Daniel Hirschman at the University of Michigan wrote a dissertation chapter on that topic, in the field of sociology, here is the abstract:
In the 2000s, academics and policymakers began to discuss the growth of top incomes in the United States, especially the “top 1%.” Newly analyzed data revealed that top income earners in the 1990s received a larger share of income than at any point since the Great Depression, and that their incomes had begun a dramatic upward climb in the early 1980s. This paper investigates why it took two decades for this increase in top incomes to become politically and academically salient. I argue that experts assembled two “regimes of perceptibility” (Murphy 2006) for producing knowledge about income inequality, and that neither of these regimes was capable of tracking movements in top incomes. Macroeconomists focused on labor’s share of national income, but did not examine the distribution of income between individuals. Labor economists, on the other hand, drew on newly available survey data to explain wage disparities in terms of education, age, work experience, race, and gender. By relying on surveys, these scholars unintentionally eliminated top incomes from view: surveys top-coded high incomes, and thus were incapable of seeing changes in the top 1%. Studies of top incomes that relied on income tax data thus fell by the wayside, creating the conditions under which experts, policymakers, and the public alike could be surprised by the rise of the 1%. This historical narrative offers insights into the political power of economic expertise by clarifying the complex linkages between observations, stylized facts, causal theories, and policy attention.
The chapter is here (pdf). There is too much general background in this piece, and it is silly for the author to say that macroeconomics did not exist before 1930. Most of all, that the import of the growth of incomes in the top one percent remains underexplained I think is outside his framework. Nonetheless there are some points of interest throughout the chapter.
Here is Dan Hirschman’s home page.
Pointers run through Marshall Steinbaum and Henry Farrell.
I think the fact the 1980s and 1990s were periods of significant expansion probably had something to do with this. Piketty and Saez’s study was quite arduous as well, which I’m sure was another hurdle.
Also, it’s not as if there was no discussing inequality (Atkinson, Krugman, Stiglitz, Reich, etc), but the focus on the less 1% was not there yet.
Robert Frank and Philip Cook wrote “The winner-take-all society: why the few at the top get so much more than the rest of us” in 1995. The idea has been a commonplace since then.
Actually I think somebody wrote “The rich get richer, and the poor get poorer” even earlier than 1995.
“In the meantime
In Between time
Ain’t we got fun!”
I think this argument about “ignorance and non-knowledge” could be applied to explain the late-rise of behavioral economics as well.
Until Thaler mischievously started racking up “anomalies” people scarcely looked.
Gut reaction to the question in the title: The disproportionate rise in 1% incomes is the result of increasingly easy fed policies that both monetarists and Keynesians would want to ignore, since it is an indictment of their preferred economic regimes.
Did Austrians ignore the increase in 1% of incomes during this time? I’d be interested in numbers wrt to that. AIUI, Austrians have always believed that the Fed would help the rich first since the rich get first access to “new money”. I’m sure there is a fancy economic term for that phenomena, but I don’t know it.
“In the 2000s, academics and policymakers began to discuss the growth of top incomes in the United States”
Why ?
What was their end objective ?
Which percentile of “academics and policymakers” began to discuss this ?
They should suppress research on this stuff. People might look at the facts and determine that it’s unfair.
A lot of areas are taboo for research. Sometimes for a good reason.
Rarely for good reason. However, it doesn’t stop liberals from threatening anyone who researches areas which could potentially go against their policy prescriptions.
Oooh, scary liberals and their threatening threats. Is it Halloween again so soon?
Like how liberals try to ban research on gun violence or stem cells. Oh wait, that’s the other guys.
Economists have long looked at relative GDP of countries. Why not relative personal income?
Was the goal to redistribute GDP or was it to find ways to increase GDP growth?
Because I doubt they just said “Look! Burino Faso is poor and Germany is rich, so Germany must be the problem!”
Over half of the research that I edit or translate has to do with poverty or inequality.
0% of the time the goal is to redistribute GDP and 100% of the time the goal is to understand what’s going on in order to have policy prescriptions which improve the ability of the poor to increase income. (Although technically this might involve some redistribution in order to carry out those prescriptions.)
Third parties are free to use publicly available research to whatever ends they might like.
Perhaps the goal was just to understand it?
The idea that people should have to explain what use their results will be put to and that use will have to clear some kind of ideological bar before they even determine what the reality of the world is is obviously stupid.
The goal was/is to find out if inequality is a thing. It is.
“Most of all, that the import of the growth of incomes in the top one percent remains underexplained I think is outside his framework.”
This is a kind way of putting it. One might wonder rather why people are paying undue attention to a statistical oddity now.
Probably because it stands in stark opposition to The American Middle Class Is Losing Ground.
Oh, so its like a pie, and that group is grabbing all the pie so the middle class has less pie.
OK, we all know the pie grows, but a lot of people’s mental model doesn’t consider that.
If your income is stagnant for 40 years, the pie doesn’t feel like it’s getting any bigger.
Except your phone is a TV, computer, gaming device, and you watch Youtube videos for free.
Plus, your wages didn’t go up much, but healthcare costs did, and cancer is now often curable.
Life is much, much better.
I also would like a citation that global incomes have been stagnant for 40 years.
It seems pretty obvious the US wages may have stagnated (when not considering benefits) but at the same time wages in Asia have soared. If put one and one together, it seems likely that globalization has led to pressure on US wages that will eventually be mitigated once labor arbitrage is no longer possible between countries.
