A view of growing inequality in the USA

I’m not opposed to great rewards to people who create things of great value, whether by inventing something, managing something or in some other way.  But I don’t think this is the reason for the growing in inquality in the USA.  I think it is because the laws, the rules and the overall level of morality have changed so that it is easier and more acceptable to milk the system.

Prosperity for whom?

This chart shows that during the Obama administration, the United States has had an economic expansion in which the vast majority of the population lost income.   This is the first time this has happened in more than 50 years.

There were sharp drops in average income growth during the Reagan (1982-1990) and Bush (2001-2007) years, but this is worse.

An economic expansion is a period of continuous growth in gross domestic product for at least two fiscal quarters in a row.  Americans are producing more.  But most aren’t getting the benefit of it.

I don’t think this is so much because of anything specific that the President and Congress have done as what they have not done.

I think the economic system is now structured to redistribute income upward unless something changes, and most of the present political establishment, both Democrat and Republican, is unwilling to change.

It is true that the top income earners lose a greater fraction of their incomes in recessions that the majority do.  But taking the ups and downs together, the economic elite are taking an ever-larger share.

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Source: “The Most Remarkable Chart I’ve Seen in Some Time”: The Rich Gain More Ground in Every U.S. Expansion by Yves Smith for Naked Capitalism.

If you’re trying to reconcile the two charts, keep in mind that the top chart distinguishes between 10 and 90 percent of the population, and the bottom chart distinguishes between 1 and 99 percent of the population

Reflections on Piketty’s inequality argument

The novels of Jane Austen, Honore de Balzac or Henry James, in which civilized life was confined to a small percentage of the population and the only way most people could acquire significant wealth was to inherit it or marry it.

According to Thomas Piketty’s Capital in the Twenty-First Century, there is nothing to stop that kind of world from coming back.

Piketty’s basic argument goes as follows:
•    If the rate of return on investment is a higher percentage than the rate of economic growth, which he expresses as r > g,  the owners of investment property will get an ever-larger share of national income.
•    R > g is the normal state of affairs.
•    Ownership of wealth is distributed even more unequally than income.   The higher the share of income that comes from wealth, the more unequal it will be.
•    The larger the amount of wealth you own, the faster it is likely to compound.   So not only do the rich become richer at a faster rate than ordinary people, the super-rich become richer at a faster rate than the ordinary rich.
•    At some point the process levels off, but the leveling-off point may not come until inequality reaches a point that we associate with 18th century Europe or the Third World

The economic prosperity and relative equality during 1945-1975 were made possible by the destruction of capital during the Great Depression and the two World Wars, according to Piketty.   Of course war and depression left everybody worse off, not just rich people, but when economic growth resumed, a lesser share went to the economic elite.

Piketty’s conclusions are backed up by archival research that traces income and wealth distribution in France, Britain and the USA for two centuries and many other countries for shorter periods of time.  That research shows that r > g is the typical state of affairs in most countries and most periods of history for which information is available.

One striking finding is that there is just as much inequality among the elite as there is among the public at large.  In the USA, the top 10 percent have about half the wealth, the top 1 percent have about half the wealth of the top 10 percent, and the top 0.1 percent have about half the wealth of the top 1 percent.

Another finding, based on comparisons of American university endowment funds, is that the larger the amount of wealth you have to invest, the higher your rate of return is likely to be.   This is probably because the richer you are, the better financial managers you can hire, the better able you are to diversify your investments and the better cushion you have when you make high-risk, high-return investments.

Piketty proposes to deal with inequality by means of a graduated tax on wealth to go along with graduated taxes on inheritance and income.  But there are other ways.

You could figure out ways to increase the rate of economic growth, for example.  Or you could figure out ways to achieve a wider distribution of wealth, such as through employee stock-ownership plans or worker-owned enterprises.   Or you could strengthen labor unions, increase minimum wage or take other measures to increase the incomes of the middle class, working people and the poor.

It’s important to keep in mind that Piketty only deals with one specific issue, the concentration of income and wealth in a small elite—an important issue, but not the only one.   Piketty does not tell us how to raise people out of dire poverty, nor how to achieve better productivity, or economic growth, or better education, or a cleaner environment, or any other goal.

