The rich get richer, the poor get poorer, and yet SCOTUS just overturned DC's ban on gun ownership. It does seem as though the establishment is perpetually at odds with itself...

The dirty little secret in this as bad as it looks is that it is IRS data which ignores rolled over capital gains - the largest source of top wealth as well as tax exempt gains. So you have no idea how badly you're really getting it.

Another interesting post, Jeff, and food for thought.

What I find particularly interesting is how two people can examine the exact same data source and come away with dramatically different interpretations. ;-)

From the report you cited, it looks to me like the top 10% of Americans went from holding 68.2% of total wealth in 1983 to holding 71.3% of total wealth in 2004. An increase, to be sure -- their piece of the pie got about 4.5% bigger over those 20 years (put another way, they got 3.1% more of the total pie).

Granted, that increase came from somewhere, and that somewhere was in fact mostly from the bottom 60%, who went from 6.1% of total wealth to 4.0% of total wealth -- their piece of the pie got smaller by almost 35% (put another way, they got 2.1% less of the total pie).

Which means that the people between the top 10% and bottom 60% lost 1% of the total pie.

Setting aside the question of what is responsible for this shift (as we discussed in your earlier thread, tying economic data to administrations or legislatures is somewhat dodgy at best), one thing seems clear to me:

Rich people have a whole lot of the pie. Poor people have not much of the pie at all. And while the slices have shifted a bit over the past 20 years, that fundamental situation does not seem to have changed very dramatically, in real terms, despite the alarming numbers you quote.

By the way, what was that you said in your last post about being careful to evaluate medians versus means? The percentages you cite seem to be based on means for those income groups, rather than medians (though to be fair, the medians were not broken down by income level in the source material). So these percentages aren't going to tell the whole story. While there was 75% growth in mean total wealth, there was only 23% growth in median total wealth -- and I'd be very curious to see the corresponding distribution of changes to median by income level.

I would also, BTW, be very curious to see the equivalent numbers (i.e., percentage of total wealth held by each income group) going back to WWII, just to see how today's numbers compare to those glory days of yore. I would guess that the top 10% have pretty much always held around 70% of the total wealth, give or take a few points, over the past 60-70 years. BUT -- that's just a guess. Does anyone have the data to show one way or another?

Anyhow... "Numbers don't lie"? Remember what Disraeli (or Twain or whomever else you wish to cite) said about "Lies, Damn Lies, and Statistics".

Put it another way... there's a difference between fact and truth. Facts are relatively easy to determine. Truth is quite a bit harder to get at. ;-)

Anyhow... "Numbers don't lie"? Remember what Disraeli (or Twain or whomever else you wish to cite) said about "Lies, Damn Lies, and Statistics".

A cute one-liner, I believe from Mark Twain, but something that should not be taken as a mantra. W. Edwards Deming developed a management theory (Total Quality Management) that rested in great part on a foundation of statistics but was turned down by American corporations. He went to Japan where his theory was embraced and became a major factor in the rise of Japan as an industrial giant. The Deming Prize in Japan is akin to a Nobel Prize.

Here's the top 1% data from 1922 through 1998, and it's gotten worse since. It's the top one percent, not the top 10% that changes so dramatically. This data is from Richard Domhoff of UC Santa Cruz.

Table 3: Share of wealth held by the Top 1% in the United States, 1922-1998. Top 1 percent 1922 36.7% 1929 44.2% 1933 33.3% 1939 36.4% 1945 29.8% 1949 27.1% 1953 31.2% 1962 31.8% 1965 34.4% 1969 31.1% 1972 29.1% 1976 19.9% 1979 20.5% 1981 24.8% 1983 30.9% 1986 31.9% 1989 35.7% 1992 37.2% 1995 38.5% 1998 38.1% Sources: 1922-1989 data from Edward N. Wolff, Top Heavy (New Press: 1996). 1992-1998 data from Edward N. Wolff, "Recent Trends in Wealth Ownership, 1983-98," Jerome Levy Economics Institute, April 2000.