Meanwhile, certain people who don’t compete with foreign labor would do better, as globalized markets allow for more revenue.
Or do you think the 1% has found ways to nefariously hoard the pie and not give it to the middle class? I suppose its possible.
Just because a pie is growing doesn’t mean what you think it means: 10 years ago we each got 50% of the pie, since then the pie has doubled but I now get 74% of it — you are nominally better off now and shouldn’t question how I got my share. Come on, this grade school stuff.
But you have a flash phone now. So never mind that the other guy has a mansion and will travel the world in style throughout retirement, and you have 500 sq st and are planning a rice and beans stay-at-home retirement.
You should appreciate that the internet will now bring you pictures of all those flash destinations you won’t be able to afford to travel to.
Eighty percent of poor households have air conditioning. By contrast, at the beginning of the War on Poverty, only about 12 percent of the entire U.S. population enjoyed air conditioning.
Nearly three-quarters have a car or truck; 31 percent have two or more cars or trucks.[9]
Nearly two-thirds have cable or satellite television.
Two-thirds have at least one DVD player, and a quarter have two or more.
Half have a personal computer; one in seven has two or more computers.
More than half of poor families with children have a video game system such as an Xbox or PlayStation.
Forty-three percent have Internet access.
Forty percent have a wide-screen plasma or LCD TV.
A quarter have a digital video recorder system such as a TIVO.
Ninety-two percent of poor households have a microwave.
http://www.heritage.org/research/reports/2014/09/the-war-on-poverty-after-50-years
Well, the internet that will allow you tour the world through VR within a few years.
I turn 65 in 2035 so plan on eating my rice and bean dinner that the government sends me via 3D printer while surrounded by the virtual paintings in the Louvre.
Tall Dave and Harun seem impressed with the fact that poor people now have more entertainment options. How about cancer treatments? Mental health support? Diabetes?
According to the National Association of Home Builders, the average home size in the United States was 2,700 square feet in 2009, up from 1,400 square feet in 1970.
I’m waiting for the example of the thing that got worse. Air quality, water quality, food choice… the list could fill up this page.
ToD — I personally know someone working on the second million of Medicaid payments for their daughter’s brain cancer. In virtually any other age or country, her condition would have been deemed too expensive to treat.
Mental health?
Latest prescription data shows consumption of psychiatric drugs continues to soar. http://cepuk.org/2015/04/10/latest-prescription-data-shows-consumption-psychiatric-drugs-continues-soar/
Diabetes? Now covered as a disability under Social Security. http://www.diabetes.org/living-with-diabetes/know-your-rights/for-lawyers/employment-materials/proving-diabetes-is-a-disability.html
It’s understandable but still sort of amazing how irrationally attached people become to the idea the lives of the poor must be getting worse.
Sorry, one of those links was for the UK, but US trends are similar.
http://www.wsj.com/articles/SB10001424052970203503204577040431792673066
According to a report released yesterday by the National Center for Health Statistics (NCHS), the rate of antidepressant use in this country among teens and adults (people ages 12 and older) increased by almost 400% between 1988–1994 and 2005–2008.
http://www.health.harvard.edu/blog/astounding-increase-in-antidepressant-use-by-americans-201110203624
The benefits might be debatable, the availability of treatment is not.
I apologize for this turning into a Monty Python “What have the Romans ever done for us?” sketch.
TallDave – Relative stuff matters to most people.
If you are millions of dollars richer, but all I get is a Playstation, microwave, air conditioner and home computer, but I judge that I have worked at least as hard as you, I would not judge this to be fair.
Your millions of extra dollars may be defended in terms of hard work, natural talents, risk taking, being lucky to get into the right segment of the labour market, etc., but given that many high earning professions (e.g., doctors, lawyers) benefit from associations which artificially restrict supply and segments of the working class has less collective negotiating power than ever, some people are bound to think that it’s unfair.
Yes, there have been many benefits for the lower classes as well. This doesn’t mean that the wealthiest classes actually deserve the lions share of gains which they have monopolized.
Real people will generally reject crumbs and ruin everything to spite the man who wants to keep 99% to himself. I think the 1%, or the 0.01%, should be expected to do a better job of explaining how they deserve their wealth, rather than simply concluding that whatever they manage to extort from the market is fair, whether by luck, privileged information/connections or actual productive contributions.
What evidence is there that macroeconomics existed before 1930?
What macroeconomic data was collected to either develop macroeconomic theory or prove/disprove macroeconomic hypotheses before 1930?
Is the evidence for significant macroeconomics prior to 1930 the following US developments post Civil War:
1. Big government industrial policy to create jobs by building railroads
2. Anti-trust regulations
3. The creation of the Interstate Commerce Commission
4. The gold standard Uber allies
5. The Fed to enforce the gold standard
6. Deposit insurance by States
7. Security regulations to prevent pontificate schemes, bucket shops, fraud
8. Mandating Rural Free Deliver, Parcel Post, and Air Mail service
9. Massive road paving to create jobs and support economic growth in the 20s paid for with taxes on everyone to benefit the upper classes
These government actions by Republicans were in service to either farmers, or bankers, or industrialists. Obviously, a number of these policy demands pitted on group against the others.
What I find interesting is how many Republican policies from before 1930 Republicans have managed to repeal since 1980. Does that mean Republicans were rejecting macroeconomic theory before 1930, or rejecting it since 1980?
