Inequality: Narrowing the Focus

Posted by Bob Lord

There seems to be an awakening of sorts in the writing on inequality recently. It's really not about the top one percent. The top one percent (and its counterpart, the 99 percent) is a useful frame, but it's imprecise at best, and I would say inaccurate.

Check out this piece by Barry Ritholtz of Bloomberg: There's Rich, Then There's the 0.01%.

Ritholtz depicts, with a simple graph, the vast chasm between the one percent and the 0.01%. 

And he's correct. A professional or small business owner making half a mil a year is not the source of the economic injustice we face and he's within the range of inequality that has a redeeming quality for the economy — the reward of hard work. More importantly, and this part does not get the play it should, the folks at the lower reaches of the top one percent are not creating vast fortunes. They may wind up with a few million in savings by retirement, but year-to-year they're spending most of their earnings on living expenses and the taxes imposed on their labor.

The folks at the very top are in an entirely different class. They're either absurdly overpaid (CEOs) or have income through stock ownership, or both. Their effective tax rates are lower than the rest of the population. And as Thucky has pointed out here in comments (yes, correctly), they don't pay tax at all as their portfolio values increase. Most importantly, their income or, more accurately, their rate of increase in wealth, vastly outstrips their living expenses. The result? A larger and larger share of our wealth pie flows to this tiny slice of the population.

Will we stop referring to the one percent? No, it's a convenient frame to which others can relate. But if it weren't so clumsy, the better reference would be the top .1% or the top .01%.