Income Inequality Gets Worse

According to research at MarketWatch.com, the lopsided income distribution portrayed in the series Downton Abbey is the reality of the US economy, our income inequality is about like that of the period 90 years ago in England.  This is the fodder of civil unrest if it gets worse, as is likely.

The richest take home a higher share of national income in America today than did the aristocrats and superrich of 1920s England. The poor today take home a smaller share than the butlers, chauffeurs and other working folk did back then.

Peter Lindert, economics professor at the University of California in Davis, and one of the world’s leading experts in measuring income inequality, will be presenting research at the NBER this week, and he shared his thoughts with me by email. “Britain’s Downton Abbey economy of the 1920s,” Lindert says, was slightly “ less unequal than…the U.S. today” (emphasis added).

For example, he points to the so-called GINI Coefficient, the standard measure of economic inequality used by researchers and organizations around the world, from the Census Bureau to the World Bank. U.S. readings today are about as high as those of 1920s England, says Lindert. They may even be higher. Incidentally, other research has found that U.S. readings of the GINI coefficient are higher than those of Czarist Russia as well.

Ultra Rich and the Rest of Us

A new report has been published by Oxfam, an international organization that works to eradicate the sources of poverty, showing that the richest 85 people in the world control the same wealth as the poorest 3.5 Billion people throughout the world, and the inequality is still increasing.  Titled "Working for the Few", it examines the consequences of extreme wealth inequality.

Some economic inequality is essential to drive growth and progress,

rewarding those with talent, hard earned skills, and the ambition to

innovate and take entrepreneurial risks. However, the extreme levels of

wealth concentration occurring today threaten to exclude hundreds of

millions of people from realizing the benefits of their talents and hard

work.

Extreme economic inequality is damaging and worrying for many

reasons: it is morally questionable; it can have negative impacts on

economic growth and poverty reduction; and it can multiply social

problems. It compounds other inequalities, such as those between

women and men. In many countries, extreme economic inequality is

worrying because of the pernicious impact that wealth concentrations can

have on equal political representation. When wealth captures

government policymaking, the rules bend to favor the rich, often to the

detriment of everyone else. The consequences include the erosion of

democratic governance, the pulling apart of social cohesion, and

the vanishing of equal opportunities for all.

Given the scale of rising wealth concentrations, opportunity capture and

unequal political representation are a serious and worrying trend. For

instance:

•

Almost half of the world’s wealth is now owned by just one percent of

the population.

•

The wealth of the one percent richest people in the world amounts to

$110 trillion. That’s 65 times the total wealth of the bottom half of the

world’s population.

•

The bottom half of the world’s population owns the same as the

richest 85 people in the world.

Income Inequality in a Single Graph

The Washington Post has a column called Wonkblog, which solicited suggestions for the "Graph of the Year" from a number of policy and academic experts. Here is the contribution from Senator Chuck Schumer.

The single greatest problem facing America today is not the deficit, but rather the decline in middle-class incomes. For the first time in our history, middle-class incomes are on a steady and troubling path downward. That trend has turned American politics upside down as middle-class families struggle to pay the bills, their mortgage, and put enough away for a decent retirement.
The income gap this chart represents is not sustainable. There is nothing wrong with being wealthy, but if we don’t pursue policies that advance economic opportunity for the middle-class, this country will change for the worse. We need to focus like a laser on the light blue line in this chart, and get it heading upwards again.

How Much We Lost in the Crash of '08

According to Census Bureau Historical tables, we are just now recovering income lost in the cataclysmic Crash of 2008.  The destruction of family earnings took us back to 1996 levels, undoing all the gains of the Clinton years, ending in the brutal destruction during Bush's last year in office. 

The numbers below really understate the extent of destruction as they only reflect the effect on personal income and don't really reflect the loss of wealth that took place due to crashing home values and stock prices, pensions frozen or lost, and businesses bankrupted.  I broke down the Table Data into the years of the Administrations, giving the first year of each president to his predecessor, since any new policy or budget is not set until after a year in office.  Consider the data below showing change in Mean Income Received by Each Fifth and Top 5 Percent of Families.

