Inequality in One Chart

David Leonhardt of the New York Times reports on the latest research from Thomas Piketty, Emmanuel Saez and Gabriel Zucman. Our Broken Economy, in One Simple Chart:

Many Americans can’t remember anything other than an economy with skyrocketing inequality, in which living standards for most Americans are stagnating and the rich are pulling away. It feels inevitable.

But it’s not.

A well-known team of inequality researchers — Thomas Piketty, Emmanuel Saez and Gabriel Zucman — has been getting some attention recently for a chart it produced. It shows the change in income between 1980 and 2014 for every point on the distribution, and it neatly summarizes the recent soaring of inequality.

Screen Shot 2017-08-09 at 7.50.09 AM

The line on the chart (which we have recreated as the red line above) resembles a classic hockey-stick graph. It’s mostly flat and close to zero, before spiking upward at the end. That spike shows that the very affluent, and only the very affluent, have received significant raises in recent decades.

This line captures the rise in inequality better than any other chart or simple summary that I’ve seen. So I went to the economists with a request: Could they produce versions of their chart for years before 1980, to capture the income trends following World War II. You are looking at the result here. [Interactive graphic – see the article.]

The message is straightforward. Only a few decades ago, the middle class and the poor weren’t just receiving healthy raises. Their take-home pay was rising even more rapidly, in percentage terms, than the pay of the rich.

The post-inflation, after-tax raises that were typical for the middle class during the pre-1980 period — about 2 percent a year — translate into rapid gains in living standards. At that rate, a household’s income almost doubles every 34 years. (The economists used 34-year windows to stay consistent with their original chart, which covered 1980 through 2014.)

In recent decades, by contrast, only very affluent families — those in roughly the top 1/40th of the income distribution — have received such large raises. Yes, the upper-middle class has done better than the middle class or the poor, but the huge gaps are between the super-rich and everyone else.

The basic problem is that most families used to receive something approaching their fair share of economic growth, and they don’t anymore.

It’s true that the country can’t magically return to the 1950s and 1960s (nor would we want to, all things considered). Economic growth was faster in those decades than we can reasonably expect today. Yet there is nothing natural about the distribution of today’s growth — the fact that our economic bounty flows overwhelmingly to a small share of the population.

Different policies could produce a different outcome. My list would start with a tax code that does less to favor the affluent, a better-functioning education system, more bargaining power for workers and less tolerance for corporate consolidation.

Remarkably, President Trump and the Republican leaders in Congress are trying to go in the other [opposite] direction. They spent months trying to take away health insurance from millions of middle-class and poor families. Their initial tax-reform plans would reduce taxes for the rich much more than for everyone else. And they want to cut spending on schools, even though education is the single best way to improve middle-class living standards over the long term.

Most Americans would look at these charts and conclude that inequality is out of control. The president, on the other hand, seems to think that inequality isn’t big enough.

And so does every other GOP politician.

8 Responses to Inequality in One Chart

  1. For those interested, click to the NYT article and look at the second chart, which is much cooler than the first. It shows, year by year, in rapid time-lapse sequence, how the 1980 income growth line morphed into the 2014 line.

    • John Huppenthal

      Yes indeed, watch the chart closely, over and over again to see what it really says. From 1980 to 2000, the lower end of the curve outperformed the rest of the curve.

      Then, in 2000, all hell broke loose – welfare reform was over. The burden of taxation on the economy sets an all time record. The lower end of the curve lurches decisively lower.

      Food stamp expenditures explode from 18 billion to 80 billion trapping millions in a life of dependency.

      Social Security disability explodes from 81 billion to 227 billion trapping millions more.

      Yes, indeed look at it closely. Also, imagine what a French or European curve would look like superimposed on that graph – performing lower at every level of income. And, realize that the perpetrators of that graph want us to look more like France.

  2. the voters in the four states I mentioned don’t want a liberal elitist history lesson or president obama saying “those good paying jobs are not coming back get over it!” or hillary saying we want to put coal miners out of business! bernie had a message for them ;but debbie wasserman schultz and donna brazil said don’t worry hillary we will fix him, so keep on raking in the fat cat donor money! what is the democratic party going to do for the rust belt in 2018 NOT history lessons that liberal elitists love so much when they are not hot over collusion. you better have a message for arizona’s voters that they want to hear and that ain’t collusion bull sh*t!

  3. michigan, ohio, pennsylvania and wisconsin. the working class in those states realized the democratic party was more interested in the wealthy elitist class and professional class donors $$$ then in the working class after the nomination of bernie sanders was prevented. the elitists are more interested in transgender bathrooms then in stoping working class jobs from being sent out of the country. the elitists said :but trump is a racist, sexist anti muslim bigot! that is important to us. we are more interested in transgender bathroom then what happens to your job and you should be too! end coal jobs now! why don’t you agree? you must be deplorables

    • The decline of the middle-class began in the mid-1970’s with the transformation of the American economy from an industrial economy — corporations chased cheap labor overseas to developing countries — to the so-called information economy. That economy is again being transformed by computerization, automation and the coming wave of artificial intelligence replacing human labor.

      As the chart above indicates, the inequality in wages and wealth accelerated with the ascendancy of Ronald Reagan and faith based supply-side “trickle-down” economics. There is only one political party which has adopted this disproven and discredited economic theory as religious dogma, and that is the GOP. Those so-called “Reagan Democrats” sold themselves out by falling for this false religion, as you have.

      • For Sure Not Tom

        Yep, after WW2 we had the GI Bill and other government programs that made middle and upper middle class possible for millions. College was cheap, or even free (meaning paid for, don’t lecture me).

        The economy grew.

        Then we had The Pill, and women could plan their families, leading to two household incomes as millions of women went to work. They bought washers and dryers and second cars.

        And the economy grew some more.

        Then we made credit cards easy to get, and everyone bought tons of stuff now and paid it off later.

        And the economy grew.

        Then when those bubbles died out, corporations stole everyone’s pensions, gave them shitty 401K’s, and started some serious rent seeking.

        And came up with the con that haunts us today, Trickle Down Voodoo Economics.

        Capitalism has a critical, as in deadly, flaw. It requires perpetual growth.

        Since that is impossible, we get the distortion in equality we see today.

        Eventually, somebody’s going to have to have some cake and eat it, too.

      • John Huppenthal

        No, the decline in the middle class began with the explosive increase in welfare benefits championed by the Clintons and the Bushes. These created a welfare system that trapped people at the bottom.

        Your answer? Increase the power of the trap, trap more people, scream for more poison.

        It began with the enormous regulatory load that destroyed small business firm and job creation with the code of federal regulations now at 170, 000 pages, up from 105,000 in 1980. The jobs that enable people to escape poverty.

        It began with the tax increases put in place by Bush and Clinton which destroyed the pace of job growth.

        But, you have to perform economic analysis, not tell stories for this causation to emerge.

        You’re telling a story.

        Picketty: “all modern industrial economies grow at about the same pace”

        Since when is negative work growth of -3 billion hours (his France) about the same as plus 85 billion hours (US) since 1980 ?

        And, that comparison is worse now. We just clocked 147 million jobs up from 90 million in 1980 and that doesn’t include farming.

        Think things are bad now? Could get much worse if we listen to the policy prescriptions being retailed by Blog for Arizona.

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