Recovery Leaves 99 Percent Poorer


Emmanuel Saez, UC Berkeley's mustard-sweatered "guru of inequality," reveals [pdf] how poorly Americans in the much-discussed 99 Percent have been doing since the great Keynesian recovery began to sizzle in 2009:

In 2010, average real income per family grew by 2.3% (Table 1) but the gains were very uneven. Top 1% incomes grew by 11.6% while bottom 99% incomes grew only by 0.2%. Hence, the top 1% captured 93% of the income gains in the first year of recovery. Such an uneven recovery can help explain the recent public demonstrations against inequality. It is likely that this uneven recovery has continued in 2011 as the stock market has continued to recover. National Accounts statistics show that corporate profits and dividends distributed have grown strongly in 2011 while wage and salary accruals have only grown only modestly. Unemployment and non-employment have remained high in 2011.   

This suggests that the Great Recession will only depress top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s. Indeed, excluding realized capital gains, the top decile share in 2010 is equal to 46.3%, higher than in 2007 (Figure 1).  

MacArthur genius Saez, who I'm sorry to find seems to have gotten attention from Reason only in the comments, is pecking away at the question of whether "falls in income concentration due to economic downturns" can be sustained. In English, that means that rich people lost much more than the rest of us in the 2007-2009 phase of the stagnation. If that trend could be sustained, Saez and other equalicists note, then the alleged growth of inequality might slow or reverse. 

This doesn't mean that the backward castes would get any richer, because in fact everybody is poorer. (Note that inflation means anybody who has seen 0.2 percent income growth since 2009 is already way behind.) It doesn't even mean that the noble goal of making everybody equally miserable would be achieved. But apparently the masses will feel better about skipping breakfast, lunch and dinner if they know that the rich had to order a slightly cheaper brunch. That's the theory anyway. 

NPR's Jason Goldstein explains why the dream of income equality proved fleeting

1. Over the long term, the top 1 percent have seen much larger gains than everyone else.

2. During the recession, the incomes of the top 1 percent fell more sharply than the incomes of everyone else. This happened because the stock market crashed, and the highest earners get a big chunk of income from investments.

3. In 2009-2010, when the market came back, incomes of the top 1 percent bounced back, while incomes for everyone else remained flat.

Note that the composition of the "1 percent" is not static because economic mobility (upward and downward) is in fact much greater than many equalicists (though not Saez himself) claim. Note also that "middle-class stagnation" has not actually been happening over the long term

Despite these seemingly mitigating trends, Saez views the struggle between kulak and bednyak through the lens of inevitable history.

"The recent dramatic rise in income inequality in the United States is well documented. But we know less about which groups are winners and which are losers," Saez writes. "I explore these questions with a uniquely long-term historical view that allows me to place current developments in deeper context than is typically the case."

AEI's James Pethokoukis takes Saez's numbers and spins out seven points. These are of varying significance, but one is pretty clear: President Obama and his economic brain trust have signally failed to deliver for the 99 Percent. Then again, only the 52.9 Percent voted for Obama, so what were the other 46.1 percent expecting? 

Pethokoukis talked to reason recently about why the economic recovery has been so anemic: