Income Inequality

Percentage of Americans' income going to top 10% of households

SOURCE: Emmanuel Saez and Thomas Piketty | The Washington Post - Oct. 6, 2010

Emmanuel Saez, Center for Equitable Growth
The above has links to many of his important works on U.S. income distribution.


The costs of rising economic inequality
By Steven Pearlstein
Washington Post, 2010-10-06

Income gap hangs over tax debate
In push to let Bush tax cuts expire,
Democrats to focus on narrowing income gap

by Lori Montgomery
Washington Post, 2010-10-14

For months, President Obama has stressed the budgetary rewards
of eliminating tax breaks for the wealthy.
But many Democrats see a more fundamental reason
to let the Bush-era tax cuts expire in January:
narrowing the growing divide between the rich and everyone else.

When Congress returns to Washington next month,
a solid core of Democratic lawmakers says
it will urge party leaders to seize a rare opportunity to
reverse three decades of rising income inequality
by resisting any effort to extend the cuts for the richest 2 percent of households.


The Inequality That Matters
by Tyler Cowen
American Interest, 2011-01/02

Rich pull away from rest of America
by Peter Whoriskey
Washington Post, 2011-06-19

[This is a big, long article!]

Top Earners Doubled Share of Nation’s Income, Study Finds
New York Times, 2011-10-26

As the Data Show, There’s a Reason the Wall Street Protesters Chose New York
New York Times, 2011-10-26


U.S. Income Gap Rose, Sign of Uneven Recovery
New York Times, 2012-09-13


The income gap between
the wealthiest 20 percent of American households and the rest of the country
grew sharply in 2011, the Census Bureau reported,
as an overwhelming majority of Americans saw no gains
from a weak economic recovery in its second full year.

Income for the top fifth of American households rose by 1.6 percent last year,
driven by even larger increases for the top 5 percent of households,
said David Johnson, the Census Bureau official who presented the findings.
All households in the middle of the scale saw declines,
while those at the very bottom stagnated.

“You’re really struck by the unevenness of the recovery,”
said Lawrence Katz, an economics professor at Harvard
“The top end took a whack in the recession,
but they’ve gotten back on their feet.
Everyone else is still down for the count.”

The numbers helped drive
an overall decline in income for the typical American family.
Median household income after inflation fell to $50,054,
a level that was 8 percent lower than in 2007,
the year before the recession took hold.


Census: Middle class shrinks to an all-time low
By Carol Morello
Washington Post, 2012-09-13

The vise on the middle class tightened last year,
driving down its share of the income pie
as the number of Americans in poverty leveled off
and the most affluent households saw their portion grow,
new census data released Wednesday showed.

Income inequality increased by 1.6 percent,
the Census Bureau said in
its annual report on poverty, income and health insurance.
This was the biggest one-year increase in almost two decades
and suggested that a trend in place since the late 1970s was picking up steam.

As a snapshot of a nation recovering from one of its worst recessions ever,
the census report had both shadows and highlights.
Median household income declined $777, to $50,054 before taxes.
But the poverty rate,
which many experts had predicted would rise
to rates unseen in nearly half a century,
inched down a hair to 15 percent, a decline of about 100,000 people.
And fewer Americans were without health insurance,
largely because of a provision in the 2010 health-care law
allowing young adults to stay on their parents’ policies.


For many economists, the most troubling statistics
were those on income inequality underscoring the middle-class squeeze.

The 60 percent of households
earning between roughly $20,000 and $101,000
collectively earned 46.6 of all income, a 1.5 percent drop.
In 1990, they shared over 50 percent of income.

In contrast, the census data show,
the top fifth rose 1.6 percent in 2011
after several years of decline during the recession.
The biggest gains went to the top 5 percent,
who earn more than $186,000;
their share of income jumped almost 5 percent in a single year.

Scholars said the disparate numbers underscore
the many prisms through which different groups of people
view the anemic economic recovery.

“It explains the disconnect between
the numbers saying there’s slow improvement and job growth,
and the way people feel, because they haven’t recovered,”
said Sarah Burd-Sharps, co-director of Measure of America
at the Social Science Research Council.
“It’s partly because the recovery has mostly been felt at the top.”

Tim Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin at Madison, said
the working class, whose pay tops out about $62,000,
are bearing the brunt of the income squeeze.

