Economics

Income inequality is down, but why is nobody cheering?

I am quoted in today’s New York Times piece which notes, finally, the following:

The share of income received by the top 1 percent — that potent symbol of inequality — dropped to 17 percent in 2009 from 23 percent in 2007, according to federal tax data. Within the group, average income fell to $957,000 in 2009 from $1.4 million in 2007. Analysts say the drop largely reflects the stock market plunge, and most think top incomes recovered somewhat in 2010, as Wall Street rebounded and corporate profits grew. Still, the drop alters a figure often emphasized by inequality critics, and it has gone largely unnoticed outside the blogosphere. … In 2009 the average income of the top 1 percent, adjusted for inflation, fell below its 1998 level, but remained well above where it was in 1990: $662,000.

This is no surprise. Income equality also surged—meaning the income of the top 1 percent fell—in the 1930s and 1970s, two terrible decades for the American economy. It is the equality of misery, which is all you get when you punish wealth creation. And the article predicts income inequality will again rise as the economic recovery picks up. But if Washington further punishes and discourages wealth creation in this country through ever-higher taxes and regulation, maybe inequality will continue to slide. But don’t expect any cheering because everyone will likely be worse off.

If you look at the NYTimes chart, you see the huge upturn in the income of the top 1 percent in the 1990s. But it was not considered any sort of national crisis back then because everyone was doing better. So that is really the issue, yes? Forget about inequality and focus on increasing income mobility and absolute wealth for everyone.

Oh, and I simply must include a great chart that shows wealth inequality, unlike income inequality, has not risen sharply over the past century or recent decades. Wealth inequality is a better metric since it reflects the full range of financial resources available to a person and is less volatile from year to year.

 

 

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