth. We hear so much about how the driver of prosperity is productivity growth. And we’ve had all kinds of productivity growth in the last few years. But surprisingly, only the top 10% of the income distribution keeps up with productivity growth.

    Regardless of what you think of redistributive policies, or if you agree with Krugman, it’s imporant to recognize that productivity growth doesn’t seem to trickle down to the majority of workers. Median income has barely grown at all over the past 35 years.

  15. Buddy says:

    eNone:

    I’d strenuously argue it is a myth. I am proof; I’m nowhere near the top 2-3%. I have 4 children. We have a single-family income. I make less than $45k a year. I save a bit. I pay into college saving plans for my kids. We do quite well, actually. If there is any credibility to the theory, then the two family income is possibly part of the CAUSE not the result. Just because CSM post a story positing something as fact does not make it so

    The fact that younger workers have lower median incomes might have other causes including not entering the workforce as early and working up as the previous generations (I’m a prime example of that too), the fact that my generation is less likely to stay at a single job a shorter period of time, (for various reasons) etc. My generation just isn’t willing to ‘stick it out’ as much as previous generations and would rather be happy at their jobs in general I think, and as a result probably experience some effects of that. I’m fine with that.

    There are quite a number of factors here, and instead of invoking the standard ‘OH MY GOD THE GOVERNMENT SHOULD FIX THIS BY STEALING FROM OTHERS AND GIVING IT TO ME’ we should work to better our own situation instead of worrying about those who make more than us. By any reasonable standard, we work less strenuously than our grandparents, and live better, I don’t care what some ‘study’ says.

    Frankly I don’t buy into the rat race. We plan a bit, we consume what we need. We live simply, are not ‘well to do’ by any stretch and really aren’t concerned with that sort of thing. If we can do it, anyone can, its just a matter of choice.

  16. eNone says:

    Buddy, like I said, it’s not that people like you believe you’re ok, it’s that the people at the very top are basically raping all the rest of us. If you’re ok with that then just say so. I for one am not.

    The simple facts are that folks in your income bracket have stayed the same or dropped in both income and wealth while the ones who had it all to begin with are seeing dramatic gains in their income and net worth. What’s amazing to me is that you think that they deserve it more than you. You talk about cable TV, two cars etc but just imagine for a moment what they have gained…private islands, weekend trips to France or Italy for the Olympics. I don’t say that there shouldn’t be rich people. I’m just saying that they should benefit from the gains of the rest of us disproportionately.

    Again, if you’re ok with the like of Paris Hilton getting more and more while the average joe gets less and less, maybe we just have a different philosophy. I’m glad you’re happy.

  17. Buddy says:

    I didn’t say I was ‘happy’ about it. Frankly I just really don’t care about the Paris Hiltons of the world. Most of them are fools anyway, and money don’t happiness make. I also don’t think government ‘intervention’ is the correct way to fix it. I think those of us in the lower brackets should stop giving them all the money we do. Buy local as much as you can, quit buying into the ‘OOH I Need this New thing to be ‘cool’ bs, and live within your means. If we stopped handing the Hiltons or whatnot cash hand over fist, they’d still be rich, but they wouldn’t be getting richer so quick.

  18. M says:

    Your post is included in this week’s Carnival of the Vanities. Couldn’t successfully trackback you, sorry.

  19. G A Phillips says:

    Krugman is an UberJackass of the highest order! Money is over rated, I barely make enough to keep a roof over my head, my satellite, my puters, my food, my girlfriend, all my liberal friends who I seem to put Every year don’t help but dude, life is a struggle, I did all this for 13 years as I proceeded to smoked enough crack to kill several large donkeys. I kept my job, provided for my friends, fought my demons, found my god, and even found a way to feed my 6 gold fish, all named Ken. Help those you can but don’t hate those Who don’t.

  20. RJN says:

    It just so happens that NRO has a piece on the usual Krugman screwup of the week. I don’t believe anything Krugman touches, or even comes near.

    http://www.nationalreview.com/nrof_luskin/luskin200602240930.asp

  21. Christopher says:

    eNone, it is AMAZING that you choose to ignore all sane economic data. (by the way, yet another in a long list of things that makes you a liberal). Have you seen the latest economic data? It is excellent. Not just for a few, but for all-in fact that is the def of a great economy. You, being a liberal, I am sure are most disturbed about the fact that it is BUSH that has caused the great economy.

    Why is it that mostly liberals like to say they aren’t part of either party, that they are “independent”? Then they try and act like that makes them great thinkers or something (it doesn’t). First of all, most of them are liberals lying about it. Secondly, if u truly are an independent, then you are an idiot with no base for thinking.

  22. bryan says:

    1. The rise of a very powerful, successful, exploitative upper class.

    The RISE of this class? Has Brad DeLong ever heard of the 19th freakin’ century? Child labor? Union-busting? Railroad barons? The Kennedys?

  23. ICallMasICM says:

    ‘Again, if youÂ’re ok with the like of Paris Hilton getting more and more’

    You lose by violating the Paris Hilton corrolary of Godwin ‘s law.

  24. none says:

    Chris,

    I am refering to the actual economic data! Not the party line spin on how wonderful things are.

  25. ICallMasICM says:

    ‘Dan Drezner suggests that the reason we aren’t seeing a massive public uprising over this distribution disparity is the fact even the serfs have more assets, leisure time, and purchasing power than ever before and have the (obviously delusional) idea that rich people worked hard and maybe deserve compensation for that. ‘

    I don’t think they really care too much about rich people other than trying to figure out how to get that way.