Look Mulp, I’m just as puzzled (if not somewhat distressed) by certain recent developments in the Vatican, but aren’t security regulations to outright prevent pontificate schemes just a step too far now?
I realize there is no editing function on this bulletin board but your autocorrect changing “uber alles” to “Uber allies” is a howler.
I remember 10 years ago when reading stuff about inequality, the data was always presented in quintiles. It may seem obvious, but it is very much an innovation that currently used graphical representation techniques which portray the entire income distribution are quite common now.
In other words, previously, gains concentrated in the top 1% would be significantly muffled by the sheer number of people in the top quintile (top 20%) – now, anyone doing exploratory analysis of the data and plotting several time points for comparison will immediately see the anomaly at the top end.
(Not to disregard what they said about income tax data being better than survey data – I don’t imagine a lot of 1 percenters bother to respond to surveys.)
Yes, this rings true to me as well.
I think the obvious example is that the 1% / 99% was a marketing concept designed to emphasize inequality, to exclude the targets as “others” and thus rightly targets and not humans with rights to earn a living.
Its brilliant at market segmentation, too, because when you start talking socialism and redistribution, people in the top quintile naturally worry, but when you just say “its the 1%” then huge chunks of rich people can calm down or even join the movement.
Its also much easier to paint 1% as somehow cheaters vs. 20%.
In practice, it’s not just the 1%, but the top 0.1%. most of the top 1% has a lot more to do with the rest of the top 5% than with the 0.1%, which is pretty much a different social class on its own, because they get their income mostly out of investment, not labor.
If the shoe fits, wear it. The pattern of the income share of the top 1% is interesting in its own right and requires that one have access to data from individual tax returns to assemble.
This is an example of right-wing political correctness. We shouldn’t talk about certain facts because they may hurt someone’s feelings or lend support to policies that right-wingers personally disagree with.
Why “1 percent”
Why not, say, “Top Ten Thousandth?”
Your branding skillz, they need work.
One own goal by economists in general is particularly evident in Piketty in particular: he hates the Forbes 400 list.
In contrast, I’ve loved the Forbes 400 list for a third of a century, so it was always obvious to me the rich were getting a lot richer than they were in 1982.
Back in 2014 I wrote:
I like lists, so I’ve been a fan of the Forbes 400 list of richest Americans since it started in 1982. Economists, however, have been reluctant to include this data in their analyses. Personally, I think they mostly don’t want to risk peeving the extremely rich, who could be nice friends or very nasty enemies.
But Thomas Piketty, for example, claims he is very much against looking at the Forbes 400 data on methodological grounds. He doesn’t believe there is really so much churn among the superrich. Like people who write to tell me that Forbes undercounts the secret wealth of the Rothschilds, Piketty believes there are large numbers of hidden Old Money billionaires out there. Matthew Yglesias sums up Piketty’s argument:
“Piketty’s interesting point on entrepreneurial wealth turns out to be that the famous Forbes 400 list of the richest people in America (and similar lists in other media outlets) is probably mistaken.
“Not just mistaken, in fact, but systematically biased to overrepresent entrepreneurs and underrepresent heirs and heiresses. This isn’t a matter of ideology (though Piketty does think the publications in question are ideologically biased toward valorization of entrepreneurs) but of the limits of data. After all, the task of estimating the net worth of a major entrepreneur is relatively straightforward. Mark Zuckerberg is rich because as the founder of Facebook, he owns a lot of shares of Facebook stock. …
“But consider Zuckerberg’s hypothetical future grandchildren. These grandchildren will, presumably, inherit a lot of money. But it’s also reasonably likely that they won’t play a management role in Facebook. And the prudent thing for them (or the creators of their trust funds) to do would be to hold a diversified portfolio of wealth rather than a large block of Facebook shares. They would be broadly invested in domestic and foreign stock markets, probably own a bunch of real estate, and maybe include some alternative investments (a hedge fund here, a commodity index there). …
“In other words, we are almost certainly overcounting entrepreneurs among today’s super-rich and undercounting the descendents and past entrepreneurs. And a generation or two from now we are very likely to underestimate the wealth of the descendants of today’s entrepreneurial billionaires.”
Okay, but if say, Zuckerberg has 3 children and they have 3 children each, that is 9 heirs to divvy his fortune up among.
The average member of the Forbes 400 has, last I checked, 3.6 children. Rich men tend to have children with a couple of wives over the course of a lifetimes. Heiresses probably don’t have as many children as male heirs, but it seems likely that today’s great fortunes will be divvied up an average of 3 to 10 grandchildren. If heirs marry heiresses, then wealth would be combined, but that doesn’t seem all that common these days.
Another way to approach the question of Hidden Rothschild (or whomever) Wealth is too look at trophy purchases. Are scions of ancients fortunes buying up the Los Angeles Clippers or homes along the 18th fairway at Pebble Beach? Are they building their own personal golf courses? Golf courses are visible from the air, so they show up on Google Maps. I’m more or less familiar with most of the personal golf courses in Southern California, and they tend to have been built by rich guys you’ve heard of like Bob Hope, Walter Annenberg, and Jerry Perrenchio.
What about bidders on the Clippers?