But this is all numbers. What about the political acts which have been complicit in the recent shifts? Nationally, the shift of wealth upwards has been supported with everything from the barely-taxed Hedge Fund Managers and the Bush tax cuts to the less obvious untaxing of gains on homes and 1031 exchanges to the nearly invisible Health Savings Accounts and 529 College Savings Plans which provide easy avenues to conveniently remove income from taxation.

Even in Oregon every proposal for instituting a sales tax is married to a reduction in the capital gains tax. Great idea, add a regressive sales tax, and make it more palatable by adding and even more regressive cut in the capital gains tax rate.

The bottom 60% of the population has lost a full third of their wealth, and that's not dramatic?

Correct. About 3% of the total wealth in the country has shuffled around among the various quintiles. That's not particularly dramatic.

Also, let's keep in mind that population growth over the past 20-odd years is going to shift the boundaries of who's included in any given quintile. Depending on the income distribution of those new households, that could certainly account for some of the shift in the relative shares of those quintiles over time.

For an extreme example to illustrate the point, let's say that in 1983 there were exactly 100 people in the country, so every quintile would be made up of 20 people. And for the sake of argument, let's say that the total net worth of those 100 people is $100,000. In 1983, the bottom 60 people (60%) have a total net worth of $6,100 combined. The bottom 40% in 1983 have a total net worth of a mere $900.

And let's say that by 2004 there were exactly 200 people in the country, so every quintile would be made up of 40 people. But hypothetically, let's say that all 100 additional (net) people have a combined net worth of $0 (again, this is extreme to prove a point) but all of the original 100 people now have doubled their total net worth to $200,000.

So now, the bottom 60% of households would be made up of all 100 new $0 net worth households, plus the bottom 20 of the original households (only half of those who, combined, had a net worth of $900 in 1983 -- doubled to $1,800 in 2004). Thus, the actual absolute net worth of the bottom 60% could actually decline -- quite significantly -- without any individual household being any worse off than it had been before, just because of dilution. And the top 10% of households in 2004 would actually be made up of the top 20% of households from 1983, with obviously a significantly higher total net worth (and thus a significantly higher percentage of all net worth).

Now, I'm not saying that this is what has happened -- I'm simply demonstrating that funny things can happen to the distribution of income simply because of disproportionate population growth, without the rich actually getting relatively richer (nor the poor getting relatively poorer), but rather from mobility between quintiles over time.

In other words, it's not necessarily accurate to say that the "bottom 60% has lost a full third of their wealth". It may be as simple as the bottom 60% from 1983 is a different group of people than the bottom 60% from 2004.

So given that the amount that has shifted around over time (that 3.1%) is relatively minor in the grand scheme of things, no this is not particularly dramatic. Even the idea of the bottom 60% "losing" 35% of the relative net worth may not be particularly dramatic, depending on the root cause of that "loss" (is it merely or even largely dilution?)

Again, statistics can be very useful things, but they desperately need context to be really meaningful.

I won't speak for the accuracy of the numbers since I don't have the source, the latest I've heard repeatedly is the top 10% has 90% of the income. The holes in this is that the figures most taken as accurate come from the IRS and those are based on shifting tax codes as to what is treated as income. There are a hell of a lot of ways to avoid having income treated as income and their applicability raises the farther up the income scale you move and the more talented your accountants.

I'd bet that if you accounted for the games, you could shift that to the top 1% has 90% of the income. But that's guess work since there are no numbers tracking that.

Right on David.

Demographic shifts are a significant factor or key to the wealth puzzle.

The fact that "Lies, Damn Lies, and Statistics" can be brought up and then statements like the "bottom 60% has lost a full third of their wealth" shows how people in general don't understand how to properly portray statistical information, even if it's unintended.

I don't think one can protray wealth information properly without showing demographic shifts in time. However, that would probably dampen the intent of the Jeff's article.