And taking money away from the economic elite will not in and of itself make anyone any better off.   A lot of financial wealth was destroyed during the Great Depression and and a lot of tangible wealth was destroyed during World War Two, but this did help anybody at the bottom of the economic scale.  Piketty thinks that destruction of wealth cleared the way for the prosperity of the 1950s and 1960s, but I don’t think anybody who lived through the 1930s and 1940s would have said it was worth it.

American middle class: still treading water

Double click to enlarge.

Hat tip to occasional links and commentary.

Income inequality and reckless lending

Correlation does not prove causation, but David A. Moss of Harvard Business School sees a connection between reckless lending and income inequality.

The logic is this:  The top 10 percent of income earners are unable to spend all of their increasing share of U.S. wealth.  They have to invest it, and, in the era of financial deregulation, they can get a high return by investing in banks that engage in reckless lending and financial speculation.  The mass of the public gets to maintain its spending power, by means of easy credit, and the economic elite gets to increase its share of the national income.

This works out for everyone, until the bubble bursts.  Then it becomes a question of who gets bailed out and who isn’t.  It’s a neat theory, and, for me, a plausible one.

Click on Inequality and its Perils for a discussion of this issue by Jonathan Rauch for the National Journal.

Click on Class Is Seen Dividing Harvard Business School for a report on the privileged and underprivileged at Harvard Business School itself.

The facts about U.S. wealth and poverty

This video strikingly illustrates the concentration of wealth in the United States and the gap between the rich and the masses, which is greater than most Americans realize.  I came across it on the occasional links and commentary web log.

If you see nothing wrong with the degree of inequality described in this video, I would ask if there is any degree of inequality that would bother you.

Income still redistributed to the top 1 percent

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.

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.

The top 1 percent had a very good year

The top 1 percent of American income earners came bouncing back from the recession in great shape.  About 93 percent of the nation’s 2010 income gains flowed to them.

There are two ways of interpreting this.  One is that the 1 percent are Ayn Rand heroes who all by themselves generated 93 percent of the nation’s gains in wealth over 2009.  My interpretation is that the system is flawed.

Notice that most of the gains of the upper 1 percent were in the form of capital gains, which is taxed at a 15 percent rate, in contrast to taxes on earned income, which is taxed at rates starting at 10 percent and rising in increments to 35 percent.  What this means is that although the income of the middle class is taxed at a higher rate than the income of the poor, and the income of the affluent at a higher rate than the middle class, the income of the ultra-rich is taxed at a lower rate than the income of the middle class.

Click on The 1% Had a Fantastic 2010 for Mike Konczal’s comment on the Rortybomb web log (and a hat tip to Konczal for the chart).

Click on The One Percent Bounce Back for Timothy Noah’s comment in The New Republic.

Click on The World’s Top Incomes Data Base created by Facundo Alvarado, Tony Atkinson, Thomas Piketty and Emmanuel Saez for the Paris School of Economics Center for Equitable Growth.

Our top 1 percent and theirs

Hat tip to Hullaballoo.

Do the 1 percent carry the rest of us?

There are two ways to interpret this chart.  One is that 1 percent of the American population are John Galts who single-handedly have generated all the economic growth in the past 30-some years.  I’m sure that many people in this group think just that.  The other interpretation is that the system is rigged to redistribute the income of the 99 percent upward to the 1 percent.  That seems to me to be more plausible.

A wise economist told me once that economics is the study of how people respond to incentives.  There ought to be incentives to all the producers–and I don’t think this group is limited to 1 percent of the population.

Hat tip to Hullabaloo.

What about the top 1/100th of 1 percent?

The top 10 percent of the American population gets nearly half of the nation’s income.   That’s very unequal.  What the chart above shows is that income is just as unequal within the top 10 percent, the top 1 percent and even the top 1/10th of 1 percent.  Each rectangle represents a segment of the U.S. population, and each human figure represents 1/10,000th of the population (1/100th of 1 percent).  It shows that

• The top 10 percent of income earners, whose incomes all exceed $109,062 a year, get 48.2 percent of U.S. income.
• The top 1 percent of income earners, whose incomes all exceed $368,238 a year, get 20.9 percent of U.S. income (which is about two-fifths of the income of the top 10 percent).
• The top 1/10th of 1 percent of income earners, whose incomes all exceed $1.69 million a year, get 10.3 percent of U.S. income (which is roughly half of the income of the top 1 percent).
• The top 1/100th of 1 percent of income earners, whose incomes all exceed $9.14 million a year, get 5 percent of U.S. income (which is roughly half of the income of the top 1/10th of 1 percent.)