Ballmer, who was chief executive of Microsoft for 14 years, beat out other bidders that included Los Angeles-based investors Tony Ressler and Steve Karsh and a group that included David Geffen, Oprah Winfrey, Larry Ellison and executives from the Guggenheim Group, the Chicago-based owner of the Los Angeles Dodgers.
You’ve probably heard of Ballmer (#21 on the Forbes 400), Geffen (#68), Ellison (#3), and Winfrey (#168). Ressler is an old Mike Milken guy who teamed up with Leon Black; he’s now married to actress Jami Gertz. He’s not on the Forbes 400, although Black is #85. I don’t know who Steve Karsh is, but Bruce Karsh is an L.A. billionaire who is #296 on the Forbes 400 list, so “Steve Karsh” is likely a typo. Other reports have Bruce Karsh teaming with Ressler and retired basketball player Grant Hill.
It could be that Piketty would respond that only tawdry arrivistes wanted to overpay for the Clips (who don’t even own their own arena).
… So this suggests a methodology to test Piketty’s assumption that he is justified in ignoring Forbes 400 data: track the purchasers of trophy properties in the 21st Century and the donors of trophy gifts such as art museums and concert halls.
Are they typically Astors and Vanderbilts or are they Ballmers and Geffens?
That’s why PIketty is so uninteresting.
If we look at the wealth of the world 50 years ago, 100 years ago, or 200 years ago, we see that very little of the wealth that exists today can be explained by the wealth that existed in the past, and the further back we go the less it can be explained.
So where did it come from? Piketty has no theory of growth to explain the most salient fact of economics, nor could the rest of his arguments survive it.
I don’t think Piketty claims that the rich today owe their wealth to fortunes that were earned 50 or 100 years ago. Indeed, one of his core arguments and observations is that the Great Depression, World War II and high taxes dissipated a lot of the old money wealth and misled people who grew up between the 1950s and the 1980s into thinking the rise of new money was a permanent feature of capitalism instead of a one-off caused by the collapse of the global economy and the revolutionary convulsions that followed.
One obvious limitation for any Forbes-like list is that it is very difficult to track the wealth of the super-rich when it is held by trusts, off-shore corporations, “foundations,” and other non-transparent vehicles. The problem with prestige purchases and donations is that many are anonymous. Ultimately, the best data are going to come from estate tax assessments since death is the one and only time that the super-rich have to declare the value of their assets.
Again, there is no theory of growth to explain where the new wealth came from, irrespective of what events are supposed to have dispersed or concentrated it in which hands.
Piketty’s theory is of great interest, so people should be interested in testing it. Piketty has specifically made the prediction that the Forbes 400 understates the wealth of old money so badly that it’s useless for economic analysis. I’ve suggested a number of tests of Piketty’s theory, such as the construction of personal golf courses, which are of course visible from the air, the purchase of sports franchises, and the purchase of philanthropic naming rights.
My impression from this kind of massively tangibile evidence is that Piketty’s dismissal of the Forbes 400 is tendentious. (This shouldn’t be surprising, since the Forbes 400 adjusts to take into account evidence that emerges of great wealth.)
Piketty hasn’t presented any evidence that I’m aware of in favor of his prejudice other than that his formula says he must right.
Tracking trophy/prestige purchases! That’s a great idea. I do wonder if 1st generation entrepreneurs are somewhat too busy (on average, there will be exceptions) to spend too much time on such purchases, which could skew results.
I wouldn’t be surprised if some philanthropy trade journal keeps a list of the biggest naming rights donations of the year, which could make a convenient data source for an economist who wanted to investigate this issue.
My vague impression is that aging self-made billionaires are the most active in putting their names on buildings and institutions. For example, here in Los Angeles, David Geffen and Eli Broad have been donating up storms in recent years, just as J. Paul Getty, Armand Hammer, and Norton Simon built the previous generation of art museums in Southern California.
I don’t notice a lot of Old Money naming rights donations, but I could be wrong about this.
My impression is that a frequently overlooked cause of the rise of the super-rich has been a decline in ardor of anti-trust (anti-cartel) enforcement over the decades. I can recall taking an Econ course at Rice U. around 1978 that gave the cutting edge libertarian theory that anti-trust worries were overblown. That theory went from marginal to mainstream within a couple of decades.
Now, even economists on the left don’t worry much about monopoly power. For example, Piketty has negligible interest in monopoly as a problem. He sees criticism of Carlos Slim, for example, as motivated by ethnic bias rather than by any legitimate opposition to Slim’s monopoly power.
http://takimag.com/article/better_a_crook_than_a_wasp_the_left_ditches_progressivism_steve_sailer/print#axzz3vUAuAOlR
http://freebeacon.com/issues/antitrust-reform-forces-carlos-slim-to-split-telecom-monopoly/
Carlos Slim’s net worth is down about $20 billion this year because of the Mexican government’s anti-trust actions against him. As a very rough approximation, that means the net worth of everybody else in Mexico is up about $20 billion. So that’s about $1000 per family of six.
The ant-trust action against him was enforced. I’m not sure there’s any reason to think anti-trust action in general is less popular than at any time in history,
I agree. This was the view of Henry Simons, and, if people ever read him, or Frank Knight, they might actually begin to understand what’s going on:
“The main principles of the policy are simple, and we have already noticed them. First, private monopoly in all its forms is to be suppressed. This means the establishment and maintenance (by means of the reform of the law which gives shape to the world of business and industry) of effective competition wherever effective competition is not demonstrably impossible…”
The Polltical Economy of Freedom
Michael Oakeshott
I was agreeing with Steve above.