To add another dimension to enrich the comprehension of the wealth puzzle, Jeff show add information on tax burden. The tax burden of the top 1% has increased from 25.75% of the Federal income in 1986 to 39.38% in 2005. Further the bottom 50% of wage earners tax burden has decreased from 6.46% in 1986 to 3.07% in 2005.

( http://www.irs.gov/pub/irs-soi/05in05tr.xls )

I should show the demographic population as a percentage for each tier listed above, but I don't have the time right now and it's not my intent to write an article. Rather, it's to make a point that the entire wealth picture need to be shown and not to cherry pick data that supports political beliefs.

Not sure what the issue is exactly when even the lowest income folks in this country are richer today than they were in the past. Look at the number of "poor" people who have cell phones, color TV's, cars, internet access, cable TV, etc. They really aren't very poor at all, just jealous that they don't have bigger cars, bigger TV's and faster internet access.

As for the rich, I personally don't care if A-Rod gets $20M a year to play baseball or if Tom Cruise gets $40M to pretend to be someone else in a movie. I might even pay $10 to go watch A-Rod hit a baseball or Tom play a part. By paying my $10 I'm actually adding more wealth to their stash and depleting my own but that is my decision.

I understand the Davids statistical view that a 2% overall reduction isn't significant from a macro economic standpoint, but it does ignore individual hardships.

A lot of middle and higher income people right now are tearing their hair out over a 15% plunge in the stock market and what its doing to their retirement. What if the market, and your IRA and savings, and the value of your home were to plunge by 33%? Would that be dramatic?

And frankly, the bottom 60% have very little personal safety net, and shrinking it by 33% is significant.

Stalin said that one death is a tragedy, but a million is a statistic. I'm not comparing anyone to Stalin, but we can look at statistics, or what effect policies and trends have on individual people.

Can we talk a little about what specific policies have contributed to the growing inequality? Commenters keep mentioning the Reagan and Bush tax cuts, but I'm struggling to see how that contributed to income inequality in more than a marginal way.

Yes, the tax cuts allowed people at the top to keep tens of thousands more than they would otherwise. But that's a small amount compared to the obscene increases that those folks have seen in their overall incomes. CEOs went from making $500,000 a year to $5,000,000 or more. The incomes of those at the very top are equivalent to winning the jackpot in most state lotteries -- and they win year after year after year.

It seems the real problem here is larger. There was a cultural shift in corporate boardrooms from a belief in relative equity within the company -- i.e, those at the top making 30 times those at the bottom -- to relative inequity, where there is no relationship between salaries and in many cases no relationship to performance.

While I think you've highlighted a serious problem, it's less clear to me how government has contributed to it, or how government could mitigate it. Any thoughts?

"Policies have implications."

THis is all quite enlightening, I never thought the Republicans were such evil nasty people. Perhaps with all your wisdom, you have a suggestion on how to increase the wealth of the middle class - please try to avoid the use of the word tax.

It's quite easy to say someone is responsible for bad things, but if you don't have a solution, then we are going to be finger-pointing for 30 yrs like with energy policy and nothing gets done - which is what I expect.

Jeff,

You failed to point out all of the income taxes that all of these wealthy folks paid. I suppose that is because you hate to ever post any data that might make you look like the idiot that you are. What exactly is the percent of total income taxes that the top 1% paid? I doubt you have the balls to post it.

Wonk alert: this comment is going to be loaded with numbers, so go ahead and skip it if you don't want to get into details... ;-)

Jeff, your extrapolation of the 100 people with $100 total isn't quite accurate, because you didn't account for the nearly 34% increase in households over the period of comparison. So that $175 in 2004 would have been divided among 134 households, compared with the $100 in 100 households from 1983. But that's a relatively minor quibble.

Also, I think you misapplied my "3%" figure in your response (and related anecdotes about brewing, which I always appreciate...) ;-)

The 3% is of the total pie, not a 3% increase in one slice. It would be the equivalent of saying that 3% of the beer market went from one brewer to another, not that one brewer gained 3% while another lost 3%.