“Their pay rate has gone down,
the number of hours that everyone in the house works has gone down,
their homes have lost value,”
he said.
“These are the people really ravaged by the recession.”



Rich People Just Care Less
New York Times Opinator Blog, 2013-10-05

Turning a blind eye. Giving someone the cold shoulder. Looking down on people. Seeing right through them.

These metaphors for condescending or dismissive behavior are more than just descriptive. They suggest, to a surprisingly accurate extent, the social distance between those with greater power and those with less — a distance that goes beyond the realm of interpersonal interactions and may exacerbate the soaring inequality in the United States.

A growing body of recent research shows that people with the most social power pay scant attention to those with little such power. This tuning out has been observed, for instance, with strangers in a mere five-minute get-acquainted session, where the more powerful person shows fewer signals of paying attention, like nodding or laughing. Higher-status people are also more likely to express disregard, through facial expressions, and are more likely to take over the conversation and interrupt or look past the other speaker.

Bringing the micropolitics of interpersonal attention to the understanding of social power, researchers are suggesting, has implications for public policy.

Of course, in any society, social power is relative; any of us may be higher or lower in a given interaction, and the research shows the effect still prevails. Though the more powerful pay less attention to us than we do to them, in other situations we are relatively higher on the totem pole of status — and we, too, tend to pay less attention to those a rung or two down.

A prerequisite to empathy is simply paying attention to the person in pain. In 2008, social psychologists from the University of Amsterdam and the University of California, Berkeley, studied pairs of strangers telling one another about difficulties they had been through, like a divorce or death of a loved one. The researchers found that the differential expressed itself in the playing down of suffering. The more powerful were less compassionate toward the hardships described by the less powerful.

Dacher Keltner, a professor of psychology at Berkeley, and Michael W. Kraus, an assistant professor of psychology at the University of Illinois, Urbana-Champaign, have done much of the research on social power and the attention deficit.

Mr. Keltner suggests that, in general, we focus the most on those we value most. While the wealthy can hire help, those with few material assets are more likely to value their social assets: like the neighbor who will keep an eye on your child from the time she gets home from school until the time you get home from work. The financial difference ends up creating a behavioral difference. Poor people are better attuned to interpersonal relations — with those of the same strata, and the more powerful — than the rich are, because they have to be.

While Mr. Keltner’s research finds that the poor, compared with the wealthy, have keenly attuned interpersonal attention in all directions, in general, those with the most power in society seem to pay particularly little attention to those with the least power. To be sure, high-status people do attend to those of equal rank — but not as well as those low of status do.

This has profound implications for societal behavior and government policy. Tuning in to the needs and feelings of another person is a prerequisite to empathy, which in turn can lead to understanding, concern and, if the circumstances are right, compassionate action.

In politics, readily dismissing inconvenient people can easily extend to dismissing inconvenient truths about them. The insistence by some House Republicans in Congress on cutting financing for food stamps and impeding the implementation of Obamacare, which would allow patients, including those with pre-existing health conditions, to obtain and pay for insurance coverage, may stem in part from the empathy gap. As political scientists have noted, redistricting and gerrymandering have led to the creation of more and more safe districts, in which elected officials don’t even have to encounter many voters from the rival party, much less empathize with them.

Social distance makes it all the easier to focus on small differences between groups and to put a negative spin on the ways of others and a positive spin on our own.

Freud called this “the narcissism of minor differences,” a theme repeated by Vamik D. Volkan, an emeritus professor of psychiatry at the University of Virginia, who was born in Cyprus to Turkish parents. Dr. Volkan remembers hearing as a small boy awful things about the hated Greek Cypriots — who, he points out, actually share many similarities with Turkish Cypriots. Yet for decades their modest-size island has been politically divided, which exacerbates the problem by letting prejudicial myths flourish.

In contrast, extensive interpersonal contact counteracts biases by letting people from hostile groups get to know one another as individuals and even friends. Thomas F. Pettigrew, a research professor of social psychology at the University of California, Santa Cruz, analyzed more than 500 studies on intergroup contact. Mr. Pettigrew, who was born in Virginia in 1931 and lived there until going to Harvard for graduate school, told me in an e-mail that it was the “the rampant racism in the Virginia of my childhood” that led him to study prejudice.