It took that long for the ideologues to take over the field.
+1
Perhaps because the policiies economists were pushing in those years have caused the inequality.
Open borders drive down the price of labor.
Globalization causes those burdened with high costs of government and regulation to either be impoverished, losing to lower cost jurisdictions while those with special skills, connections or capital of some sort do very well in the dramatically larger marketplace.
The financialization of the economy benefits few.
The 1% would be dramatically poorer were it not for the deep pockets of the fed and treasury. Only those considered crackpots took a stand against bailouts after the 1% showed that their status really reflected real world IQ.
Other than the last two which are indications of the political influence of these fools as well as an indication of what a counterbalance or reversion to mean will look like, free trade and reasonable immigration is probably a benefit, and if there weren’t things like Wall Street with it’s out of proportion profitability and distortion of the economy, politicians would have been forced to deal with the real competitive effects of their stupidity.
By the way I don’t think inequality is a problem. By definition a place without rich people is poor.
What I resent is not being able to either buy apples on the street corner from a former investment banker or ceo of a bankrupt bank. Or even better to take a piss on them while they are confined in stocks in the public square.
Right now the Alberta oilpatch is cutting back. Thousands being laid off, financial cascading problems, collapsing government revenues, collapsing dollar. Inputs to my business increaeed in price by 25% over the last year. Where is the bailout?
What a dumb question.
I agree with your sentiment regarding bankers and bailouts.
And if we are to socialize losses, then why not socialize gains? Seems like a fair question.
I’d prefer a system where bank managers have to put up personal performance bonds. If the bank fails, they lose their money, and it should be very, very painful. Bond size would increase as bank size increased.
Of course, the bankers would just borrow the money for the bond, and the Fed would backstop that!
I also wonder if QE could have been sent to taxpayers instead of banks.
That was actually suggested by some (that some not being actual policy makers, of course).
Yes, I stole it from a podcast with George Selgin, I think. I shouldn’t make it sound like its my idea.
Note how many state that the 1% must all be Wall Street – this is a common assumption, that the inequality crowd doesn’t take any pains to disabuse.
1% income-level could also be a dentist with a dental practice. Or a county executive, literally in the 1% working for the government. A nurse and a firefighter as a married couple probably break the 1% threshold as a household, too.
But the main goal is to convince people that its all bankers.
I’d be curious if we could somehow test people on this. I sometimes dip into Reddit threads to see the general feeling of people there.
If its about bankers making money or CEO’s many commenters find it unfair that the person makes so much.
A similar topic like comedians making money produces ZERO comments about inequality.
I bet the same for sports or movie stars.
My suspicion is that people, for some reason, assume CEO is a really easy job that anyone with a college degree could do, but they view comedy or pro sports as very hard.
A crooked dentist, maybe.
Uh, no. My CPA firm handles a lot of dental practices, so I asked about this.
Now, granted, there are years of schooling, then years of building up said practice, but you can achieve that kind of income. My kid pays $300/visit, and the dentist sees her for maybe 15 minutes out that time. I think those dentists do pretty well at $1,200 / hour.
Now, some dentists are employees. I doubt they make as much.
Also – they are only in the 1% for some period of time of their careers.
This is important for thinking about the 1% but its something the Occupy people won’t bring up – they make it sound like everyone making 1% income is doing like as a professor- its automatic, like a salary.
In reality, a guy could build up a business over decades for a few 5% years then sell it off for a final 1% year of income in the income tax data. This means that “paying your fair share” essentially is unfair, because your income is not as steady as other jobs are. Oh, sure, you can find ways to structure your income, maybe, but again, why is that the business owner’s duty, to make the IRS data look more equal?
I am looking at 100 year trends in income accruing to the top 1%. They are very slow moving, not noisy, definitely characteristic of a society.
It is kind of crazy to treat them as an accident in data or interpretation. Anything that forms decades long trends is real.
The 1% is logarithmic. Those at the top .1% make many multiples of the small business owner who just cashed out. And when you look at people like Sandy Weil, their income sure seems automatic like professors. They still make top .1% incomes even when the companies they head have awful years.
Globalization and the superstar effect probably account for most of the change.
Good luck rolling that back.
The Original D now tells me its not the 1% but the 0.1%. OK, audit those 100 people. Maybe the Boards are weak and pay Sandy Weil too much money. Well, its their money. Who cares? I’ve never heard of that guy.
p.s. if we start to bring up individuals who seem to earn unfair amounts of money, I would nominate the Clintons’ speaking fees. And the link to possible corruption. And yet, she will elected even as a 1%er by people who decry the system as being “rigged.”
I believe studies found most Americans make it to the top quintile for at least one year, but very few stay in it as long as ten years.
It’s also very easy to lose one’s entire capital investment. Just ask GM stockholders and creditors, or the Stroh family, or LTCM, or any number of small US manufacturers.
Top executives at large companies may sometimes get paid well even when the companies perform badly (mostly for the same reasons injured pro athletes are paid enormous sums for contributing nothing), but generally the investors who employ them lose orders of magnitude more, and the company may go bankrupt entirely. That’s why they pay those executives so much to handle their assets. And sometimes investors choose execs badly, but of course it’s then usually quite difficult for failed executives to find a similar position, even if the failure was beyond their control, because shareholders really don’t like losing their money.