  26. Buddy says:

    eNone:

    P.S. It ain’t rape when the middle class is ‘putting out’ so to speak. You can’t buy all their goods services, and then B*t(h and complain that you are being bamboozled. What do you think, the government is just manufacturing money to hand to the ‘rich’? Seems to me they are making that money somehow, and they are making it from us, if we let them.

  27. RJN says:

    Who got more out of the labor of these rich; them or us? Henry Ford, Thomas Edison, John D. Rockefeller, Charles Kettering, Gordon Moore, David Packard, Steve Jobs, Bill Gates….

  28. Am I reading objections to the economic emancipation of women in that two-incomes-to-support a family sub-thread?

    There’s an obscure law of conservation in economics called the Say Aggregation Principle that requires the value of output to be equal to the value of factor payments.

    Now suppose the unwritten rules of trading change so that women who participate in the labor market are no longer viewed as odd. Working mom is now a professional, not earning allowance money or covering for dad’s failings.

    One household with two incomes is going to do better than neigboring households spending only one. Turn all households into two-income households and the prices of things will adjust to reflect the additional incomes chasing them. (The additional resources also have the effect of making many things really cheaper, consider the Hummer or the bonus room or the mobile phone at any price 20 years ago.)

  29. Anderson says:

    It just so happens that NRO has a piece on the usual Krugman screwup of the week. I donÂ’t believe anything Krugman touches, or even comes near.

    RJN also doesn’t believe in natural selection or the Holocaust … or gravity, for all I know.

  30. eNone says:

    Buddy,

    I’m not complaining for myself. As I said before, I’m not in your catagory. I’m frankly one of those who benefit disproportionately from the system. I just have this thing called morals coupled with a sense of fairness. Again, if you’re ok with it then fine for you.

    This discussion reminds me of one I had with a good friend this summer. He is an independent contractor, a small business unto himself. When I started talking about this he had a very specific response and it’s perhaps how you feel. He said that he’s perfectly happy to have a skewed system. He feels that it allows him to do great and if others are too stupid to take advantage of it, too bad for them. Gotta love the pure capitalism there eh?

    My problem is that I am an egalitarian, I believe that the system should be fair – a level playing field. I pity the fools like you who believe it is as you grab your ankles.

  31. eNone says:

    Chris, Buddy,

    LetÂ’s do some simple math. IÂ’ll use Buddy as my low income source since he already said what he made. IÂ’ll assume state and local similar to my state PA.

    BuddyÂ’s taxes @45k income:
    Fed – 5% – guess may be lower with all those kids
    State – 3%
    Local(wage) – 1%
    Real estate – 3% – even if you rent you still have to pay in increased cost
    Sales tax – 4% – pa is 6% but not for food/clothes
    Sin tax – 1% – maybe you donÂ’t smoke, drink or gamble but many poor do
    Social sec+ medicare – 15%

    Total tax burden – 32% plus or minus

    Mine @150k income:
    Fed – 11%
    State – 3%
    Local(wage) – 1%
    Real estate – 3% – even if you rent you still have to pay in increased cost
    Sales tax – 2% – pa is 6% but not for food/clothes
    Sin tax – 1%
    Social sec+ Medicare – 15%(two incomes)

    Total – 37% plus or minus

    Wealthy person, only income from non taxable bonds and similar
    Fed – 0
    State – 0
    Local – 0(investment isn’t wages)
    Real estate – 3%
    Sales – 1%
    Sin tax – 1% – generous here
    Socials sec + Medicare – 0 not owed on non wages
    Total tax burden – 5%

    Dick Cheney – from 2004 income of 1.7M
    Fed – 23% from 04 return
    State – 3% again using PA
    Local – 0.1 – wage only
    Real estate – 2% assume 30k tax
    Sales – approaching 0
    Sin – same – 0
    SS+MC – 1% remember caps on SS

    Total burden – 29%

    Now I agree that these arenÂ’t exact numbers but theyÂ’re fairly indicative of what the true taxes are on different people. So, what do you think? Pretty cool huh? The wealthy actually pay a lower real proportion than you do! You can argue some of the numbers but you canÂ’t argue the end result and that is that everyone from the middle down is getting screwed.

    Cheers!

  32. Bithead says:

    Anderson, the logical question to ask you if this point is if one has been posted so far doesn’t convince you that Krugman is full of thick brown goo… whatever WOULD?

  33. mickslam says:

    If you really think the economy is doing all that great, look up the most recent conference call by David Rosenberg. Hes part of that really liberal group, Merrill Lynch, and he thinks this is the worst recovery this century. You can find it on by searching for calculated risk on google, and then on the calculated risk site, search for merrill lynch. Download the paper, read it and see if you still think this is an excellent economy.

  34. jjag says:

    What Krugman, Delong and virtually all MSM “experts” ignore is the fact that people move up AND DOWN the income scale, continuously.
    Very few people stay at the bottom for very long.
    Now, if most people in this society apparently have the ability to move up it hardly follows that there is some kind of permanent upper “class”. In my lifetime I’ve seen relatively rich peers fail miserably and some of relatively modest talent do very well. I once worked with a guy who accumulated $500,000 in a mutual fund portfolio though he had eight kids and worked in a modest government position.
    One of the reasons why anyone can get richer today is that a good idea can be exploited faster than ever. Entertainers, today, can make incredible fortunes because their market is, literally, world wide and they can provide “services” such as endorsements that were unheard of in previous eras. Businesses with good ideas can generate wealth overnight (Google?).
    If you believe the rich always prevail, pick up Forbes Magazine and check out how many have dropped out of their 500 list of richest each year. Oh, and google “Hunt Brothers”. They were once among the richest in the world…..but blew it all on silver.
    Getting rich is one thing, staying there is another. Anyone want to bet on how long Brittany Spears’ money will last that dope?