More on Inequality
From Ed Luce of the Financial Times:
“Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300.
The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem – meaning it is immune to the business cycle. In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.
Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: “America is the best country in the world to be poor.” That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.
Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning crisis of American capitalism. It is one thing to suffer grinding income stagnation. It is another to realise that you have a diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse. “Who killed the American Dream?” say the banners at leftwing protest marches. “Take America back,” shout the rightwing Tea Party demonstrators.”
The more I think about it, the more I believe that rising inequality – ignored by pretty much every pundit until relatively recently – explains much of what is going on in America.
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I think that’s exactly right, MM – I’ve been meaning to post on this myself.
America’s corporate ruling class now enjoys a kind of privilege akin to that of the French nobility before the revolution. How else do you describe the situation when top executives fail miserably at their jobs and yet continue to have millions of dollars showered upon them by their companies? It can only be that these people are somehow thought be a superior type of human being whose worth transcends what they contribute of value to the organizations they supposedly work for and to the economy in general.
This is certainly not cut-throat capitalism, which may not be such a great thing but which nevertheless has its own sense and logic; this is some kind of wild and strange American money-romanticism that brings back the Gilded Age but without the restraint. It is Mammon run amok.
But if Jesus was right, I guess we shouldn’t worry about it, and be glad we are poor; and realize that to millions of people in world, we American poor and middle class people look like absolute robber barons.
I’m kind of wondering about his calculation on real income figures being up only 10% since 1973 for the bottom 90% of wage earners.
I was recently looking at inflation adjusted family incomes by quintile, and the constant dollar increases in family income from 1973 to 2008 were:
20th Percentile: 6%
[hit the button by accident]
20th Percentile: 6%
40th Percentile: 13%
60th Percentile: 24%
80th Percentile: 36%
95th Percentile: 54%
Looking at this, it’s hard for me to see the bottom 90% averaging out to only 10% growth.
Now, I realize that “real income” analysis involves trying to take into account changes in costs beyond inflation, for instance taking into account higher medical costs or higher housing costs. But at the same time, such analyses become rather slippery.
After all, 2008 medical care simply wasn’t available in 1978. Should the fact that modern medical care is much more expensive be taken as a dead loss, or should we look at it as a more expensive service that we’re paying for?
Housing is more expensive in many cases on a per unit basis, but a 2008 apartment or house tends to be larger and have more amenities than a 1978 one. Should this be considered a loss or a choice to spend more?
Because someone doing real income analysis gets to make all these individual calls on what to adjust for, it becomes easy to bias one’s results one way or another.
It does strike me that inequality is an important and under appreciated issue in our time, but some of these descriptions of the problem seem exaggerated to make a point, and make little effort to explain how we got here (and how we might get out) other than to suggest that “the rich” are clearly getting away with something.
Sure, the very high end tails of the income spectrum do suggest that it’s become possible to become richer in certain circumstances than it was 50 years ago. However, looking at the main section of the spectrum from the 20th percentile to the 95th, the thing that stands out to me is that something is “working” for the top 60% or so of society that is not for the bottom 20-40%. What that it seems like a question it would take somethought to delve into, rather that simply wailing, “Those dang rich!!!”
And yet how often will you hear about this miserable state of affairs at homilies on Sunday? The majority of the clergy in America have so isolated the destructive effects of late capitalism–abortion, sexual ‘autonomy,’ consumerism, etc.–from the radically destabilizing process of capitalism itself that what Marx wrote of religion is true for the majority of their preaching: it constitutes an opiate of the masses, a distraction from the *cause* of our society’s increasing moral decrepitude and an obsessive focus on its “effects”–particularly as these effects are manifested in the private, sexual realm.
Which is not to say, of course, that our clergy should become Marxists; nor that the evils of abortion and (in my opinion) contraception are not evils. It is rather to say that the hierarchy’s obsessive concern with these “private” and sexual evils ignores what attracts people to these vices in the first place: an idolization of automony, choice, and ‘productivity’ in the sphere of practical reason; the same idolization, in any case, that renders the growing unmanagibility of corporate capitalism impervious to critique.
Oh for a Herbert McCabe…
Darwin:
Could you post a link to your source for the quintile data? I don’t see it in the FT article. Since you quoted “family income” rather than wages, there might be a difference between earnings per worker compared with family income. In 1973, a smaller percentage of middle and lower income households had multiple wage earners. Growth of family income since then could well represent more people per family working more hours, for the same effective wage.
Frank M.,
I would imagine his source is the census bureau. ( census.gov I believe) You are correct that household income has shifted upward due to additional dual earners. Were it not for the wage gains of women, there would be no growth at all.
I don’t really have much time for a detailed response to Darwin, but here are the numbers I got:
Real mean household income growth, 1973-2008:
Lowest fifth: 9 percent
Second fifth: 7 percent
Third fifth: 16 percent
Fourth fifth: 29 percent
Top five percent: 44 percent
If you get into the the top 1 percent, the top 0.1 percent, and the top 0.01 percent, they did spectacularly well.
