Income inequality plummets
The Kansas City Star
If you worry about income inequality (I don’t) then you could call this the upside of an economy seemingly stuck on the downside. Income inequality has plummeted, thanks to the great recession, which hammered major sources of income for the rich, namely capital-gains realizations.
Don’t think diminished inequality this will curb the debate on the subject; we often tend to yammer about things long after the trend has stopped worsening. Illegal immigration, for example, has plummeted, but it still keeps a lot of people up at night and continued worry about immigration still sways a lot of votes.
Resentment over income inequality tends to rise when the economy is doing poorly. Many people persist in believing there’s a set amount of money out there and if some guy gets more it’s because he’s taken it from others, rather than gotten it adding value or creating wealth.
For the record, inequality is falling rapidly. The Tax Foundation notes that the share of income attributable to the top 1 percent of income earners peaked in 2007 at 22.8 percent, after which it dropped like a rock to 16.9 percent after only two years — about where it was in the middle of the Clinton years.
This will make no one feel better since no one will shed a tear for the top 1 percent. At any rate, what matters for a healthy economy isn’t the income share of the top 1 percent, but whether there’s still movement up and down the income scales.
The evidence suggests that there is. As James Q. Wilson writes:
“The ‘rich’ in America are not a monolithic, unchanging class. A study by Thomas A. Garrett, economist at the Federal Reserve Bank of St. Louis, found that less than half of people in the top 1 percent in 1996 were still there in 2005. … Mobility is not limited to the top-earning households. A study by economists at the Federal Reserve Bank of Minneapolis found that nearly half of the families in the lowest fifth of income earners in 2001 had moved up within six years. Over the same period, more than a third of those in the highest fifth of income-earners had moved down. Certainly, there are people such as Warren Buffett and Bill Gates who are ensconced in the top tier, but far more common are people who are rich for short periods.”
Perhaps this explains why political appeals to wealth-envy have had so little success. Al Gore ran a “people versus the powerful” campaign in 2000 and garnered only a slight edge in the popular vote and not enough to win the Electoral College. As Michael Barone wrote several years ago in The Almanac of American politics, “… as always in American history, most voters care much less about punishing the rich than about rewarding the middle class and strengthening the economy. Support for redistributive economics has never rallied a majority …”
As always, the imperative is don’t worry about who’s getting what. Just get the economy moving again.