I often wonder if most complaints about income “inequality” could be solved with an accounting degree.
“I sometimes dip into Reddit threads”
Some subreddits are horrible and shouldn’t be taken as a representation of views of any demographic really. As a liberal, from what I’ve seen it’s only the dumbest and most partisan liberals that post on r/politics for example. Other popular subreddits are just as awful. Rational people avoid them because legitimate arguments against the truthiness are downvoted to oblivion.
There are a lot more CEOs making 1% incomes than comedians. And most comedians don’t make much at all for years on end, whereas most CEOs make at least top 20% incomes for most of their careers.
Quick question: If bankers should be in prison, in the stocks, shot: what criminal infractions make that necessary?
“Accounting Control Fraud.”
Is that all you have . . . for the guillotine? Which statute? State or federal?
“Accounting control fraud” by that do you “infractions” of the Treadway Committee of Sponsoring Organizations (COSO) standards on internal controls over financial reporting? If so, no prosecutor would bring the case would not be criminal unless actual fraud can be proved.
Since about 1992 and the enactment of the FDIC Improvement Act 1993, the Federal banking regulators supposedly have enforced regulations requiring annual audits/reviews and assertions/attestations by both senior bank managements and external auditors of internal controls over financial reporting and affirmative indications of compliance with laws and regulations concerning dividends payments and insider transactions. Apparently, that power failed bank regulators and external auditors going into 2007.
And, soon after that, (post-Enron and the death penalty for Arthur Andersen), Congress passed the Sarbanes-Oxley Act which was supposed to end such financial/market catastrophes.
In 2009, the same people that fostered the crisis passed Dodd-Frank. I have no confidence in that preventing the next bank crash.
How about out of business and poor? That doesn’t seem possible.
Get a criminal conviction? Good luck with that. It’s really hard to get a Federal prohibition from banking, a civil (preponderance of evidence standard) action, not criminal (beyond a reasonable doubt standard).
Most important is preventing the next debacle. Of course, ensuring bad guys can’t do bad things going forward is of primary importance.
The going out of business and losses happened to Lehman Brothers in 2008, but precipitated the “craziness.” In addition to Lehman, many with positions with them suffered material losses. OTOH, the Fed saw to it that no one in Merrill Lynch or Bear Stearns realized a material loss.
Many financial company shareholders saw their stock values crash. The survivor banks’ share values recovered over time. Think Wells Fargo, Citibank, Bank of America, AIG, etc. Shareholders in failed banks and bank holding companies did not see their share values return.
Many of the officers, employees, etc. involved lost big times. I know a number who came over to the right side and sharing their experiences and expertise. The ones I worked with were not involved in criminal activities. Although, they knew that the MBS and securitizations should never be sold to “widows and orphans.”
“A nurse and a firefighter as a married couple probably break the 1% threshold as a household, too”
Probably not, actually. To be part of the 1%, you have to make more than $343k as a single filer or $380k as a household. (http://www.bankrate.com/finance/taxes/top-1-percent-earn.aspx) According to the BLS, the median fire fighter makes $46k per year (http://www.bls.gov/ooh/protective-service/mobile/firefighters.htm). Nurse salaries vary by job title of course. The highest paid nurse specialty are nurse anesthetists, whose median salary is about $159k (http://www.bls.gov/oes/current/oes291151.htm). Most nurses are not nurse anesthetists. The next highest paying job title are nurse practitioners who make a median salary of about $98k (http://www.bls.gov/oes/current/oes291171.htm) and the most common type of nurse are registered nurses, who make a median salary of about $67k. This means we would expect a registered nurse and a firefighter to make about $113k and a nurse anesthetist and a firefighter to make about $205k. This is a lot of money, certainly, and enough to join the top 10% of incomes. However, this is not enough to join the 1% and saying so is ignorant of the facts. Admittedly, this is a minor thing that doesn’t really detract from your main point.
This just shows how politically inept the phrase “One Percent” was for the self-destructive Occupy folks. People making $400,000 per year aren’t The Class Enemy, they are your children’s friends parents who really have their act together.
You live in a richer neighborhood than I do.
California. Your numbers must be from rural Arkanas.
Average nurse salary in Oakland California is already 120,000+.
Average mind you. Some make more.
Firefighter may have been a stretch probably needs to be Fire Chief.
But they would be at least top 5% for income. More so if you factor in early retirement and pension.
There are definitely others in government who make close to 1% levels:
http://www.latimes.com/local/lanow/la-me-ln-database-public-school-20140723-story.html
The headline guy made 1% income as a school district superintendent. No, don’t imagine his pension based on that either, your head would spin.
This sounds right. And let’s not overlook the fact that the nurse and firefighter do much more useful work than most of the top 1%.
That’s precisely the conceit Communist countries were founded on. As it turns out, nurses and firefighters, as valuable and important as their work is, have much better lives in a system where contributions are measured by voluntary exchange than one in which work value is determined by commissars.
“Top coding” is a general pattern. For example, the federal marginal tax rate on income goes up steadily into the $400,000s, then stops going up. Nobody ever explains why. It just seems to be assumed that there aren’t enough people making over that amount to matter.
That is a conscious decision to avoid the “French problem,” rich people leaving the country to avoid taxes. It used to be an English problem, then the English fixed it (but not in time to keep the Beatles from writing “Taxman,” “19 for him and one for me”). The average rate asymptotically approaches the marginal rate as incomes rise, so the very rich do pay more, even as a percentage.