On the whole real mean income rose by 36 percent, but this does not tell us anything about the distribution. Far more relevant is the median real income, which only rose by 17 percent – less than half a percent a year.
As I wrote in this very old post, it gets a lot worse when you look at the breakdown. While real median household income rose by 17 percent, this reflects the entry of women into the labor force, or from part-time to full-time employment. If you look just at the data for men, real earnings are slightly lower than in 1973.If we look at earnings for men between 35-44, you will see something quite staggering: their predecessors in 1973 were 12 percent better off than they are today.
And what about productivity? Up by 80 percent over this time. And if we adjust this number to account for productivity that is available for wages (taking out things like depreciation and rising non-wage costs), we are still left with about 40 percent.
Frank,
The family income data was something I was playing with for a post the other day, it’s from the Census Bureau:
http://www.census.gov/hhes/www/income/data/historical/inequality/f01AR.xls
It’s from their set of historical data tables on income inequality here:
http://www.census.gov/hhes/www/income/data/historical/inequality/index.html
The data is pretty much all by household or family — which makes sense if you’re trying to establish questions of actual lived income inequality. (Obviously, a guy isn’t suffering much from making only 12k/yr if his wife makes 100k/yr, unless it’s his pride that’s hurting.)
One of the frequently stated arguments against using family data is that much of the “inequality” of the last few decades is the result of married families seeing their income rise as they go from single earner to two earner families, while families headed by single parents necessarily remain single income. There’s a certain amount of data to support this (married people have significantly higher incomes than unmarried on average, household size is larger in the higher quintiles than the lower ones, etc.)
I see there as being a lot of point in observing those points, but I do think there’s a certain validity to simply looking at the experienced income per family since that’s what actually defines well being versus poverty.
DarwinCatholic,
I understand what you mean (I think) when you write:
I do think there’s a certain validity to simply looking at the experienced income per family since that’s what actually defines well being versus poverty.
But isn’t the point here that families have only been able to keep up by doubling their wage-earners? And doesn’t this affect the “well being” of families in ways that, while not easily quantifiable, are nonetheless real?
Suppose necessity dictates that my making 50,000 is not enough to support my wife and four children in a middle class lifestyle in a big city; hence my wife must also work, earning 30,000. Now our family income is 80,000 and we are fairly well-off. But it’s not the case that either one of our wages has kept up with the cost of things. I take it you don’t deny this. But doesn’t this example show how looking at “income per family” already skews things?
WJ,
Yes, the whole gospel needs to be preached, and the Church should be demanding more from all of us.
The Church has a strong record, of course, regarding its ethical demands and also on “social justice” issues, but there is a lot more of this on paper–in historical documents and more currecnt pronouncements–than what actually gets put in front of us pew-sitters and put into action by the hierarchy or laity.
I am a Catholic willing to go further in my spirituality and committment to Christ in concrete ways. I do some modest things to try to move ahead, but more support and leadership would be a help. I only mention myself because I am sure there are millions out there just like me.
In part, I’d question whether one can assume that the same wage trends would have prevailed if we hadn’t become a two-working-parent society.
Believe me, I’m conscious of the difficulties of remaining a single income family in a two income world, as I am myself a single income supporting a wife and five kids. But keep in mind: the switch from single to dual incomes has resulted in a massive influx of additional workers into the workforce. And there are a host of other cross effects where the shift to a two income family structure and economy has resulted in new or inflated costs, a supply glut of workers, etc.
One can try to control for all these, but all your attempts to control for them will be subject to error. If your real question is how well people are doing, it seems to me it’s probably easier to just ignore the question and look at family or household income, while keeping that shift in earning patterns in mind.
“this is some kind of wild and strange American money-romanticism that brings back the Gilded Age but without the restraint”
And the “restraint” was the contempt with which Robber Barons were regarded by those who held “the commanding heights” of our culture: the educational establishment, the press, the churches.
Now the marriage of a 32 year old who made a fortune at Goldman Sachs, is now a hedge funder and who bought himself a $4 million apartment several years ago to the daughter of the man who signed NAFTA is admiringly regarded as that of “American royalty”.
I’d question whether one can assume that the same wage trends would have prevailed if we hadn’t become a two-working-parent society.
I think this is an important point. In real terms men’s wages may have gone down; but that’s not surprising given that there was a large influx of equally (and in many cases, more) talented women into the workforce. The more talented women take jobs away from less talented men that might otherwise have occupied those positions. It’s true that the increase in income will stimulate demand – and that will mitigate the effect to some extent – but on the whole it’s hardly surprising that men’s real wages have declined with the influx of women into the workplace.
Though it seems some inequality is more equal than others, courtesy of the Democrats:
http://newsbusters.org/blogs/nb-staff/2010/08/04/open-thread-blue-state-tax-preference-act