A new Gilded Age? The story about inequality the media aren’t telling you


Here are the headline findings of a new study on inequality by NYU’s Edward Wolff:

I find that median wealth plummeted over the years 2007 to 2010, and by 2010 was at its lowest level since 1969.  …  Hispanics, in particular, got hammered by the Great Recession in terms of net worth and net equity in their homes. Households under age 45 also got pummeled by the Great Recession, as their relative and absolute wealth declined sharply from 2007 to 2010.

In short, if a lot of your net worth was tied up in your home, look out below. This is also why wealth inequality increased during the Great Recession and its aftermath. More of middle-class net worth was housing-based than that of the rich:

But I predict less attention will be given to Wolff’s findings about wealth inequality over the longer term. He determines that it was “relatively stable” from 1989 through 2007.

Wealth inequality in 1983 was quite close to its level in 1962. Then, after rising steeply between 1983 and 1989, it remained virtually unchanged from 1989 to 2007.

Wait, what? I thought this was a New Gilded Age due to the rise in inequality? Look at this much-cited income inequality chart by Thomas Piketty and Emmanuel Saez, which shows decades of rising inequality:

But it turns out that income inequality and wealth inequality show different trends. The huge jump in asset prices during the 1980s boosted the wealth of top-tier taxpayers, but as more regular folks got into the stock market, they benefited, too. The Ownership Society at work. Wolff:

On the basis of the Standard & Poor (S&P) 500 index, stock prices surged 171% between 1989 and 2001. Stock ownership spread and by 2001 over half of U.S. households owned stock either directly or indirectly.

See, income has a tendency to fluctuate a lot from year to year and looking at that only seems a narrow way of measuring inequality. Why not also look at wealth—all financial and nonfinancial assets? Wolff thinks that’s a good idea:

Most studies have looked at the distribution of well-being or its change over time in terms of income. However, family wealth is also an indicator of well-being, independent of the direct financial income it provides.

There are six reasons First, owner-occupied housing provides services directly to their owner. Second, wealth is a source of consumption, independent of the direct money income it provides, because assets can be converted directly into cash and thus provide for immediate consumption needs. Third, the availability of financial assets can provide liquidity to a family in times of economic stress, such as occasioned by unemployment, sickness, or family break-up. Fourth, as the work of Conley (1999) has shown, wealth is found to affect household behavior over and above income. Fifth, as Spilerman (2000) has argued, wealth generated income does not require the same trade offs with leisure as earned income. Sixth, in a representative democracy, the distribution of power is often related to the distribution of wealth. As a result it is important to consider developments in personal wealth along with both income and poverty when evaluating changes in well-being over time

In another study, Saez created a revealing chart documenting the ups and downs of US wealth over the past century:

Saez and co-author Wojciech Kopczuk: “Our series show that there has been a sharp reduction in wealth concentration over the 20th century: the top 1 percent wealth share was close to 40 percent in the early decades of the century but has fluctuated between 20 and 25 percent over the last three decades.”

Saez and Kropczuk cite a number of possible reasons for the big decline: a) the democratization of stock ownership, b) the emergence of a large middle class in the post-World War II period, c) higher income and estate taxes, and d) the equalization of wealth across genders.

Now, I am not saying there hasn’t been a rise in US income inequality, something that has happened across advanced economies in recent decades. But this is a multifactor issue, according to economist Daren Acemoglu:

One is that technology has become even more biased towards more skilled, higher earning workers than before. So, all else being equal, that will tend to increase inequality. Secondly, we’ve been going through a phase of globalisation. Things such as trading with China – where low-skill labour is much cheaper – are putting pressure on low wages. Third, and possibly most important, is that the US education system has been failing terribly at some level. We haven’t been able to increase the share of our youth that completes college or high school. It’s really remarkable, and most people wouldn’t actually guess this, but in the US, the cohorts that had the highest high-school graduation rates were the ones that were graduating in the middle of the 1960s. Our high-school graduation rate has actually been declining since then. If you look at college, it’s the same thing. This is hugely important, and it’s really quite shocking. It has a major effect on inequality, because it is making skills much more scarce then they should be.

Wealth inequality data shows the entire inequality issue is much more complicated than saying the rich have been getting richer, the poor poorer — and it’s because the 1% stole all the money.