 

Administration	Lowest fifth	Second fifth	Third fifth	Fourth fifth	Highest fifth	Top 5 percent
Clinton	23.56%	17.63%	16.66%	15.99%	20.44%	23.66%
Bush	-6.72%	-3.44%	-1.75%	-1.13%	-1.93%	-4.10%
Obama	-5.09%	-3.71%	-2.60%	-1.95%	-0.14%	1.27%
Bush 2001-2007	-2.15%	0.74%	1.80%	2.36%	-0.23%	-3.55%
Bush 2008-2009	-4.67%	-4.15%	-3.48%	-3.41%	-1.70%	-0.56%
Obama 2012	-0.43%	-0.41%	0.25%	0.31%	0.24%	0.17%

Looking at this, we might yearn for the good old days of the Clinton Administration, even though he was sowing the seeds of the destruction to come by deregulating the banks, which set them on the path of becoming weapons of mass financial destruction.  During the Clinton Administration, every income category gained, with the lowest bracket doing the best of all, except the top 5%.

The Bush Administration was a disaster for all income groups, but was particularly bad for the group nearest poverty, they lost nearly twice as much in family earnings as any other group.  The other groups mostly gained marginally until 2008 - 2009 when the roof caved in on everybody.

The Obama Administration has not improved things much, but things have stabilized in the last year which gives some hope, but the banks are still fighting all attempts at regulation, leaving open the possibility of another crash and bailout.

Greed, Poverty, Unfettered Capitalism, Pope Francis and Sarah Palin

Pope Francis has stunned the world, and shook up Sarah Palin, with his statements on homosexuality, abortion and birth control, but that ain't all.  The Pope has gone from being suspiciously liberal to outright radical with his views on "Unfettered Capitalism". 

I almost never even think about Sarah Palin, but she occasionally provides comic relief.  “He’s had some statements that to me sound kind of liberal, has taken me aback, has kind of surprised me,” Palin told CNN in a recent interview.

OK enough of the comic relief.  I also have probably spent less than an hour or two in my lifetime pondering the words of this, or any other Pope until today when Pope Francis released his "apostolic exhortation," a lengthy and detailed exposition of how the Catholic Church should focus its energies.  Pope Francis might just shake things up a lot.  Here is a summary of his words on greed, income inequality, poverty and unfettered capitalism.

Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.  To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule.  I exhort you to generous solidarity and a return of economics and finance to an ethical approach which favors human beings.  Today in many places we hear a call for greater security. But until exclusion and inequality in society and between peoples is reversed, it will be impossible to eliminate violence. The poor and the poorer peoples are accused of violence, yet without equal opportunities the different forms of aggression and conflict will find a fertile terrain for growth and eventually explode.

The Washington Post did an excellent story assembling graphs to illustrate many points the Pope made, it is well worth reading.

Jimmy Carter: Today's Middle Class Resembles Yesterday's Poor

Jimmy Carter offers his assessment on the state of the middle class in the US.

During an exclusive interview with The Associated Press, he said that years of tax breaks for the wealthy, a minimum wage untethered from the inflation rate and electoral districts drawn to maximize political polarization have reduced the quality of life for all but the richest Americans.  Former President Jimmy Carter said Monday that if he were back in the White House, he would work with Republicans and Democrats to secure more funding for affordable housing and urge more flexibility in resolving differences involving the critical issue.

Income Inequality Continues

This doesn't come as a surprise, but it is worrisome.  The income gap between the richest 1 percent and the rest of America widened to a record last year.  If the money game continues at this pace, the mood of the 99% could turn dour.  None of the press is recognizing this as an unsustainable "bubble", but it looks that way to me - notice comparisons to numbers not seen since the 1929 crash and subsequent depression.  95 percent of the income gains reported since 2009 have gone to the top 1 percent.

The headlines in the Oregonian were reflecting recently published results of an analysis of IRS figures dating to 1913 by economists at the University of California, Berkeley, the Paris School of Economics and Oxford University.