Most people aren’t aware of this.  Below is a bar chart on the distribution of wealth in the United States, which is even more unequal that distribution of income.  The top bar is the actual distribution of wealth in the United States, the middle bar is what the average American thinks it is, and the bottom bar is what the average American would like it to be.

The bar chart is based on a poll by Michael A. Norton, a psychologist at Harvard Business School, and Dan Ariely, a behavioral economist at Duke University.   Americans’ ideal distribution approximates the actual distribution of wealth in Sweden, where the top 20 percent own 35 percent of the nation’s wealth.

Norton and Ariely showed people three unlabeled pie charts, one showing completely equal distribution of income among the five income groups, one showing the Swedish distribution and one showing the U.S. distribution.  Forty-seven percent preferred the Swedish distribution, 43 percent preferred absolute equality and only 10 percent thought the actual U.S. distribution was best.  There was no difference between Democrats and Republicans on this.

The trouble with the 1 percent

Chicago Board of Trade: "We Are the 1%"

The wealthiest 1 percent of Americans have:

• 24 percent of the nation’s income (up from just 9 percent in 1976)
• 40 percent of the nation’s wealth (versus 7 percent for the bottom four-fifths of Americans)
• 50 percent of the nation’s stocks, bonds and mutual fund holdings (versus 1/2 of 1 percent for the bottom half of Americans.

I wouldn’t care, and I think few Americans would care, how much the top 1 percent got if the great mass of Americans were prospering.  If I have what I need, I don’t care that somebody else has a lot more.

But this isn’t the case.  Millions of Americans are without jobs, without health insurance, without the ability to pay crushing debts, and millions more are just a paycheck or two away from falling into that abyss.  Long-term unemployment is the highest since the government started measuring it.  Poverty is at the highest levels in decades.   Most Americans get little if any benefit from the recovery.   Income is being redistributed upward.

An obituary for the age of mass affluence

Advertising Age reported that the only American income group that increased its spending last year were those earning more than $100,000 a year.  Everybody else is economizing and cutting back.  Consumer demand, according to Advertising Age, is being driven by “a small plutocracy of wealthy elites.”

A recent research report by a firm called Digitas, self-described as “the leading global integrated brand agency,” writes off two-thirds of the people even within the $100,000-plus category.  Unless you are taking in $200,000 or more by age 35, you’re not worth bothering about, Digitas says.  And if you aren’t taking in $100,000 or more a year in your 20s, you have little chance of reaching the $200,000 level.

Digitas recommends that business should concentrate on selling only to the Affluent, Wealthy and Rich, and to the Emerging Affluent, since they have a chance of becoming Affluent, Wealthy or Rich.  The rest don’t count.

During most of the 20th century, it was a proud boast of the United States that the vast majority of the population had access to the same kinds of goods and services as the very rich.  They all could afford similar, though not identical, goods and services – automobiles, refrigerators, TVs, annual vacations at the seashore or in the mountains.  You could not tell the difference between a wealthy person and a middle-class or working-class person by looking at them.

This is still true to an extent.  But unless something changes, we’re moving toward an economy more like that of France in the age of Louis the Fourteenth, in which the vast majority of the population labored at low wages to serve the desires of a wealthy minority.

From Broadland to Richistan

I’ve written other posts about Winner-Take-All Politics: How Washington Made the Rich Richer And Turned Its Back on the Middle Class by Jacob S. Hacker and Paul Pierson.  But their book is so significant that I believe it is worth revisiting.

The big story of the past 30 to 35 years, according to the two political scientists, is not just how income has been redistributed upward to the top 10 percent of income earners.  It is even more the story of the top 1 percent, the top 1/10th of 1 percent and the top 1/100th of 1 percent.

During the 30 or so years following World War Two, they say, the United States was what they call Broadland.  There was income inquality, but income rose for all groups, rich and poor, at roughly the same rate.  During the past 30 or so years, they say, the U.S. has been Richistan.  The top income groups have progressed, but the majority have stood still or, by some measures, fallen back.

