Income still redistributed to the top 1 percent

income-growth

A later version of this chart, which I’m unable to reproduce but you can find in the links below, shows the top 1 percent received 121 percent of the income gains in 2009-2011, the first two years of the recovery.  This is mathematically possible because the other 99 percent collectively lost income during the supposed recovery.

IncomeInEquality

The great management consultant Peter Drucker said that if three managers in a row fail in the same job, the problem is probably with the job rather than with the individual managers.  The increase in income inequality has accelerated under Presidents Clinton, Bush and Obama.  What are the common factors that explain this?

I can think of some.  I’m sure there are more.

  • Corporations above the law.  The United States has strict rules on governance of labor unions, but nothing similar for corporations and other institutions.  Jimmy Hoffa, one of the most powerful U.S. labor executives went to prison for colluding with racketeers, and his Teamsters Union was put under government trusteeship.  In contrast, when executives of the HSBC banking corporation were caught money laundering for the drug cartel, they were allowed to resign and HSBC escaped with a nominal fine.
  • The agency problem.  Even when corporate executives operate within the law, there are many legal ways in which they can milk their institutions for their own benefit at the expense of the institution and the public.  One is the leveraged buyout, in which a group of speculators buy a company with borrowed money, then repay the debt out of the company’s cash flow, meanwhile rewarding themselves with big salaries and fees.  They can do well even when the company fails.
  • Financialization.  Instead of serving the real economy by providing credit to businesses and consumers, the largest Wall Street banks have turned the real economy into poker chips for high-stakes gambling—a form of gambling in which, under the “too big to fail” doctrine, they get to keep the winnings and taxpayers absorb the losses.
  • Globalization.   Exchanges of goods and services between people of different nations is a good thing, not a bad thing.  But the current “free trade” treaties, including President Obama’s proposed Trans-Pacific Partnership, create forms of undemocratic global governance which supersede the authority of elected national leaders to set labor, health, safety and environmental standards.
  • Political Failure.  The doors of government are open to corporate executives and Wall Street bankers, but not to labor leaders or representatives of grass-roots organizations.  The result is that government policy makes the former ever-stronger and the latter ever-weaker.
  • Intellectual Failure.  Many politicians and journalists, partly as a result of having been taught economics in a simplistic form in college, see no alternative to the present system.   Even self-identified liberals think that the economic system will collapse if the dominant banks are allowed to fail, or that unemployment will skyrocket if the minimum wage is raised.

Click on Striking It Richer: The Evolution of Top Incomes in the United States PDF for an academic study by economist Emmmuel Saez (updated January 2013)

Click on Growth of Income Inequality Is Worse Under Obama Than Bush for analysis by Matt Stoller for Naked Capitalism from last year.

Click on Yes, Virginia, the Rich Continue to Get Richer for current analysis from Naked Capitalism, which references and links to the updated Emmanuel Saez study, but is more readable.

Click on The Top 1% Captured 121 Percent Of the Income Gains During the Recovery for more facts and figures from the Decisions Based on Evidence web log, which references and links to the updated Saez study, but is more readable.

laborchain

Note:  The Gini coefficient is a measure of income inequality which I accept as valid, but don’t really understand.  A Gini coefficient of 0.0 is absolute equality, with everyone having exactly the same amount.  A Gini coefficient of 1.0 is absolute inequality, with one person owning everything and nobody else getting anything.  But I could not tell you what a Gini coefficient of 0.5 would be.  I would be grateful to anybody who could explain this in layman’s terms.

[Added 2/17/13]

average-incomes

Double click to enlarge

Hat tip to occasional links and commentary.

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One Response to “Income still redistributed to the top 1 percent”

  1. Chico Says:

    Reblogged this on The Deliberate Observer.

    Like

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