As to Robert Harris' point about individual hardship -- you can not applying the 35% drop in a quintile's share of the pie to an individual's drop in net worth. If you dig into the "numbers behind the numbers" from the source material, it turns out that per-capita net worth for that bottom 60% (the ones who "lost" 35% of their wealth) actually INCREASED by about 14.5% over that time frame (mean wealth for bottom 60% in 1983: $25K, mean wealth for bottom 60% in 2004: $28.7K).

Of course, as Jeff has warned in the past it is not wise to draw too many conclusions based on the means alone without considering medians -- but that does rather bolster my argument that a shift of 3% of the total (much bigger) pie is just not nearly as dramatic as some of the comments would portray.

Now, as to the real losers with regard to wealth -- the bottom 40% did indeed lose, per-capita, nearly 60% of net worth. There's just no getting around that statistic. "Wealth", defined this way, is not being accumulated by this section of the population.

Interestingly, however, income for the bottom 40% (and this is a different 40% than the bottom 40% of wealth because of the different basis for ranking) actually increased during this time frame. Per-capita incomes were up across the board; much more favorably at the high end than at the low to be sure. So it's a curious situation for incomes to increase while net worth decreases. Presumably, then, this is due to an increase in liabilities (debt) causing the net worth to drop.

By the way, I hadn't noticed before but Jeff pulled a neat little switch when comparing the net worth woes of today with the income gains of the post-war period:

During the "Great Compression" between the end of WWII and the 1970s, the poor and middle-class did well in America. The group that saw the greatest growth over that period was the bottom quintile, which grew 120%. The top 20% saw their income grow 94%, the least of any quintile.** Still, every income category grew robustly during the great compression, when laws promoted labor protections and taxed the wealthy at substantially higher rates.

Looking at the income growth across quintiles, we see much more growth at the top than the bottom, but there is still growth across all categories.

Anyhow, the "whats" can be sliced and diced however you like, the "whys" are perhaps more interesting.

I'd just point out that the post-war period saw not only strong labor and much higher taxation for top income levels, but also a virtual American monopoly on economic productivity, especially during the 50's and early 60's.

Remember my caution about correlation versus causation.

I would submit that income growth was not a result of strong labor laws and robust unions, but rather the result of external factors, and that general economic productivity allowed an environment for robust unions to survive. When American labor was essentially the only game in town, and the whole world looked to the U.S. for any number of products and services, workers actually had some leverage and were able to use it to their advantage.

Look at the condition of the world economy, and in particular at the condition of other leading economic powers, in the years since WWII. As Europe and Asia improved production capacity, developed educated and skilled workers, and built the infrastructure to compete with America, the premium on American labor was diminished significantly. America was no longer the only game in town, and had to begin to compete for those jobs.

And which jobs were most subject to competition? Initially, those that were unskilled or semi-skilled manufacturing. As foreign workforces improved in quality, competition crept up into the higher-paying positions which could now be filled by cheaper workers elsewhere. America found herself without a competitive advantage in many areas.

As the American blue-collar worker became a less economically valuable entity (relative to workers elsewhere), that leverage that was enjoyed in the post-war period evaporated. Unions suffered, wages suffered, manufacturing jobs disappeared overseas.

But the American white-collar worker still enjoys some competitive advantages worldwide. In some fields, those advantages are enormous. So those who are able to compete at that level are able to achieve tremendous gains (for the time being, until the rest of the world catches up there too).

That, I suspect, more than anything else may be the root of this widening wealth gap. Those at the top end still provide economic value to the rest of the world. Those at the bottom end, simply aren't nearly as competitive. It's not likely to be as much about government policies as about world economic trends over the past 60 years.

