By Cliff Montgomery – Jan. 31st, 2011
Conservative economic policy over the last 35 years has produced the greatest economic inequality inAmerica since the dawn of the Great Depression, according to a study released by top economists.
Economists Thomas Piketty and Emmanuel Saez used detailed micro-files from the Internal RevenueService as the basis for their report.
Piketty and Saez’s study was released in August 2009. A short, easy-to-understand summary based on theirfindings–which The American Spark prints below–was released in Sept. 2009 by the Center on Budget andPolicy Priorities (CBPP), a major policy think-tank.
It hardly needs to be said, but Piketty and Saez’s findings are just as valid today.
“Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S.households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928,according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.
“During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent ofhouseholds grew more than ten times faster than the income of the bottom 90 percent of households.
“The last economic expansion began in November 2001 and ended in December 2007, according to theNational Bureau of Economic Research, which means the Piketty-Saez data essentially cover that expansion.
“The last time such a large share of the income gain during an expansion went to the top 1 percent ofhouseholds — and such a small share went to the bottom 90 percent of households — was in the 1920s. [Areminder: the 1920s was the era which brought on the Great Depression.]
“Piketty and Saez’s unique data series on income inequality, based on IRS files, is particularly valuablebecause it provides detailed information on income gains at the top of the income scale and extends back to1913.
“The new data show:
- 2007 marked the fifth straight year in which income gains at the top outpaced those among the rest of the population. From 2002 to 2007, the average inflation-adjusted income of the top 1 percent of households rose 62 percent, compared to 4 percent for the bottom 90 percent of households.
- The share of the nation’s income flowing to the top 1 percent of households increased sharply, from 16.9 percent in 2002 to 23.5 percent in 2007 — a larger share than at any point since 1928. In 2000, at the peak of the 1990s boom, the top 1 percent received 21.5 percent of total income.
- Income gains have been even more pronounced among those at the very top of the income scale. The incomes of the top one-tenth of 1 percent (0.1 percent) of U.S. households have grown more rapidly than the incomes of the top 1 percent of households as a whole, rising by 94 percent — or $3.5 million per household — since 2002.
“The share of the nation’s income flowing to the top one-tenth of 1 percent of households increased from 7.3percent of the total income in the nation in 2002 to 12.3 percent in 2007. This is the highest level in the Piketty-Saez data going back to 1913, surpassing even the previous peak in 1928.
“The uneven distribution of economic gains in recent years continues a longer-term trend that began in the late1970s.
“In the three decades following World War II (1946-1976), robust economic gains were shared widely, with theincomes of the bottom 90 percent actually increasing more rapidly in percentage terms, on average, than theincomes of the top 1 percent.
“But in the three decades since 1976, the incomes of the bottom 90 percent of households have risen onlyslightly, on average, while the incomes of the top 1 percent have soared.
“With the latest IRS data, we now have a complete picture of income concentration during the recenteconomic expansion, which ended in December 2007, although we do not yet have data on the recession’seffects on income concentration. […]
“Whether the highest income households will once more capture a highly disproportionate share of incomegains as the economy begins to recover is uncertain, but Saez, along with Harvard economist Lawrence Katz,points to previous recessions and notes that only major policy shifts like the New Deal have prevented incomeconcentration from ‘bouncing back’ after a decline.
“In the absence of significant policy changes, income concentration levels could well return to their previoushighs after the current recession ends and resume their 30-year climb.”