Amy Schumer didn’t fake her way to comedy stardom. Neither did Kobe Bryant bluff his way to basketball superstardom. Their mastery is clear for almost everyone to see. The world’s greatest physicist and the world’s greatest computer programmer–whoever they might be–may be acknowledged as the best or close to it by people in the know in those fields. But “business manager” is a function not as easily ranked. I submit that top bank managers owe their 1% pay more to politics and the financial leverage of their own overly compensated industry than to the brilliance of their managerial decisions.
I think “the 1%” was an interesting use of the data, and that too often push-back reduces to “oh no, you can’t use the data.”
Flipping it, could you use data to show that the bottom 1/n are doing well? For n>1?
Imagine once we get everyone’s genetic data and we can start the real re-distribution!
Well, a crazy answer tells me that a sane one was not available to you.
Why is it insane?
Without income tax data, I suspect no one would worry much about the 1%.
But now that we have data, you can find inequality, and even consider doing something about it.
Now, if mere financial inequality should be addressed to promote more quality, why not address other forms of inequality? I guess you think we should just limit this game to money?
I’d like to expand the leveling to good lucks, intelligence, health, leisure time, etc.
After all, an equal society is a better one, so why would you not consider these aspects as well?
We just don’t have data (yet) for these.
We already do that. It’s called income tax and estate tax. Because those traits correlate with high incomes in our society. Why do you have a problem with taxing something that the person being taxed had no hand in creating or acquiring? Your not suggesting people intelligent or lucky because of hard work?
Did you read my list?
Tall men have more sexual opportunities. That is not currently taxable or redistributable, but we could find a way, maybe with more data.
Some people have amazing health while others do not. How is that equal? And you’re right, we shouldn’t have a problem taxing that!
Leisure time is a real area for some creative taxation as pigovian incentive/redistribution scheme. Why am I changing diapers while some childless person is having fun in a nightclub. It doesn’t seem fair!
Lest you now inform that people make choices in life, well, those in the upper income quartile made choices too, and yet many want to redistribute the effects of those choices. So why not with leisure time, for example? Or liver strength? Or better vision (tax the 20/20 to pay for Lasik?)
Oh no.
I wonder what the conversation would look like if we termed them ‘producers’ instead of earners.
Maybe the start of the high producers in the 1980s proves the proponents of the Laffer curve to be correct/
It would look idiotic. And rightly so.
The notion that our market system is so wonderful and perfect and unaffected by myriad of factors unrelated to an individual’s actual contribution that we can assume that income (and remember that wealth is even less correlated with contribution) reflects that contribution is fantasy.
So why doesn’t socialism produce the same exact results, since its not individual effort but instead mere luck of the draw?
The notion that our market system is so awful and imperfect and affected by myriad of factors unrelated to an individual’s actual contribution that we can assume that income or wealth does not reflect that contribution is surely more fantastical yet — after all, consumers exist, and attempt to maximize value in exchange.
I think that it does reflect contribution reasonably well below the astronomical heights of those making many millions a year. I think it also does for entertainers and athletes, since there is a pretty clear chain of totally voluntary transactions that generates their income.
But when you start talking about corporate execs and some of the Wall Street types I don’t think it works very well. I don’t think their income reflects their contribution. What contribution did Fiorina make to earn her many millions? She’s in the news, of course, but there are, and have been, lots of mediocrities running around executive suites, and sitting on each others’ boards and compensation committees.
LeBron James does nothing productive for people who don’t enjoy basketball. It’s pointless to look at any single example.
Instead, ask how any system that did not reward consumers could survive their choices.
To ask why some are less productive (or at least, have increased their production less than others) bears the unfashionable implication that production might be virtuous.
Harun throws away a line about globalization and superstar effects.
Of course, per the chart that explains the world (image)
We ARE talking about global trends that favored the global poor and global elites. That is not all bad news.
It does create political questions though.
That is a very interesting graph!
and I have commented far too much today!
I’m mainly just being contrarian for the sake of avoiding real work, to which I shall now return.
Political question: what if the only way to raise the incomes of the global poor is to also raise the incomes of the global elite?
Example: who’s going to build the first textile for export factory in Ethiopia except some rich Chinese textile firm looking for a way to make even more money?
The political question is pretty much “should the American working class suffer to make the global poor richer?”
I think Donald Trump’s popularity is based on dissatisfaction with this deal.
(The Democrats would offer standard remedies. Take a college loan, call me in the morning. )
Just to be clear, its not just Americans. Europe, Japan face this wage competition, too.
Then you have Korea and Taiwan, the “graduates” who also have similar issues.
I know that graph, there’s an annotated version of Milanovic’s graph that explains things even better.
http://www.pewresearch.org/files/2014/01/FT_COTW124.png
In the past two decades almost everyone profited from globalization. Except for the bottom 5% of the income distribution (the absolute poor) and those around 80-85% (the world-middle class in the developed world). The latter group has seen no growth and basically stagnated.
Source:
http://www.krusekronicle.com/kruse_kronicle/2015/01/globalization-and-inequality-two-complex-decades-in-one-simple-graph.html
(which links to the original Pew Research Center article. Which in turn includes links to a presentation and notes by Milanovic. His final ponderings on how globalization will play out: a global middle class (whilst possibly crowding out national middle classes) or a global plutocracy (the 1%) and how this will affect nation states & stability are food for thought.
