No Trickling Down as The Rich Get Richer

An updated study (.PDF) from UC Berkeley economist Emanuel Saez shows that the wealthiest 10% of Americans now have a larger share of total income than ever ... in records going back to 1917. This percentage is even larger than during the Roaring Twenties, the last time the US saw such similar income inequality, just prior to the Great Depression.

According to Saez’s study, the top 10% of earners in America now receive nearly 50% of all income earned in the United States. The exact percentage is 49.7%. Compare that to the 1970s; the top 10% earned around 33% of income.

The super-rich have seen their percentage of income go up even more. The top 0.01% percent of earners in the U.S. are now taking home 6% of the income, a 600% increase since the beginning of the Reagan administration, when the top 0.01% earned 1% of all income.

Economists argue whether such inequality is good for any country (witness, trickle-down economics), but here's what Saez says:

From 1993 to 2007, for example, average real incomes per family grew at a 2.2 percent annual rate (implying a growth of 35 percent over the fourteen year period). However, if one excludes the top 1 percent, average real income growth fall to 1.3 percent per year (implying a growth of 20 percent over the thirteen year period). Top 1 percent incomes grew at a much faster rate of 5.9 percent per year (implying a 122 percent growth over the fourteen year period). This implies that top 1 percent incomes captured half of the overall economic growth over the period 1993-2007.

The 1993–2007 period encompasses, however, a dramatic shift in how the bottom 99 percent of the income distribution fared. Table 1 next distinguishes between the 1993–2000 expansion of the Clinton administrations and the 2002-2007 expansion of the Bush administrations.

During both expansions, the incomes of the top 1 percent grew extremely quickly at an annual rate over 10.3 and 10.1 percent respectively. However, while the bottom 99 percent of incomes grew at a solid pace of 2.7 percent 3 per year from 1993–2000, these incomes grew only 1.3 percent per year from 2002–2007. As a result, in the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth. Those results may help explain the disconnect between the economic experiences of the public and the solid macroeconomic growth posted by the U.S. economy since 2002.

We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional reforms should be developed to counter it.