Via Krugman, I see that Emannuel Saez just released his latest figures [PDF] on income inequality (the latest numbers are from 2007). It's not exactly surprising, but it is depressing:


As you can see, nearly a quarter of total income goes to the top 1 percent of Americans, nearly as high as the most recent peak, in 1928. (Notice any correlation of events?). The above graph, incidentally, seems to be one of the best arguments for creating new tax brackets for the ultra-rich -- not that I'm suggesting we go as high as the rates in the sixties and seventies; just that we create a more progressive situation. As Warren Buffet is fond of noting, he pays a lower tax rate than his secretary.

This data, of course, precedes the crash of 2008. That will likely lead income inequality to recede, but as Saez writes,

[F]alls in income concentration due to recessions are temporary unless drastic policy changes, such as financial regulation or significantly more progressive taxation, are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration till the 1970s. In contrast, recent downturns, such as the 2001 recession, lead to only very temporary drops in income concentration.

Besides the real moral problems with inequality, which resonate most strongly with us on the left, there are a number of other good arguments for why we should strive for a more equitable economy. One is that there seems to be a strong correlation between sustainable, long-term growth and shared growth; another is that equality contributes to political stability; then there is a suggestion that huge asset surpluses among the wealthy contributes to speculative bubbles. A definite must-read on this issue is Jon Chait's reply to Will Wilkinson's recent inequality paper. I'll leave you with the kicker:

"How are a poor, inner-city kid's life chances affected," asks Wilkinson, "by the fact that some Web entrepreneur makes billions of dollars as opposed to just millions?" They're not. But if the Web entrepreneur has to pay a slightly higher tax rate so the inner-city kid can afford to attend a decent college, or so the kid's parents can see a dentist, how are the entrepreneur's life chances affected?

-- Tim Fernholz

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