Thanks!
Perhaps a simplistic notion, but:
It seems to me, that it is not as interesting to say that the top 1% were earning 15% of all income, as it would be to ask whether most of that 15% income would have existed had the top 1% not done whatever it is they do to earn that income. Was the income taken from other demographics in the form of automation/ labour substitution/ asymmetrical knowledge or created by accessing otherwise dormant/under-utilized income?
What if they would have done it for half as much?
I am not sure ignoring any outlier in such an under-developed and everyone-for-themselves world as we have should be surprising – one could similarly ask why the top 1% of religious radicals, mentally ill violent individuals, and viral epidemics could have been allowed to progress to where they are noticeable and disruptive. We simply live in a world with enough crevices (lack of development/ attention/ structure) that such malignant forms can grow unnoticed, feeding on the weakest, avoiding the rough safety nets, etc., and thus emerge knowledgeable, strong, and ambitious.
What’s perhaps more interesting is how little of any real significance has yet been written on the subject, and how much of what has been written has been firmly based in badly flawed assumptions or outright prejudice.
Essentially, what has happened is that a smaller number of people have been creating more new value as markets have globalized, technology has empowered, and governments have liberalized. This new paradigm has made nearly everyone better off due to the massive consumer surplus involved, and “the one percent” is a significantly different assemblage over any significant period of time, owing entirely to the vagaries and discriminations of the aforementioned consumers.
Or, a very small number of people are good at gaming globalization in a way where they get most of the cream and others don’t.
It should be expected that globalization, i.e., free movement of goods and capital but not of people, will lead to the rich getting richer but not necessarily gains for others. Why? People who rely on labour for income cannot move to where the best money is, but capital capital holders can go anywhere to exploit the most profitable opportunity.
No, markets are efficient on average. It is only possible to game the system if you’re making the rules (which is why only Congress beats the market).
Consumers don’t voluntarily make themselves worse off, therefore on average the most profitable opportunities will be those that benefit consumers. Labor movement is much less restricted (and much more protected) than capital.
” It is only possible to game the system if you’re making the rules”
That why I oppose corporate and union donations in politics. Business interests must have decent access to policymakers, since they know best which policies are conducive to growth, but when you can buy both sides of the election without anyone every knowing who you are (Citizen’s United), it is hard to expect that efficient markets will be the result.
How often are consumer advocacy groups represented in policymaking processes, compared to large corporations?
Large corporations do not have an interest in efficient markets, they have an interest in maximizing profits, and few would hesitate to resort to any amount of rhetoric, misleading “research” or outright buying of politicians and parties, if that were the pathway to maximizing profits.
I overstate the case in saying “outright buying of politicians and parties”.
But you don’t donate $1 million just because you like the politician. You wouldn’t do that unless you were basically certain that such a donation would get you influence over policy.
BTW, don’t confuse capital with the tiny portion held tradeable securities — huge amounts of capital are literally immovable because they are property, plant or equipment. Even larger amounts are legally prevented from being employed in any number of respects. For instance, it was illegal for most people to buy Apple stock when they were a small company.
By contrast, labor and associated intellectual capital enjoy entire legal bureaucracies devoted to assuring their independence, and have since the end of indentured servitude.
“This new paradigm has made nearly everyone better off due to the massive consumer surplus involved”
Almost one in six people in your country is on food stamps.
http://frac.org/reports-and-resources/snapfood-stamp-monthly-participation-data/#sep
Read much?
The poverty line (on which food stamp eligibility is based) in the United States is roughly where the average income was in the 1950s.
Perhaps you should be more judicious in your reading selection.
On the composition of the top 1%, most are indeed outside of finance. Bakija, Cole and Heim break down the numbers for both the top 1% and top 0.1%. But finance professionals are still about 13% of the top 1% and 18% of the top 0.1%.
What I think a lot of people miss is that we don’t and shouldn’t talk about the top 1% to demonize anyone. Rather, the point is that incomes in this bracket are growing much more rapidly than incomes in other brackets and there are serious questions as to why that is, what should be done about it and what this continued disparity will do to our social and political institutions. Dentists sometimes crack the top 1% and that in itself isn’t a problem. What is a problem is if the incomes of your average dentist are increasing 8-10% per year at a time when many other people face stagnant or much more slowly growing incomes. Eventually, people simply won’t be able to afford to go to the dentist and insurance companies will lose interest in covering dental care. My guess is that dentists are not among the group whose incomes are rapidly diverging from anyone else’s and so it’s a bit of a red herring but, if they are, then that actually is a problem for those of us who are part of the 99% and who have teeth.
Again, this doesn’t make any sense. Dentists cannot become so rich that no one can afford them. It’s like the economic version of Yogi Berra’s “no one goes there anymore, it’s too crowded.”
One of the better shots I’ve seen lately
It must have been the steve jobs effect. What about people who were successful in the market? Was it possible for more people to make a lot of money in the market? What about technology? Did information people do better than house painters? So what? Coal miners no longer mine coal. Did they become tech millionaires?
I know a guy who is a millionaire and all he does is manage the income from dividends on his UPS stock.
This thread might be a good place to ask this question or it might not.
Does anyone have the list of the world’s richest people ranked by net cash flow and not by net worth / asset value?