Higher education, by the way, used to be the ticket to better income opportunities and significantly higher lifetime wealth. Funny thing about supply and demand, though, now that we crank out more college-educated people than at any time in the past, that college education doesn't carry nearly the premium it once did. Hence, that college education isn't worth as much in terms of income. It's still better to have a degree than not, generally speaking. But where a college education was once a solid investment in your future that would reap large dividends -- now it's more likely to simply increase your debt more than your income potential. (Note the details in the source report regarding mean net worth for those under 35... another possible explanation of that plunge in net worth for the bottom 40%!)

Sorry for the extremely long-winded comment... this is just a HUGE topic with a lot of angles to consider if we really want to get to the bottom of it. I do actually enjoy the reasonable discussion of those different points of view... I realize that my point of view is very different from most on this site, but maybe we can learn from each other (or at the very least, consider the other side?) ;-)

That, I suspect, more than anything else may be the root of this widening wealth gap. Those at the top end still provide economic value to the rest of the world.

David, you're missing the fact that there is really no competitive market at the top end of the wage scale. Sure, occasionally a CEO gets fired and replaced, but it's rare. Plus, corporate boards set the wages of CEOs, and most boards are made up of other CEOs so there is little downward pressure on wages at the top.

It's less of a market issue than a cultural issue. In the 1950s and 1960s, I think if you approached most corporate boards and suggested they increase the pay of their top management by a factor of 10, they would laugh at you. Those folks were already rich by anyone's standard, what good would it do to make them super-rich? Why not reinvest that money in the company instead?

Since I don't run in those circles, perhaps I just don't understand. But when you're making $5 million a year, what is it that makes you want to earn $10 million a year? You're beyond luxury at that point, you can afford anything you want. My guess is that it's more about ego -- the CEO down the street is making $10 million a year, and I need to prove that I'm better than he is.

I think this is the main driver of income growth in the top 1%. They lost any sense of perspective when it comes to their own salaries, and the only way to bring those salaries down is for investors to start paying attention. If rating agencies started downgrading companies for "profligate" executive compensation, CEO pay would plummet.

However, I allude to some obvious policy solutions in a comment above: make college education affordable, strengthen the ability for people to unionize, make health care available to everyone, raise the minimum wage (it has been as high as $8/hr in 2008 dollars and will rise to only $6.55 on the 24th), and so on.

All those policies are great, Jeff, but will they really reduce income inequality? Even if the minimum wage were $10/hour this year, overall inequality would still have grown tremendously in the last few decades.

I think the policies you mention will make the lives of the bottom 60% better, but they'll have very little impact on overall income inequality. And as you know, some radicals have argued that social policies are really just the method by which the elites keep the masses from starting a revolution. If you're giving them an education and high quality health care, it's harder for them to take you to the guillotine.

I'm not convinced that goverment policy is at the root of the growing income gap. I think it's beyond the control of government and instead rooted in our extreme culture of individualism.

Jeff, you are making a huge error here. One pointed out by great economists like Fredrich Hayek and Murry Rothbard. When you look back at a period, and you look at some of the policies during that period, and then you look at the statistics, you cannot assume that the results in the statistics were due directly to the policies, because when it comes to economics, there is so much going on. If you wanted to study the economy of 1984, and understand why things were the way they were, you would have to look at EVERY single policy from EVERY single government agency, AS WELL AS look at EVERY single market force, EVERY single market event, as well as the Federal Reserve's policies, as well as all that for the previous 20-80 years, to understand exactly what caused what and why, and even then it would be hard to swallow.

Also, you are mistaken, to say that "A rising tide lifts all boats" is a GOP phrase. It was coined by JFK, defending his tax cut proposals.

I tend to think that when it comes to economics, libertarians have it right.

Also, Jeff, i think you really need to look at the Federal Reserve's policy of credit expansion and monetary inflation. GOP presidential policy tends to favor laissez faire, and you cannot explain such a huge increase in wealth for the top income earners with a small increase of wealth for the middle class by market forces alone. Market forces do not behave like that. The only institution which can have that kind of effect on a market is the Federal Reserve.