The top 1 percent of U.S. earners collected 19.3 percent of household income in 2012, their largest share in Internal Revenue Service figures going back a century.
U.S. income inequality has been growing for almost three decades. But until last year, the top 1 percent's share of pre-tax income had not yet surpassed the 18.7 percent it reached in 1927, according to an analysis of IRS figures dating to 1913 by economists at the University of California, Berkeley, the Paris School of Economics and Oxford University.
One of them, Emmanuel Saez of the University of California, Berkeley, said the incomes of the richest Americans might have surged last year in part because they cashed in stock holdings to avoid higher capital gains taxes that took effect in January.
Last year, the incomes of the top 1 percent rose 19.6 percent compared with a 1 percent increase for the remaining 99 percent.
The richest Americans were hit hard by the financial crisis. Their incomes fell more than 36 percent in the Great Recession of 2007 to 2009 as stock prices plummeted. Incomes for the bottom 99 percent fell just 11.6 percent, according to the analysis.
But since the recession officially ended in June 2009, the top 1 percent have enjoyed the benefits of rising corporate profits and stock prices: 95 percent of the income gains reported since 2009 have gone to the top 1 percent.
That compares with a 45 percent share for the top 1 percent in the economic expansion of the 1990s and a 65 percent share from the expansion that followed the 2001 recession.
The top 10 percent haven't done badly, either. Last year, they captured 48.2 percent of income, another record. Their biggest previous take was 46.3 percent in 1932.
The top 1 percent of American households had income above $394,000 last year. The top 10 percent had income exceeding $114,000.
The income figures include wages, pension payments, dividends and capital gains from the sale of stocks and other assets. They do not include so-called transfer payments from government programs such as unemployment benefits and Social Security.
-- The Associated Press

Middle Class under attack

Bernie Sanders has referred to the Pew Report on Income Inequality as a factor that must be addressed in the deficit reduction argument.  He observed that the Middle Class in the US is disappearing due to the lack of middle class jobs, thus depriving the bottom 93% of any of the economic progress made since 2008.  All of the progress has gone to the top 7% at the expense of everybody else.  He observed that the Walton family (WalMart founders) own more wealth than the bottom 40% of Americans.  Tax policy that doesn't recognize that poverty is growing amidst a rising economy (and a much richer Walton Family) gives lie to the notion that a rising tide lifts all boats.  Spending reductions at the expense of the 93% will only make the problem worse.

Pier Carlo Padoan, Chief Economist and Deputy Secretary-General of the OECD says,

The situation is grave. According to current consolidation plans, most governments aim to improve the budget primarily via restraining spending. Social security transfers are planned to decline in cyclically-adjusted terms in about half of all OECD countries, while adjusted household income taxes will increase in most of these countries. The net redistributive effect of all measures combined is likely to be negative. This has to be avoided.

In other words, austerity at the expense of the 93% is class warfare and will result in increased poverty and resentment.

To clarify, Bernie Sanders and Pier Carlo Padoan did not mention Class Warfare directly, in fact they studiously tiptoe around the term, it is my conclusion and I believe it is recognized but unspoken on their part.

See my previous comment on the Pew Report.

After the Big Fall, Still Falling for Most

The evidence of stagnation for most of us is all around, unemployment, underemployment, a disappearing middle class and growing income inequality.  The Pew Research Center released a study of net worth changes in the recovery years - 2009-2011 and found depressing results, at least for most of us.

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%.

On an individual household basis, the mean wealth of households in this more affluent group was almost 24 times that of those in the less affluent group in 2011. At the start of the recovery in 2009, that ratio had been less than 18-to-1. 

 The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period. Among households with net worth of $500,000 or more, 65% of their wealth comes from financial holdings, such as stocks, bonds and 401(k) accounts, and 17% comes from their home. Among households with net worth of less than $500,000, just 33% of their wealth comes from financial assets and 50% comes from their home.

The Next Bubble, Income Inequality

One of the most disturbing trends in this country is the rise of extreme wealth and income inequality.  One publisher, BusinessInsider.com, described it as 3 million overlords and 300 million serfs.  The situation is a classic bubble scenario that will potentially erupt in real class warfare, not just verbal clashes.  If you look at charts of corporate profits as a percentage of GDP vrs Wages, they are moving in different directions, and now are at historical extremes.

What could change it?  Maybe a revelation in Corporate thinking that recognizes that their employees are also customers, and the customers, (employees) won't buy goods if they're broke.  Don't hold your breath.  The accumulation of wealth in the 1% at the expense of the rest is a spring tightening, that will ultimately break with unknown consequences.

Income inequality in the US

This video is an incredibly well done factual look at how income and wealth are being monopolized by the wealthiest 1% in the US.  You owe it to yourself to see it.