Visualizing Income Inequality

In light of my post on Monday, a video to help visualize income inequality in America:

H/T Robin Parry at Running Heads

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27 thoughts on “Visualizing Income Inequality”

  1. Absolutely. And in many states, these extremely rich people are paying a far lower tax rate than the rest of us. In my own state, they pay about half the tax rate as the poorest. We could easily fund a first rate education system, infrastructure investments, super-fast BMV service, an amazing head start program, everyone's pensions, etc, etc, etc., simply by having them pay a tax rate close to that paid by the poor. Let alone a tax rate close to what they were paying, total, in the 50's and 60's, under folks like Eisenhower. Conservatives (like me) and liberals can easily agree to this. This has nothing to do with disagreements in principle. It is simply a matter of understanding the facts, and applying our principles to them. That is easier said than done, but it is part of why it is important for conservatives like myself to start standing up and acknowledging the facts. Our principles are our principles. They don't determine the facts.

  2. Just to clarify, this video is about wealth inequality, not income inequality. Wealth is a stock (everything you own), while income is a flow (what you made this year). Wealth includes assets like stocks, etc. -- since these are owned disproportionately by the rich, wealth inequality is actually worse than income inequality. Of course, income inequality is also very bad, but it's not as dramatic as wealth inequality (which, you could argue, is the better metric anyway. Both are useful.)

  3. Absolutely. Part of why I think this distinction matters is that it helps clarify how much of a demand story this is. I dream of a world in which everyone has $1,000,000 in wealth and lives on $40,000 a year. But how will we find enough investments with a solid rate of return to make that possible?

  4. Thank you sir. It's mighty useful having an economist as a reader! I appreciate your help with all this, for me and everyone else reading.

  5. Dan. I think I owe you an apology. I have a tendency to simply ignore blog comments as long as the ones you generally write. But I have to say that I really like what you're saying here. I'm a recovering conservative, which for me means that I tend to the Progressive, Green and quite probably the Anarchist position. But you, as a self-identified conservative, are saying things that I not only don't find repellent but that I actually agree with. Imagine my surprise and chagrin. Cheers! :-)

  6. Income inequality is discussed in the video (24% vs 40% for the top). However both are growing and they are related. That's especially true as defined benefits pensions have been gutted and almost eliminated in our country and replaced with defined contribution plans that rely on assets (stocks and bonds) for appreciation. So the fact that wealth is concentrated also reflects the paucity of any retirement beyond the one defined benefit basic plan left (social security). All of those factors are interrelated. Moreover, both income inequality and wealth inequality have grown substantially over the past several decades.

    Have we conducted our recent grand experiment long enough now to conclude it has failed miserably? Or do we have to continue to suffer? Hmmm. Unless, of course, the goal all along was really to reconstruct the Gilded Age.

    Sigh. I just get frustrated sometimes.

  7. Glad to be of a small bit of help, Richard. Love the blog. I thought a bit more about this, and one thing worth saying is that wealth inequality captures something important that's not captured by income inequality: ability to survive negative shocks (losing a job, bad health, etc.). Some would say that being poor in America isn't so bad, and that may be true in some respects, but that's really thinking about income -- having enough month-to-month to pay the bills and afford a few nice things. But if you have a low income and no assets to fall back on, then the loss of a job or getting sick can be catastrophic. This, I think, is one of the main ills of inequality in a wealthy country like America. No, people generally aren't starving; but when things go bad, a large portion of our country is unable to cope. So, I'm glad this video focuses on wealth instead of income, and I think clarifying the issues makes for a more informed discussion in terms of policy.

  8. Solutions anyone? The problem is clear, but won't change without some creative thinking and work.

  9. Incidentally, a lot of historians feel that the New Deal saved capitalism from destroying itself. My sense is that we may be reaching another such crisis moment.

  10. The video is problematic at many levels. As noted, it confuses income, wealth, and assets. Income is how much earn in a year. Assets are things of value that you own. Wealth = Assets - Debts.

    Compare two people:

    1. Makes $250k a year, has $1 mil in assets and is $1.5m in debt.

    2. Retired and lives on $40k a year from investments and social security, has $ 900,000 in assets, and no debt.

    Three observations:

    1 has more than five times the income of 2.
    2 has nearly the same in assets as 1.
    1 has negative wealth of $.5 mil while 2 is far wealthier at $900k.

