By Pavlina R. Tcherneva
Growth in the US increasingly brings income inequality. A striking deterioration in this trend has occurred since the 80s, when economic recoveries delivered the vast majority of income growth to the wealthiest US households. This note updates my original inequality chart (reproduced below) with the latest data. For earlier discussions, see e.g., here, here, and here.
Figure 1: bottom 90% vs. top 10%, 1949-2012 expansions (incl. capital gains)
This is how the mission of the President’s National Commission on Fiscal Responsibility and Reform was defined by the White House
on February 18, 2010:
The Commission is charged with identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run. Specifically, the Commission shall propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015. This result is projected to stabilize the debt-to-GDP ratio at an acceptable level once the economy recovers. The magnitude and timing of the policy measures necessary to achieve this goal are subject to considerable uncertainty and will depend on the evolution of the economy. In addition, the Commission shall propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government.
NEP’s Marshall Auerback interviews Branko Milanovic, Visiting Presidential Professor, The Graduate Center, City University of New York. This is almost certainly the highest level of relative, and certainly absolute, global inequality at any point in human history. Is there anything we can do to reverse or mitigate this trend? See the interview here.
We can see the positioning and the messaging on the Democratic side beginning to take shape for the 2016 elections. Bernie Sanders and Elizabeth Warren with nods to Thomas Piketty and various economists have stepped forward to offer the themes of salvation for the middle class, moderating the extremes of inequality in American society, and doing something real about jobs and wages.
Clinton World seems to be responding, not yet with forthright statements from Hillary Clinton, but recently with articles by stalwarts of neoliberal Clintonism (and veterans of the Obama Administration) such as Larry Summers and Peter Orszag, expressing concerns about inequality and proposing measures to alleviate it, even including increased taxation on the wealthy.
By Pavlina Tcherneva
The New York Times made waves this week with another piece on inequality, saying that it has not risen since 2007. The article was based on this paper by GWU’s Stephen Rose.
The article also suggests that expansions are not a good way of looking at trends in inequality (as I have done in the past, also covered by the NYT). Instead, one needs to look at the business cycle. It also concludes that, thankfully, because of government tax and transfer policies, inequality has not been “that bad” over the last few years and governments can clearly do something about it.
So what’s wrong with this picture?
NEP’s Pavlina Tcherneva has made a couple of appearances recently discussing President Obama’s State of the Union and tax proposals with an emphasis on inequality.
Appeared 1/21/15 on the Wall Street Journal Live with Sara Murray. You can view here. Discussion topic was an analysis of Obama’s tax plan.
Appeared 1/27/15 with Tim Farley on Morning Briefing, POTUS Politics, Sirius XM (radio). You can listen here.
In her recent post-election piece “It’s Time to Work on America’s Agenda” Elizabeth Warren points out that the changes in Washington and in various States aren’t changing the fact that
The stock market and gross domestic product keep going up, while families are getting squeezed hard by an economy that isn’t working for them.
Or to put it another way, it’s not enough to have aggregate indicators going up. We also have to have shared gains and inequality going down, and given our current state of affairs, going down rapidly. She then says:
The solution to this isn’t a basket of quickly passed laws designed to prove Congress can do something — anything. The solution isn’t for the president to cut deals — any deals — just to show he can do business. The solution requires an honest recognition of the kind of changes needed if families are going to get a shot at building a secure future.
That’s what happened in 2009 – 2010. Democrats structured legislation in a vain search for bipartisanship, and in doing so produced:
Posted in Joe Firestone
Tagged accountability, broken promises, elizabeth warren, FastTrack, free trade, inequality, MMT, modern money theory, progressive politicians, TPP TAFTA, US sovereignty
Let’s get this out of the way. I agree with Piketty’s overall conclusion in Capital about inequality, that: the distribution of wealth in many industrial nations is highly unequal, wealth concentration has been increasing; and there is a high likelihood that the extent of wealth inequality will continue to grow unless appropriate fiscal policy is used to reverse current trends. However, I don’t agree with:
— the framework he uses to define and specify “capital”;
— the way he looks at Government finance and net worth; and
— the fiscal policy proposals he offers to reduce Inequality and put a stop to current trends of growth in the capital to income ratio.
Posted in Joe Firestone
Tagged austerity, Capital, Capital Theory Approach, debt and deficits, Fiat Sovereignty, inequality, MMT, modern money theory, neoliberalism, Sustainability Theory, Thomas Piketty
By Pavlina Tcherneva (revised 10/10/14)
Winship has produced a rambling and insulting retort to a very thorough and thoughtful response to his false critique of my original inequality chart.
Here are my brief replies to his last post.
- Let me say it again. His business cycle chart is incorrect. One cannot make any sense of what is happening to the distribution of income growth over time by the way he reports his periods. To use his own words, it does not “convey history correctly”.
You can be the judge of whose method is better (his or mine) in calculating the business cycles, but even if you use his method, his results are wrong. See herewhere I present two business cycle charts (using both methods). Both methods yield completely different and more depressing trends than in his chart. It is unclear how he’s chosen his periods.
In a very disingenuous way, Winship, passes the hot potato and implicates Saez and Piketty in his own error, arguing that they do the same thing in Table 1 here. This is incorrect. Saez and Piketty’s table shows one whole time period and then several discrete periodsof various recessions and expansions and, unlike Winship, they have identified their expansions and recessions correctly. They do not report the history of all business cycles (go ahead, check).
(A response to Forbes’ Scott Winship)
By Pavlina Tcherneva (revised 10/10/14, 10/11/14)
For the last few years, I’ve been studying the recovery and the kind of monetary and fiscal policies that are conventionally used to deal with recessions. One of the questions I considered was not just how we grow, but who benefits. The answer to the first question, I argue, provides insights into the second.
Examining the widely-used Piketty-Saez data, I found that the way we grow in the U.S. brings inequality. Namely, with virtually every postwar expansion, a greater and greater share of the average income growth has gone to the wealthy 10% of families. In the immediate postwar era a declining share of growth went to the bottom 90% of families (a trend not to be ignored), but they still captured the bulk of the growth in average incomes. Since 1980, however, the majority share has gone to the rich, while in the latest expansion they captured 116% of that income growth. This seemingly absurd result is due to the fact that incomes of the bottom 90% of families during the 2009-2012 period have been shrinking.