Why?  They claim it is a result of government policy – not just reductions in tax rates for the top income earners, but policies which allowed corporate executives and financiers – managers of other people’s money – to milk the system for their own benefit, while holding down the wages and salaries of the middle class.

They say this has happened under Democratic and Republican administrations, and is going on today under the Obama administration.  The reason is that the leaders of the upper class have been able to organize in their own interests more effectively than the leaders of the working class and middle class. Corporate and Wall Street interests have become increasingly assertive and sophisticated in asserting their interests, moving the Republican Party to the right while neutralizing the Democrats.

Winner-Take-All Politics has brief sketches of the hard-charging Senator Gramm, the Texas Democrat-turned Republican, who pushed aggressively and successfully for deregulation of the financial markets, and of Senator Chuck Schumer, the New York Democrat, who raises millions of dollars for his party from Wall Street, and has quietly derailed reforms, such as ending special tax breaks for hedge fund managers.

Labor unions, the only organized force that represents the economic interests of working people as a whole, have declined in power, partly as the result of laws such as the Taft-Hartley Act, the Landrum-Griffin Bill and state right-to-work laws.

Other organizations broadly representative of the middle class such as the American Legion (which was responsible for the G.I. Bill of Rights) and fraternal and civic organizations such as the Elks, Masons and Eagles.

When the top 10 percent gets 50 percent

The last time that the top 10 percent of the population got half the national income was right before the onset of the Great Depression.  It is interesting, too, that, during the previous century, the period the top 10 percent had the least share of the national income was the period of greatest prosperity.

Yes, I know, correlation is not causation.  No, I can’t prove cause-and-effect.  What the chart shows is, at minimum, that redistributing income upwards does not guarantee national prosperty.

How Washington made the rich richer

The dominant economic trend in the United States of the past 30 or so years has been the upward redistribution of income to the wealthiest 1 percent and 1/10th of 1 percent of Americans.  In their new book, Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned Its Back on the Middle Class, political scientists Jacob S. Hacker and Paul Pierson say this is the result not of impersonal economic trends, but of the balance of political power in the United States.

This is a sharp break from the 30 years following World War Two, when the incomes of all social classes increased more or less in tandem.  The rich got richer, the middle class got richer and the working class got richer.  Since then the bottom 90 percent of the American public have made hardly any economic gains, and those came mainly from working longer hours and having more family members in the work force.

It is not a question, Hacker and Pierson say, of the haves versus the have-nots.  Rather it is both these groups versus the have-it-alls.  About 36 percent of the gains Americans’ incomes from 1979 to 2007 went to the top 1 percent of the population, of which 20 percent went to the top 1/10th of 1 percent.

While there was growth in inequality in other industrialized nations during that period, it was much more extreme in the United States.  Why?  Hacker and Pierson say the explanation lies not in economic trends, but in public policy.

Since the mid-1970s, marginal tax rates on the wealthiest taxpayers have been dramatically lowered, while property taxes, payroll taxes and sales taxes have gone up and government services to the poor have been reduced.  More importantly, they say, changes in corporate governance and financial regulation give corporate executives and financiers more opportunity to milk the system for their own benefit, while making it more difficult for workers to organize labor unions.

President Obama and his Republican opponents are not the deciders. Hacker and Pierson say.  Rather the Democratic and Republican politicians are like horses in horse races.  A horse may win or lose, but it is not the one who determines the nature, rules and stakes of the race.

The United States Chamber of Commerce, the National Association of Manufacturers, the National Federation of Independent Business and other interest groups are the real deciders. They are the ones who shape the legislative and regulatory processes.  They set the limits of what can and can’t be done.The Republicans historically were the party of business, and the Democrats a coalition of all the groups who sought to limit the power of business.  This rough balance was upset in the 1970s when business interests neutralized the Democrats.

President Nixon appealed to white working people based on resentment of college-educated radicals, but he never risked attacking Social Security, Medicare or labor rights.  The turning point came during the Carter administration, when a Democratic Congress reduced capital gains taxes by 60 percent and rejected major pro-labor and pro-consumer proposals.  President Reagan’s deregulation of many industries was a continuation of initiatives begun under President Carter.

