Wednesday, April 6, 2016

Hot topic: cold facts about income inequality

Posted By on Wed, Apr 6, 2016 at 9:49 AM

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Let me not be a spoilsport. But why are we now talking about income disparities when the problem, if it is a problem, has been with us and growing for more than 40 years?

I wish I knew the answer. Maybe the Great Recession actually was the Great Reawakening. Maybe America woke from the Great Delusion that all was just fine if more people moved into single family homes, had retirement plans, and unlimited sports programming on TV.

The economic downturn of 2007-09 demonstrated that even those who felt quite secure were vulnerable to an economy built on hope turned to hype. The working class, who were now called "middle class," found themselves immersed in a crisis formulated by the wise guys of the financial industry. Yet, those underwater on their mortgages and credit cards knew they too were culpable for applauding and encouraging obsessive optimism.

Enough conjecture. Let's look at the facts as reported by the U.S. Bureau of the Census. In 1974, the lowest fifth of all American households received just 4.3 percent of money income. The top fifth of all households got 43.5 percent of that income. By this time, the War on Poverty was nearly a decade old.

Come forward to 2014. Now the lowest fifth received 3.1 percent and the top fifth enjoyed 51.2 percent of money income. What's going on? The top fifth's share of money income went up 7.7 percentage points, while the lowest fifth's share declined by 1.2 percentage points. Where did the top households get their shares from?

It turns out the lower 80 percent of all households, which includes many very well-off people, lost income shares to the top 20 percent. To put it simply, the overwhelming majority of American households lost ground to their most wealthy neighbors.

There has been, however, no acceleration in this trend of the rich getting a greater share of income and the poor getting a lesser share. If anything, the pace of change in income shares declined sharply from the 1974 to 1994 period to the more recent 20 years, 1994 to 2014.

For example, the share going to the top fifth of households rose by 5.6 percentage points from 43.5 percent in 1974 to 49.1 percent in 1994, but only by 2.1 percentage points during '94-'14. Likewise, for the other, lesser income groups, the pace of decline in their shares slowed as well.

With this slowing of change in income shares in the past 20 years, why is this a hot topic today? How can Bernie and Donald exploit the idea that the drift of income upwards is speeding to catastrophe?

Perhaps actual income disparities are not truly important. What matters most may be absolute standards of living which have improved for almost everyone in the past 40 years. Perhaps "income equity" is mostly a perceptual problem that blinds many to reality.

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Morton Marcus

Morton Marcus

Mr. Marcus is an economist, writer, and speaker who may be reached at

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