In his research, he found that even in areas where ethnic groups were in conflict and viewed one another through lenses of negative stereotypes, individuals who had close friends within the other group exhibited little or no such prejudice. They seemed to realize the many ways those demonized “others” were “just like me.” Whether such friendly social contact would overcome the divide between those with more and less social and economic power was not studied, but I suspect it would help.

Since the 1970s, the gap between the rich and everyone else has skyrocketed. Income inequality is at its highest level in a century. This widening gulf between the haves and have-less troubles me, but not for the obvious reasons. Apart from the financial inequities, I fear the expansion of an entirely different gap, caused by the inability to see oneself in a less advantaged person’s shoes. Reducing the economic gap may be impossible without also addressing the gap in empathy.

[An argument that ignores some crucial exceptions:
If you are in the groups which the mainstream Jewish community has chosen to give unabashed support to
(can they deny that with a straight face?),
namely, (feminist) women, blacks, homosexuals and "minorities" in general,
then you are practically automatically cast as a "victim",
and are to a certain extent immunized to any criticism, no matter how legitimate,
by dint of having practically any criticism derogated as being motivated by "hatred."
So there is empathy aplenty for some groups.]


The Fed’s policies may have fed income inequality
By Charles Lane, Opinion writer
Washington Post Op-Ed, 2014-09-17

The latest meeting of the People Who Influence Everything from
Auto Loans to 401(k) Plans —
a.k.a. the Federal Reserve Board’s Open Market Committee —
has just concluded.
The Fed confirmed Wednesday that, as expected,
it will stop buying bonds with freshly printed money in October
but did not say when, exactly,
it will end its recession-fighting zero-interest-rate policy.


Under former chair Ben S. Bernanke,
the Fed said it might abandon that policy
when the official unemployment rate hit 6.5 percent.
That milestone is now in the rearview mirror —
unemployment was 6.1 percent in August —
but the Fed hasn’t yet acted.

Bernanke’s successor, Janet Yellen, worries justifiably that
the jobless rate has lost validity as a measure of overall economic weakness;
much of the recent improvement seems to reflect not hiring
but a shrinking labor force.
Pending better data, she’s keeping her options open.

[Too bad the people running the country
don't take America's manufacturing ability into account
when considering "economic weakness".
Or the balance of trade.
The most desirable things we buy may come uniformly from Japan, Germany, or China,
but the lack of America's ability to manufacture a range of goods
that are essential for those desirable products
seems to pass without notice by these people.]

Not to add to the chair’s worries,
but she needs to take another issue into account: inequality.
This month, the Fed released the latest edition of
its triennial Survey of Consumer Finances,
which showed that “only families at the very top of the income distribution
saw widespread income gains” between 2010 and 2013.

The top 3 percent of households claimed 30.5 percent of all income in 2013,
up from 27.7 percent in 2010,
while the next 7 percent held steady at nearly 17 percent —
and the bottom 90 percent’s share declined to 52.7 percent.

In short, the recovery erased nearly all of the decline in the top-earners’ share
that occurred during the “Great Recession,”
while nine out of 10 families not only didn’t experience a similar comeback
but fell further behind.
Family net worth, a measure of accumulated wealth, showed a similar skewing upward.

Since this three-year period coincides with the Fed’s own extended experiment in ultra-cheap-money policies, the question arises: How much, if at all, is the Fed to blame?

Obviously the central bank did not intend to increase inequality; its goals, which it has largely accomplished, were to stop a historic financial panic and then jump-start growth.

Indeed, to the extent the Fed’s policies prevented truly massive joblessness, inequality might have been worse without them. That’s because a tighter labor market gives workers more leverage to bargain for higher wages.

The question is whether, and how much, that effect is offset by others. Rock-bottom interest rates hurt small savers, who generally can’t diversify into higher-yielding but riskier investments.

Economist Mario Belotti of Santa Clara University has calculated that savings-account holders lost nearly $1.2 trillion in interest income between August 2007 and September 2013, relative to what they would have realized absent the Fed’s policies, even though deposits grew from $3.8 trillion to $7 trillion.

Meanwhile, Wall Street bathed in free money from the Fed. Owners of stocks and other assets, such as farmland, who are disproportionately high-income, profited from the bull market.