That is largely because business in the 1970s started to organize politically with great determination and effectiveness.  But it also is partly because liberals started to care more about  “post-materialist” issues, such as civil liberties, environmentalism, feminism and later gay rights than they did about bread-and-butter issues such as jobs and wages.  I have known self-identified liberals who are anti-labor because they think of white blue-collar workers as conservatives.  The AFL-CIO is the only organization that represents the broad economic interests of American workers, but, within the Democratic Party, it has become just one of a number of claimants, and not necessarily the most influential one.

Government’s tilt toward wealth and business accelerated during the Clinton and Bush administrations and has not changed during the Obama administration.  The trend during both Democratic and Republican administrations has been to protect corporations from liability for their actions, to gave financial institutions free rein to speculate with other people’s money and to allow corporate and financial executives free rein to extract income from their organizations and protect themselves from loss.

An example of how this works is the invitation in 1998 by Brooksley Born, the chair of the Commodity Futures Trading Commission, for comments on whether certain swaps and derivatives (securities not backed by assets) should be regulated.  She was reprimanded by Treasury Secretary Robert Rubin, his deputy Lawrence Summers and Federal Reserve Board chair Alan Greenspan for even raising the subject.  Rubin moved to curb the CFTC’s authority, and, in 2000, Congress enacted a bill by Rep. Phil Gramm to exempt derivatives from regulation.

Speculation in derivatives were a big factor in the Wall Street bubble of the past 10 years, which enriched certain speculators at the expense of many ordinary Americans.  If I was aware of any of this when it was going on, I have forgotten it now; I certainly didn’t realize its importance at the time.

Wealth continues to exert its political power.  Hedge fund managers continue to receive special tax breaks and the bonuses of bailed-out Wall Street banks are untouchable, while letter carriers, VA hospital nurses and park rangers have had their pay frozen.  Right now, it seems more likely that Social Security benefits will be cut than that taxes on $250,000-plus incomes will revert to their 1990s level.  And the incoming class of Republicans is even more hard-line than the George W. Bush administration.

It is true that the fact that a measure benefits the top 1 percent or top 1/10th of 1 percent of the population doesn’t necessarily mean that it is bad for me or other middle-class Americans.  I wouldn’t favor continuation of the Nixon administration’s wage and price controls or a top income tax bracket of 70 percent.  And sometimes laws are passed or actions taken which benefit the middle class.  But the cumulative effect of the changes of the past 30 or so years has been to redistribute income upwards.

The title of the book is somewhat misleading.  It is a reference to a 1995 book, The Winner-Take-All Society, which argued that society’s rewards are being increasingly concentrated among a few superstars.  Publishers give higher royalties to best-selling authors and less to the rest; broadcasters hire million-dollar anchor-people while reducing the size of their news staffs; and so on.  I think this is a bad thing, but at least the winners are chosen through a free and fair competition.

In the case of the superrich, about 40 percent come from the ranks of top corporate executives, and nearly 20 percent more from high finance.  I would agree that some executives and financiers have earned their enormous wealth, but I don’t find it plausible that as a class, they are contributing so much more today than their counterparts in earlier eras.  I attribute their wealth as a class to what economists call “rent-seeking” – leveraging their positions in organizations for their own benefit. Any challenge to their power to do this, such as setting limits on bonuses in bailed-out Wall Street firms, meets with strong resistance.

Hacker and Pierson say that if reformers wish to change the situation, they will have to organize as they did in the Progressive and New Deal eras in the first half of the 20th century.  This could take decades.

Reformers will have to work not only on the substance of legislation and regulation, but on changing the way the system is stacked against them.  The new 60-vote majority requirement in the Senate is one example; Medicare was passed with 55 votes.  The Supreme Court’s Citizens United Decision is another.   Jan Crawford Greenburg in her 2007 book, Supreme Conflict, wrote about how it took more than 40 years of sustained effort to pack the court with a reliable conservative majority (she is a conservative who thinks this is a good thing).  Who knows how long it will take to change things back?

[2/16/11]  Click on Reclaiming Middle-Class America for an article by Jacob S. Hacker on The American Prospect web log.

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Here are some links to some of my earlier posts on related subjects.

