As a wise man said, if losing a donut makes you unhappy, don’t bet donuts.   But I’ll double down for a Boston Cream on this one:   Income inequality in the US is increasing.

• Since 1970, incomes for the top 1% have soared.   After-tax, before-tax, what-tax.

• The top 1% captures as much of the total US income as they did back in the Roaring 20’s.

• Between 1979 and 2007, the top 10% has captured 63.1% of all growth in income.   The top 1%?  A measly 38.3%.

See handy dandy charts below.   And see references farther below.

The geek in me notes that many things have changed since the Roaring 20’s.   Marginal tax rates have fallen from rates in the 80%.   Social services are much greater.   And life is, well, just different.   But in any event, it sure seems that the top 10%, and the top 1%, are farther away than ever.

“Average After-Tax Household Income”, from the Congressional Budget Office, June 2010        

 

“Income Inequality in the United States, 1913 – 1998” in the Quarterly Journal of Economics, 118, 2003 by Thomas Piketty and Emmanuel Saez.   Updated 2008.

 

Share of the total household income growth attributable to various income groups, 1979 – 2007

“Sources of Income for All Households, by Household Income Category, 1979 – 2007” from the Congressional Budget Office Average Federal Taxes by Income Group as complied in The State of Working America, 12^th Edition from the Economic Policy Institute

 

General Overview

The State of Working America

Economics Policy Institute

Historical Income Tables: Income Inequality, United States Census Bureau

Relevant Papers

2014: “A Guide to Statistics on Historical Trends in Income Inequality”, Center on Budget and Policy Priorities, by Chad Stone, Danilo Trisi, Arloc Sherman, and William Chen

2013: “Income Inequality: Evidence and Policy Implications” Arrow Lecture, Stanford, by Emmanuel Saez, UC Berkeley

2008:  “Income Inequality in the United States, 1913 – 1998” in the Quarterly Journal of Economics, 118, 2003 by Thomas Piketty and Emmanuel Saez.   Updated 2008.

I hate losing an argument.

In my liberal soul, I was sure that the middle class had lost ground over the past 30 years.   And that the bottom 20% had lost even more.  In more precise terms, I was sure that real incomes from the bottom 20% had fallen during the last 30 years.   I was so sure that I bet my currency of choice, a donut, on the outcome.

Turns out I was wrong.

We agreed to look at after tax and transfer dollars, adjusted for inflation.   We found pretty compelling evidence across multiple sources.  Here, as an example, is a 2012 graph from the CBO.    Yes, it shows that things have gone well for those at the top.   But it also shows that incomes for the bottom 20% have gotten better over time.   Not a lot better.   Not as much of an increase as the top.   But better.

And so I had to watch someone eat my donut.

Finally, our argument surfaced a bunch of other areas to examine.    How has real wealth changed over this same period?   What has happened to real incomes since 2007?  (Incomplete evidence seems to say flat at the bottom levels.)  How do income changes filter through changes in underlying prices?   (Some items, like education and health have become more expensive, while others, like communications and technology have become less expensive.)    All good questions.   But I’m going to research them first, before betting another donut.

 

 

 

General Overview:

Trends in the Distribution of Household Income, 1979 – 2007, Central Budget Office

A Guide to Statistics on Historical Trends in Income Inequality, Center on Budget and Policy Priorities

Relevant Papers:

2012: Comparing Real Wage Rates, by Orley Ashenfelter.  (This is more international in focus.)

2004: Income, Poverty, and Health Insurance Coverage in the United States: 2003, by Carmen DeNavas-Walt,
Bernadette D. Proctor, and Robert J. Mills.

Over the course of my life, I have made different amounts of money.   As a low-level non-profit employee, I was, well, starving.   Two bagels with butter was a once-a-week dinner splurge.   Now?   As a capitalist?   Not so much.

In the eyes of economists, I have been “economically mobile”.

Economic mobility, it turns out, is tricky to measure.   Do you look at income?  Or wealth?    Whatever you look at, how do you associate it with a person, and their partner/kids over time?    When measuring income, do you count governmental transfers?   Or not?   Is self-reported income or wealth data, drawn from a statistically valid population, a better measure than more accurate tax data, which by its very nature excludes non-filers?  I dunno.  Smarter people than I have made a profession of looking at this information.   And they have come one very suprising conclusions.

Income mobility in the US is relatively unchanged over long periods of time.   It is just as easy, or hard, to change your income now as it was back in the day.

 

The American Dream is still alive and well.

 

 

 

General Overview:

Equality of Opportunity Project, Faculty of Arts and Sciences, Harvard University

Economic Mobility Project, The Pew Charitable Trust

 

Relevant Papers:

2014: Is the United States still a land of opportunity? Recent trends in intergenerational mobility.  By Raj Chetty,  Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner

2014: Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States.  By Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez.

2014: A Guide to Statistics on Historical Trends in Income Inequality. By Chad Stone, Danilo Trisi, Arloc Sherman, and William Chen.

2012: Pursuing the American Dream: Economic Mobility Across Generations.  By The Pew Charitable Trust, team members Susan K. Urahn, Erin Currier, Diana Elliott, Lauren Wechsler, Denise Wilson, and Daniel Colbert

2011: Trends in U.S. Family Income Mobility, 1969–2006.  By Katharine Bradbury

2010: Earnings Inequality and Mobility in the United States: Evidence from Social Security Data since 1937.   By Wojciech Kopczuk, Emmanuel Saez, and Jae Song