The Richest Get Richer
This opinion piece originally appeared at Reuters.com.
The aftermaths of the Great Recession and the Great Depression produced sharply different changes in U.S. incomes that tell us a lot about tax and economic policy.
The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90 percent.
In 2010, we saw the opposite as the vast majority lost ground.
National income gained overall in 2010, but all of the gains were among the top 10 percent. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent.
Just 15,600 super-rich households pocketed an astonishing 37 percent of the entire national gain.
The different results in 1934 and 2010 show how a major shift in federal policy hurts the vast majority and benefits the super-rich.
Starting in 1933, government policy aimed to improve the lot of the vast majority through such policies as massive government-financed jobs and construction programs. But since 1980 policy has focused on helping the already rich get richer still with such policies as lower taxes and fewer audits.
The updated figures illustrating income changes, all in 2010 dollars, come from analysis of the latest IRS data by economists Emmanuel Saez and Thomas Piketty.
Saez received the 2009 John Bates Clark Medal, awarded to the economist under 40 who has made the greatest contribution to that field, and a 2010 MacArthur genius grant.
Their data expands on what I reported first last fall – median pay fell in 2010 to its lowest level since 1999.
Saez and Piketty show that the vast majority’s average adjusted gross income, of which wages are just a part, was $29,840 in 2010. That was down $127 from 2009 and down $4,842 from 2000.
Most shocking? The average income of the vast majority of taxpayers in 2010 was just a smidgen more than the $29,448 average way back in 1966.
At the top, the super-rich saw their 2010 average income grow by $4.2 million over 2009 to $23.8 million. Compared to 1966 their income was up on average by $18.7 million per taxpayer.
We should expect this pattern of concentrated gains weighted toward the very top to continue unless we change our policies.
Saez shows that the top one percent’s share of real income growth is increasing with each economic expansion and it matters not whether the president is a Democrat or Republican. The top one percent enjoyed 45 percent of Clinton-era income growth, 65 percent of Bush-era growth and 93 percent of Obama-era growth, though that is only through 2010.
While markets are a factor, I think the evidence makes clear that government policy is at the core of the differing fortunes of the vast majority and the super-rich.
Inaugural addresses of Franklin Roosevelt and Barack Obama bring this into sharp focus. Both spoke of the need for restoring confidence, while denouncing greed and irresponsible conduct. Roosevelt in 1933 specified “callous and selfish wrongdoing” by bankers abusing a “sacred trust.” Obama vaguely referred to the “consequence of greed and irresponsibility on the part of some.”
Roosevelt said that “our greatest primary task is to put people to work.” Obama, again less specific, spoke of government that “helps families find jobs at a decent wage.”
Roosevelt brought in trustbusters, reformers and even an expert at Wall Street manipulations to implement policies benefiting the vast majority.
By contrast, while Obama called Wall Street executives “fat cats,” he surrounded himself with financial insiders with the exception of Elizabeth Warren, the Harvard bankruptcy expert now seeking election to the U.S. Senate. His administration has failed to prosecute the central figures in the frauds that created our economic distress.
Government policy can change again and for the better. We can create a growing economy with widely shared prosperity.
We need to increase spending on education and research to maximize returns from human capital. We need to create jobs rebuilding our decaying infrastructure so people and goods move efficiently. We need to honor markets, letting mismanaged banks and insurers receive their just desserts in U.S. Bankruptcy Court.
We need to adjust our focus away from financial sector profits to people. We need to reform taxes to discourage capital withdrawals and offshoring and, instead, encourage reinvestment of profits at home.
If we don’t, the vast majority will see their incomes go on eroding slowly while those at the top enjoy an ever-larger share of national income and wealth. The inevitable result will be economic, political and social instability – not a pretty picture for anyone.