The ultra-rich, the rich and the rest of us

Money power and people power

Tough times: wage theft and other crimes

The financialization of America

Graef Crystal and the question of CEO pay

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Here are links to reviews and comments on Hacker’s and Pierson’s book

Kevin Drum in Mother Jones

James Kwak on the Baseline Scenario

Ed Kilgore in The Washington Monthly

Henry Farrell on Obsidian Wings

Robert C. Lieberman in Foreign Affairs [Added 12/30/10]

Ezra Klein for Democracy Journal [Added 4/11/11]

The ultra-rich, the rich and the rest of us

What ought to be the biggest issue in American politics is how to stop redistribution of income – redistribution upward, which has been going on for more than 30 years.

The average working man earns less today (adjusted for inflation) than a working man of 30 years ago. But from 1979 to 2007, the share of national income going to the rich – the highest 1 percent of income earners – has more than doubled, and the share going to the ultra-rich – the highest 1/10 of 1 percent – has quadrupled.  An estimated 80 percent of gains in income by Americans from 1980 to 2005 went into the pockets of the rich.  The rich are doing more than moving ahead faster than the rest of us.  They are moving ahead at our expense.

This process goes on through Democratic and Republican administrations, and it is still going on.  There is no limit on how concentrated wealth will become if things go on as they are.

Economists have done many studies of this.  Their figures are all slightly different because they draw data from different sources and use different starting and ending points, but the broad story is the same.  The most recent is a series of articles that Timothy Noah wrote in Slate magazine.

He polled economists as to the reasons.  They told him computerization has no measurable effect on inequality.  Neither do racial inequality or the gender gap.  There is a gap between what black Americans get and white Americans get, but it isn’t growing and therefore is not a factor in the growth of inequality.  There also is a gap between what American women get and American men get, but it is narrowing.

Globalization of trade, immigration and tax policy are minor factors.

The main reasons for growing inequality, he concluded, are Wall Street and corporate boards catering to the ultra-rich, various failures in our educational system, and the decline of organized labor.

I would blame the lack of a full employment economy, which we now call a “tight labor market.”

All of these things, as Noah notes, are affected by government policy.  Immigration is regulated, at least in theory, by the federal government. Tax policy is determined by the federal government. The decline of labor is in large part the doing of the federal government.  Federal law tightly regulates activities of labor unions, while corporate executives are given free rein.  Trade levels are regulated by the federal government. Government rules concerning finance and executive compensation help determine the quantity of cash that the ultra-rich take home. Education is affected by government at the local, state, and (increasingly) federal levels.  And the federal government and the Federal Reserve System have decided reducing unemployment is less important than controlling inflation.

Why, then, is this not a political issue?  Why are we instead debating whether a Muslim community center should be opened in lower Manhattan, or what a Republican senatorial candidate once said about masturbation?  I doubt if 1 in 100 Americans, certainly not 1 in 10, knows the facts presented in the graph above.  How could they?  Who is telling them?

Let the upper-bracket tax cuts expire

Chart added 9/9/10

During the George W. Bush administration, federal income taxes were reduced by a few percentage points for all income classes.  But it is the tax reductions for upper income brackets, and not the tax reductions that affected the vast majority of the American public, that threw the government into deficit.

During the Eisenhower years, the top income tax rate was 91 percent.  Millionaires and billionaires didn’t pay 91 percent of all their income in taxes, of course, only that above a certain threshold, and only when they couldn’t find a way to shelter it. During the Kennedy years, the top rate was 70 percent. I don’t advocate restoring those rates, but growth in jobs and wages was a lot better during the Eisenhower-Kennedy era than it is now.

An estimated 47 percent of American households will pay no federal income taxes at all for 2009, a record figure. (These households will, of course, pay sales taxes, payroll taxes and other taxes.)  Some people who worry about rich people paying too much also worry about poor and working-class Americans paying too little; they think the way to provide incentives to work harder is to make rich people richer and poor people poorer.

I don’t think any segment of the population should bear the entire burden of taxation, but you would hardly do that by allowing the Bush-era tax cuts to expire, and the tax rate to revert to 39.6 percent from 35 percent, on income in excess of $250,000 a year for couples and $200,000 for individuals. The 39.6 percent rates did not prevent the wealthiest 1 percent of Americans from increasing both the amount of their wealth and their share of the national income.

Chart added 9/9/10