9 thoughts on “A new Gilded Age? The story about inequality the media aren’t telling you

  1. I find most issues are more complex than cheap soundbite slogans. Sadly, it’s the cheap soundbite slogans that get the most attention.

    If my boss makes $400,000 a year, and I make $40,000 a year, and our company does really really well, he might decide that everyone across the board gets a 20% raise. That’s fair, right? That means I’m now making $48,000, and he’s making $480,000. But the difference in our incomes went from $360,000 to $432,000. The inequality of our incomes rose noticeably, despite both of us coming out ahead. Why exactly should my boss be punished in this hypothetical?

    • Your raise would be ok however boss-man shouldn’t have gotten the raise. That’s fair. What you have described was how cavemen, who drove pickup-trucks whilst eating saturated fats, got by in life long long ago.

      Get a “newer” education…..

      • Why shouldn’t his boss get a raise? If it’s not “fair” for anyone but you to determine how much you’re “allowed” to earn, why is it “fair” for you to determine what someone else is “allowed” to earn?

        You (even if you earn minimum wage) are ridiculously rich compared to many in the world. Would you like the standard applied to his boss applied to you?

    • This is an easy one in the world of obamanomics, Eric. T. Neither one of you should get a raise. What should be done is your boss’ 400K salary should be split between the two of you – assuming you are the only employee. This way, you both make 200K. BUT WAIT! Your boss has two cars and you only have one. UNFAIR! Junk your old car and receive one of the boss’ newer ones. EQUALITY REIGNS! BUT WAIT. The boss has a nicer home than you. Sell your home and have the “Government” give you “Free” money to enable you to build a house equal in size and appearance to your employer. Now you are BOTH wealthy through forced “Equality.” Now, the government can tax both your a_ _es off. What a wonderful world. BUT WAIT! You have a rich aunt who dies and leaves you four million dollars. Wow. That’s not fair. Your neighbor doesn’t have a rich aunt……….you see where this is going. Then we have Warren Buffet….the left wing icon of rich. He TALKS about taxing millionaires, etc. A motor mouth with an army of lawyers and accountants. Typical liberal……….believes that everyone should be “Equal,” however, as George Orwell wrote in Animal Farm, “All the animals are equal, but, some are more equal than others.” It’s all smoke and mirrors my friend. Remember, when It’s cold out, the government (And the lawyers) will have both their hands in your pockets whether you make 400K or 40K.

  2. Inequality? Nah.

    Banks failing? OMG they’re too big to fail.

    Fannie and Freddie failing? OMG make those bond investors whole or they’ll never come back.

    30 percent of all mortgages under water? Suck it up fella. A deal is a deal.

  3. But even more important than the what the raw data superficially “suggests,” in our upwardly mobile society the lowest rung of a decade or more ago (the least educated, and unskilled new arrivals)–the very bottom–are not necessarily the very same cellar dwellers and dumpster- divers of today.

    The mix between and among whatever category is constantly changing. The raw data unambiguously fails to capture the true dynamics of a capitalist and upwardly mobile society.

    • Well, no. 40 percent of males born in the bottom quintile stay there. Move the mark one rung up, to the bottom 40 percent, and you count 70 percent of males born in the bottom quintile.

      Rick Santorum complained during R primaries that most of Europe is better at moving people into the middle class than the US is. Time magazine says he is right.

      • While it is true that income changes significantly over time – basic career progression – and that alone moves people through income quintiles, the real story is about more than income, something this post makes plain.

        And, specific to the 40% of males born in the bottom quintile staying there, this article explains it: a mix of wage pressure (from globalization and illegal immigration lower low-skill wages) and “possibly most important, is that the US education system has been failing terribly at some level.”

        I might also add that the breakdown of the family has much to do with this as well (see: K Hymowitz).

        Whatever the causes, things are not as upwardly mobile as they should be and it is important to think about how to fix it, not wish it away.

  4. Do you know why there percentages are so different when comparing the data in your first table to the to the data in the last figure? In the first table, the top 1% accounted for 38.1% of total wealth in 1998, and 33.1% in 2001. However in the last figure (labeled Figure 2), total wealth of the top 1% as of year 2000 was no more than 21%

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