Oct. 1, 2011 – 1:41 p.m.
Political Economy: For Richer or Poorer
By John Cranford, CQ Columnist
One of the more perplexing attributes of middle-income Americans is their seeming indifference to the contrast between their own stagnant incomes and the generally rising wealth of the rich.
We may be a nation of distinct classes, but we really don’t pay much attention to it. Or, at the very least, we don’t like to talk about class differences in such a specific way. The question is, why?
Perhaps the bootstrapping spirit that drove waves of (mostly European) immigrants in the early part of the last century to strive for middle-class status still permeates the body politic, negating any tinges of jealousy that might arise or any apprehensions that the rich are capitalizing unfairly on the rest of us. Or maybe boundless American optimism leads most people to think that with just the right break they might become the next Warren Buffett — or at least win Powerball — and then they’d be on the high side of the divide.
The conservative pundit Michael Barone, a resident fellow at the American Enterprise Institute, has yet another explanation. Writing in the Washington Examiner in January, Barone took note of the conundrum between the statistics and the public’s attitude and argued that “economic statistics can miss important things that affect people’s lives” — cheap clothing, more widely available health care, well-stocked supermarkets.
Whatever the cause, this paradox gives strength to the charge that President Obama is engaging in “class warfare” when he calls for higher taxes on the well-to-do, even as a majority of Americans tend to favor the idea that the rich should pay more.
Moreover, because the widening income gap itself draws so little attention, pollsters generally avoid asking about it, and most politicians avoid mentioning it. So it’s difficult to know how the subject plays in policy debates on taxes, executive compensation, housing affordability or any number of subjects where income and wealth disparity might play a role.
Regardless, statisticians and academics continue to pursue income inequality as an area for inquiry. And the available evidence suggests that the trend of the past several decades continues with the rich still getting richer. Even if they took a big hit in the Great Recession — along with everyone else — by some measures they appear to be rebounding stronger.
The most recent evidence comes from the Census Bureau’s annual statistical summary of income, released in mid-September.
It showed that for 2010, the top 20 percent of households collected a bit more than 50 percent of all income. Just under a quarter of all income went to the next-highest 20 percent of households, and the middle 20 percent earned less than 15 percent. The bottom 40 percent of U.S. households split less than 12 percent of income among them.
The Census Bureau noted that some of its figures showed an incremental widening of the income gap, while other measures weren’t changed in a statistically significant way. Still, over the past decade, the trend is evident. The share of income at the top has grown at the expense of those in the middle and at the bottom.
Different From You and Me
It hasn’t always been this way. Widening income disparity is more of a recent — meaning the past 20 years or so — phenomenon.
Political Economy: For Richer or Poorer
Emmanuel Saez, director of the Center for Equitable Growth at the University of California-Berkeley, is a longtime student of income inequality. His analysis of IRS data shows that from the beginning of World War II until the mid-1980s, the bottom 99 percent of tax filers saw their inflation-adjusted incomes rise at a much faster rate than the top 1 percent. Since then, the reverse has been true, particularly since average real incomes for most Americans — except the top 1 percent — have been relatively stagnant for most of the past decade.
An analysis of Federal Reserve data for the liberal Economic Policy Institute adds to the picture by showing that even during the recession the wealthiest among us increased their net worth, while everyone else saw a decline. The top 20 percent now hold more than 87 percent of the nation’s wealth — up from 81 percent in 1983. The vast majority of that belongs to the top 5 percent.
Some analysts point to educational attainment as a factor in the disparity of incomes. But college degrees are held by a much larger share of the population than the top 5 percent of earners. So, while education may separate those in the middle from those at the bottom, it cannot explain the accumulation of income and wealth at the very top.
Perhaps the lack of public unhappiness with rising income inequality is a sign of acceptance — or resigned acquiescence. Or, as Barone and others would have it, perhaps common measures of income and wealth don’t fully articulate the general sense of well-being that most Americans feel.
Or, it may be that the gains at the very top are incremental enough that they don’t strike a sour chord and will become apparent only over time. That still leaves open the question of whether the widening income gap will one day catch up with the country in some very unattractive ways.