That effect was foreseeable and not entirely unintended, as Bernanke acknowledged in his Sept. 13, 2012, news conference. He predicted that higher asset prices will make people “feel wealthier; they’ll feel more disposed to spend,” thus boosting demand and broader economic activity.

Any regressive impact of Fed policy is especially awkward for monetary doves, since they tend to favor both a level distribution of income and vigorous Fed action against lingering slack in the labor market.

But what if the longer you pursue extra employment increments via cheap money, the more you risk skewing income distribution upward? That’s been the result of Japan’s years-long experiment in ultra-loose monetary policy, according to economists at the Dutch central bank.

It’s a surprisingly little-studied area, and central banking experts don’t necessarily agree on a theoretical framework. Economist William R. White of the Dallas Federal Reserve has written that central banks may have exacerbated inequality over several decades, because their persistent bias in favor of pouring cheap money on a crisis-prone financial sector artificially inflated that sector’s profits and the incomes of those who operate it.

James Bullard, president of the St. Louis Fed, by contrast, has argued that central bank policy probably just smoothed out the ups and downs of a long-standing trend toward inequality that’s driven by technology and social factors beyond the Fed’s control.

Perhaps the best idea comes from economist Pierre Monnin of the Swiss National Bank. He proposes that central banks commit to regular analysis and public reporting on the distributional impact of their policies.

Greater transparency has been the Fed’s response to concerns about how it uses its vast power. Given that, a little more exactitude about monetary policy’s winners and losers doesn’t seem like too much to ask.

The pay gap between CEOs and workers is much worse than you realize
By Roberto A. Ferdman
Washington Post Wonkblog, 2014-09-25

[There are some excellent bar graphs in the original web document.]

Americans might think they know how bad inequality is, but it turns out they actually have no idea.

A new study conducted at Harvard Business School found that
Americans believe CEOs make
roughly 30 times what the average worker makes in the U.S.,
when in actuality they are making
more than 350 times the average worker.

"Americans drastically underestimated the gap in actual incomes
between CEOs and unskilled workers," the study says.

But that underestimation isn't merely drastic—
it is also unmatched in the world.
The gap between Americans' perception and reality is
the most among any of the 16 countries for which
the researchers measured both the perceived and actual pay inequality.

Part of that stems from Americans’ comparatively modest estimation.
The citizens of four countries—South Korea, Australia, Chile, and Taiwan—
estimate a higher pay gap between CEOs and low level workers.
In South Korea, the perception is that CEOs make 42 times more than the average worker;
in Australia, it’s just over 41; in Taiwan, it’s roughly 34; and in Chile, it’s about 33.

But the reason Americans are so bad at guessing how much CEOs make
may also be tied to the fact that
American CEOs are significantly better paid than
those from just about anywhere else.

The average Fortune 500 CEO in the United States makes more than $12 million per year,
which is nearly five million dollars more than
the amount for top CEOs in Switzerland, where the second highest paid CEOs live,
more than twice that for those in Germany, where the third highest paid CEOs live,
and more than twenty one times that for those in Poland.

While a handful of countries might perceive larger pay gaps than the United States,
none of the ones surveyed have an actual pay gap anywhere nearly as large.
In Switzerland, the country with the second largest CEO-to-worker pay gap,
chief executives make 148 times the average worker;
in Germany, the country with the third largest gap,
CEOs make 147 times the average worker;
and in Spain, the country with the fourth largest gap,
the ratio is 127 to one.

Look no further than a few of America's largest corporations
for evidence of the country's exceptionally large pay gap.
An analysis from last year estimated that
it takes the typical worker at both McDonald's and Starbucks
more than six months to earn what each company's CEO makes in a single hour.

What Americans share with the rest of the world
is a collective disdain for pay inequality.
People of all ages, education levels, and income brackets, the study found,
believe that low-skilled workers are getting paid too little
and high-skilled workers are getting paid too much.
"The consensus that income gaps between skilled and unskilled workers should be smaller
holds in all subgroups of respondents regardless of
their age, education, socioeconomic status, political affiliation
and opinions on inequality and pay,"
the study says.

One can only imagine what that disappointment would look like if everyone had a better sense of how great the pay gap actually is.

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