The upper 1% incomes are blamed for our economic troubles, but the upper 0.01% are probably to blame
Income inequality is a dangerous fact in American life, but there is a certain feel to the available data that make it unclear which of our upper class groups is/are responsible. This is our first follow-on to our focus post, Zero Sum Games.
Each income grouping reported by the Census Bureau for year 2010 includes all higher earning classes. So each group gets a ratings boost from their betters, without benefiting from the actual income. This discussion might get a little wonky.
Three clerks (incomes $30k, $31k, and $33k) enter an elevator on the 2nd floor and ride together to the 10th. Their mean income is $31.3k (sum divided by number of people), their median income is $31k (half those clerks earn median or less, half earn median or more). At the 5th floor the CEO (annual income of $17M) joins them, chats for a few seconds, and gets off at the 8th floor. During that time, the median was $33,000 while their mean income was $4.3M . Tell those 3 clerks they were lucky for that average $4.3 Million each – and prepare for backtalk. Similar complaints from our top 1/5 when blamed for skimming the income pool at the expense of all lower levels.
Jump to Overstated Gains?, Yes they are overstated , Discussion
Proposition: Growth in the share of income is mostly overstated, not as unfair as it sounds.
Figure 1, the income histogram (income per household for all the earning households) in the U.S. From Zero Sum Games. Data from the Census Bureau (2011 Sep), with histogram data here, and breakdowns here.
The vertical (dotted green) lines divide households into 5 equal-sized, successively more prosperous groups (quintiles).
In addition, we see the top 10%, 5% and the uppermost 2% of population.
The argument: Since each group adds the incomes at group threshold and higher, the huge gains of the top 0.01% ultras boost all averages. Maybe ultras are the true economic predators?
In Zero Sum, we saw that there was a baseline period (during the 30 year period starting right after WW-II) where the fractional share of total annual household income was pretty constant for every class. (Census has data only from 1967.)
Over the past 30 years (after 1981), the lower 4/5·ths of earning households lost share of the total earned income “bigtime.”
The top 1/5 registered postive growth – taking income share from the lower classes. The biggest jump went to the uppermost 0.01% (a multiplier of 5), our ultras.
Is “Overstated” Justified? The lowest salary a household can earn and still be classed as top 1/5th is the dotted line at $100,000 in Fig 1. An earner of the 20%’s mean income of $170,000 would be classified as belonging in the smaller top 10%, whose minimum income is $138,000. There is definitely some upper income spill-down.
Yes, the gains are overstated for most people in the top quintile.
Fig 1 shows that most of the people in the top 20% are squeezed into the left, low-dollar side of their bracket. The summed earnings, though, are pushed to the right high-dollar side. Using Fig. 4:
Top 20% – half of total U.S. income (= 4.05/8.02)
Top 10% – 2/3 of top 20% income (= 2.6/4.05)
Top 5% – 2/3 of top 10% income … also 42% of the top 20% income
Top 2% – 3/5 of top 5% income.
Top 0.01% – 1/4 of the top 2% income
The Sept 2011 release of 2010 data from the Census Bureau included mean and median incomes for the 5 quintile segments and also the earning households that get the top 5% incomes. One can get reasonable estimates from the statistical data for the top 10% and the top 2%. I was not able to find any 2010 data on the very uppers, the top 1% and higher. I used data from Emmanual Saez‘ team for the ultra top 0.01%, even though they were for 2008 and 2010 income might be somewhat below this. The Saez data are shown as a range of values.
The data are pretty clear: Substantial parts of reported earnings are not made by the everyone in that group, but by the much smaller subset, with much greater incomes.
Although the data are absent, I would be really surprised if the ultras did not account for half of any reported take attributed to the top 1%.
So, the conversation turns to “who has been playing dog-in-the-manger?” The lowest in the top 20%s do not feel like financial carnivores, although they are the ones who decide salaries for the bottom 4/5ths
They have financial worries, but about long range success, not day-to-day survival. Each successive level in the upper 20% is preyed upon by the predators above them.
Yes, each of the upper levels did feel a net increase in income fraction but the huge winners in our 30 year derby are those ultras with their tip top earnings.
The ultras have the economic power to destroy any threat, and purchase any outcome they want. These guys invert the Libertarian and/or Randian mythos of the best and brightest job creator. The classically iconic John Galt is increasingly inappropriate when applied to those with ever-higher incomes; the moocher/looter predator image for the ultras is the closest to Ayn Rand eschatology we get. (Even so, her Fountainhead’s Howard Roark did win high marks for blowing up his building full of unworthy moochers. A 1990s kind of joke → Roark had a really wretched personality, but he did kill off hundreds of commoners.)
Gretchen Morgenson (NYT, 2011 Dec 18) has a report on the failed Washington Mutual mess. CEO Kerry Killinger, President Stephen Rotella, and Home Loans President David Schneider destroyed their company, burned up other people’s investments, and wound up really, really well off. Similarly, I always thought it wonderful that Ken Ley died so conveniently before his conviction was pronounced, and his loot stayed in the family. Thoughtful guy, that Ken.
Economic gains over the last 3 decades has been a progressive thing, the higher you are, the more you get, at the expenses of those in Economy’s basement.
Charles J. Armentrout, Ann Arbor
2011 Dec 11
Listed under Economics …thread Economics > Inequality
Have a comment? Click on the title of this post, go to bottom, let us know.
Related posts: Click the INDEX button under the Banner picture