    About four minutes in he shows a chart of wealth distribution (which I suspect is actually asset distribution) and observes the people at the bottom are living on pocket change. Incorrect. Wealth or assets do not tell you about income.

    The intended message here is that by the wealthy getting wealthier the people at the bottom are getting less, as though it were a zero sum game. That is faulty reasoning. All strata have been improving with income (after taxes and benefits) but the very top has been doing FAR better.

    Consider this. Divide households into three income groups:

    High - +$75,000
    Middle - $25,000-$75000
    Low - -$25,000

    Between 1967 and 2009, the percentage of households living in these groups (using inflation adjusted real dollars) is as follows:

    High: 16.3 to 39.1
    Middle: 61.8 to 43.2
    Low: 22.0 to 17.8

    Note that the percentage of low-income households declined! So did the percentage of middle-income households. The percentage of high-income households went up! The middle class people did not sink into poverty. They rose to high income.

    My point isn't that we shouldn't be unconcerned about issues like inequality. But we need use warm hearts and cool heads with careful analysis. This video is very well done propaganda, not responsible analysis.

  11. I'm not economist, but in contrast to the statistics you cite here I read stuff like this in The Economist:

    "In 2010, the typical American household earned an inflation-adjusted income of $49,445, scarcely different from that in 1989 and a fall of 2.3% since 2009. Current incomes are at roughly the level of the late 1970s for those near the bottom of the income spectrum. Of course, many of today's consumer products are of higher quality today than they were in the 1970s, and the typical household has access now to things like iPods and flatscreen televisions that didn't exist then. On the other hand, the cost of everything from housing to education has risen steadily in recent decades. From a real income perspective, the American economy has already experienced a lost decade, but for the median household the picture is one of a generation of stagnation."

  12. There is also a fundamental problem with the way a relatively small group of interests have become efficient/effective at controlling political/bureucratic processes to their benefit. I don't think the problem is that a few, evil people are running the world. I think the problem is that Western consumerism, and our addiction to growth, has created a set of massive corporate beasts that are completely out of our control (Walter Wink, anyone?). Finding some way to achieve authentic corporate accountability without throwing away constitutional government, which - for all its flaws - seems to possess a reliable capacity to protect civil liberties, may be the greatest challenge that is faced by the next 2-3 generations in the West.

  13. Another analysis showing the inflation adjusted income growth for the quintiles. Note the growth of the Top 5% and the Top 20%--the two top lines--relative to the others:

  14. I agree. To be clear, I'd like to save things like constitutional government. My bleak outlook is just a historical extrapolation. Democracy and capitalism didn't survive in every country. It got pushed to the brink in this country during the Great Depression. We may very well revist that tipping point if current trends continue.

    Basically, we either self-correct or something pretty traumatic--akin social upheaval during the Great Depression and the urban riots during the Civil Rights movement--is going to happen.

  15. We are getting too nested here in the comments, but I want to add... yes. I agree that it WILL happen. My hope (I think yours too) is that it can be relatively peaceful, and that we can find some way to preserve the things that "work" in democratic states for future generations. And for that reason, I am deeply interested in dialog about how Christian communities - particularly in America - can respond to the crisis and frame the issue.

  16. I also hope it will be peaceful. And I do have near-term hope. Before any sort of widespread civil unrest there will be elections which will give democracy a chance to chasten capitalism, as it has done in our past. My hope is that we'll meet those democratic challenges.

  17. I haven't checked the source for these graphs but there is an important
    distinction. The is income is almost certainly pre-taxes and
    pre-tranfers (like welfare and other social programs.) Please note that
    my comments were about income after taxes and transfers. The bottom 50%
    pay about 3% of taxes. Taxes decrease the income for the top and
    transfers increase income for the bottom. Income is increasing for all groups. (Side note: I can't count the number of times I have seen charts comparing U.S. pre-tax and pre-transfer income to after-tax and after transfer income data for other nations, while making the case that our system is radically more unequal. Apples to apples to please.)

    Also, your second chart doesn't contradict what I said. The middle quintiles show income rising for those households while the bottom quintile has barely moved. Again, people at the bottom are not getting poorer. The middle has been rising. The upper middle has been moving up significantly. The very top, particularly the top 1%, has been exploding. And again, the rise of the top few percent is not a matter of "taking from" the people at the bottom. I'm not justifying the rise in the top few percent but merely saying we need to be clear about cause and affect when we start reflecting on policy.

    I suspect that we are living through something as disruptive as the industrial revolution. An information/digital revolution. Initially the owners of capital benefit disproportionately from the explosion in productivity. Goods become more affordable to the masses but wages slow, stagnate, even decline, for many. But as the new technology becomes fully engrained, new jobs emerge for which there is a dearth of skilled workers. The balance begins to tilt back toward labor as capitalists bid up the labor costs drawing more people into the new jobs. It is more complicated than this but you get the general idea.

    The reality is that most other growing advanced economies are experiencing similar increases in inequality. That says to me that something more systemic is happening than our particularly American policies and circumstances. Addressing that reality likely requires some consideration that doesn't jive well with either progressive or conservative hobby horses. ;-)

  18. Two different takes on what is going on:

  19. And to add some other historical perspective, comparing the unemployment numbers from America's great recessions. The red line is the 2007 recession with the most recent July 2013 employment numbers:

  20. A couple of thoughts. And again, I'm no economist. We are talking about household incomes. Thus we need to take into account that women started joining the workforce in larger numbers during the '70s. So while household income has gown a bit the incomes for any given worker in the home has been declining. For example, male incomes since the 60s have been declining. Also, as noted in The Economist article, while household incomes may have gone up a bit they have not kept pace with health care and college tuition costs, two things vital to a vibrant middle class. As it stands right now, the middle class can no longer afford college. Not without taking on massive debt. College is returning to being only for the rich, which will only exacerbate inequality going forward.

    Two fixes: 1) forgive outstanding student loan debt, 2) provide universal health care. I think these will go far in stabilizing the middle class.

  21. I'm not sure about universalizing canceling student debt but at minimum it should be included as part of bankruptcy procedures. It currently is not. Significant health care reform is a must. I'm not persuaded ACA is the ideal answer.

    I think your observations about marriage are spot on. The thinning of the middle is likely a consequence of the rise in two income households moving up with single income households stagnate. It is also true that poverty for all types of households (two parents, single parent, single person, group) have declined, but overall poverty has not really budged. How? Because the percentage of two parent households has shrunk while the percentage of single parent households had exploded. Poverty rates for two parent homes have dropped slightly to about 4% (working from memory) and poverty rates for single parent homes is nearly 30%, down a few points from four decades ago. Move more households from two parent to one parent and (all else being equal) you get a poverty increase. One consideration be to encourage alternative modes that have more communal living where some cost of living could be shared. Seems churches could have a role here.

  22. That's a good point about marriage. Marriage is a huge player here. The problems are very multifaceted.

    Which is why I hate the way conservatives and liberals tend to divide up on the issues. Everyone is making good points, but they need to made together, holistically.

  23. Also, as you might guess, I'm definitely more in the Erik Brynjolffson camp. Not only is innovation not over, I suspect information technology, energy technology, and biotech revolutions will dwarf the industrial revolution.

    If the ancients had no appreciation for linear time, we have lost our appreciation for cyclical time. The is an oscillating, ebb and flow to our evolution. Excess in a direction generates a response that leads to excess in another direction, leading to a response, and so on. We are progressing through time, but in a spiral. Dynamic polarities propel us. History doesn't repeat itself, but it rhymes. ;-) My long view is very hopeful. 2 billion more people will become part of the global middle class in the next few years. Possibilities (and challenges) are ballooning. That doesn't mean at any given moment things aren't messy and troubling, but I am not in despair. This is an incredibly exciting time to be alive.

  24. Two takes on what is going on at this point in history:

  25. Did you see TEDs "Eric X. Li: A tale of two political systems" He rejects the idea of triumphalist communism or triumphalist democracy and markets, with their claims of inevitably, and believes that a variety of structures will exist side-by-side in the future. Some will work in some cultures and not in others. He uses the Chinese example to make his case. Fascinating talk!

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