The increasingly unequal distribution of income

If it wasn’t clear before it should be now: the distribution of income in the United States has become increasingly unequal over the course of the past three decades.

It is increasingly unequal based on “market incomes,” and it is only slightly less increasingly unequal after taking consideration transfers and taxes. The result in both cases is that the distribution of income in the United States has become grotesquely unequal.

That’s the conclusion of the new study by the nonpartisan Congressional Budget Office [summary here and pdf here]. The study includes a set of basic facts and figures that should figure in every discussion of the origins of the current crisis as well as the current political debates concerning taxes, deficits, and much else.

It’s also a challenge to economists to either stop ignoring the conditions and consequences of the unequal distribution of income or to go beyond the facile invoking of “technology and globalization” as its causes—and to come up with a real analysis of how this increasingly unequal distribution of income created the conditions for the  crisis of 2007-08 as well as of the changing patterns of U.S. capitalism starting in the mid-1970s that led to concentration of income at the top.

Here, in short, is what we know.

First, for the 1 percent of the population with the highest income, average real after-tax household income grew by 275 percent between 1979 and 2007 while, for others, income grew much less: 40 percent for the 60 percent of the population in the middle of the income scale, only 20 percent of the population with the lowest income. The result was that, between 2005 and 2007, the after-tax income received by the 20 percent of the population with the highest income exceeded the after-tax income of the remaining 80 percent.

Second, a large part of the explanation of why incomes became so unequally distributed between 1979 and 2007 was because of the increase in the concentration of “market income” (income measured before government transfers and taxes) in favor of higher-income households. In other words, such households’ share of market income was greater in 2007 than in 1979. Specifically, over that period, the highest income quintile’s share of market income increased from 50 percent to 60 percent. The share of market income for every other quintile declined.

Finally, while income transfers and taxes make the distribution of income slightly less unequal, the fact is, the equalizing effect of transfers and taxes on household income was smaller in 2007 than it had been in 1979. That’s in part because the distribution of transfers shifted, moving away from households in the lower part of the income scale, and because the overall average federal tax rate fell by a small amount and the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes. As a result of those changes, the share of household income after transfers and federal taxes going to the highest income quintile grew from 43 percent in 1979 to 53 percent in 2007. The share of after-tax household income for the 1 percent of the population with the highest income more than doubled, climbing from nearly 8 percent in 1979 to 17 percent in 2007.

Those are the basic facts and figures about the increasingly unequal distribution of income—before and after taxes—in the United States between 1979 and 2007.

The next step is to analyze why the distribution of income became increasingly unequal and what its consequences are. I’ll be investigating and writing about those issues in the days and weeks ahead. I hope others will, too. . .

Who’s consumer confidence?

The Conference Board Consumer Confidence Index fell again in October, to its lowest level since March 2009.* It now stands at 39.8 (1985=100), down from 46.4 in September. Overall, the people surveyed have a pretty good sense of where things are and where they’re headed.

Consumers’ appraisal of present-day conditions deteriorated further in October. Those claiming business conditions are “bad” increased to 43.7 percent from 40.5 percent, while those claiming business conditions are “good” decreased to 11.0 percent from 12.1 percent. Consumers’ assessment of the labor market was also less favorable. Those claiming jobs are “plentiful” decreased to 3.4 percent from 5.6, however, those saying jobs are “hard to get” decreased to 47.1 percent from 49.4 percent.

Consumers’ short-term outlook, which had improved last month, reversed course in October. Those expecting business conditions to improve over the next six months decreased to 9.1 percent from 11.8 percent, while those expecting business conditions to worsen edged down to 21.5 percent from 21.9 percent.

Consumers’ outlook for the job market was slightly more pessimistic. Those anticipating more jobs in the months ahead edged down to 11.3 percent from 11.9 percent, while those expecting fewer jobs decreased to 27.4 percent from 28.6 percent. The proportion of consumers anticipating an increase in their incomes declined to 10.3 percent from 13.5 percent.

That may summarize the overall view but, for those at the very top, things look quite different. As the Fiscal Times demonstrates, the top 1 percent are quite confident of their purchasing power—or, alternatively, they’re going to find ways to show they’re rich until the whole thing comes tumbling down around their baubles.

In the U.S., despite the belt-tightening across most of the country, wealthy Americans are starting to enjoy the good life once again, buying high-status items and services they had cut out of their 2009 and 2010 budgets. Indeed, rich Americans’ expenditures on luxury are set to rise $26.6 billion this year.

* Bloomberg Businessweek explains how the index is constructed.

Machines don’t fire workers

Machines don’t fire workers, capitalists do.

That’s what occurred to me after reading Steve Lohr’s review of Erik Brynjolfsson and Andrew P. McAfee’s new book Race Against the Machine.

Apparently, Brynjolfsson and McAfee are concerned that the increased pace of automation (based on new technologies, including robotics, numerically controlled machines, computerized inventory control, voice recognition, and online commerce) and increased spending on equipment and software have led to the elimination of many jobs, thus increasing unemployment. It’s an argument that makes a lot of sense, until you come to their conclusion:

“In medicine, law, finance, retailing, manufacturing and even scientific discovery,” they write, “the key to winning the race is not to compete against machines but to compete with machines.”

What the hell does that mean?

Peter Frase has a much more interesting discussion of the book (which, in his view, is not really a book but “really more like a very long article”). He believes we need to take changes in technology and productivity seriously because they “present us with an opportunity to reorient the economic conversation in a more radical direction.” Frase rejects two alternative arguments—the end of work (“the mistaken notion that if most of the labor currently performed by humans is replaced by machines, the result will inevitably be permanent mass unemployment at some point in the future”) and the end of technology (“which insists that there is some obvious limit to just what can be automated”—as well as the authors’ own failure to address the issues of unemployment and inequality.

if technology really is dramatically reducing the need for human labor, then we have an opportunity to think bigger and better, getting beyond merely trying to scrape up new skills and new jobs for the displaced proletariat. . .

The defenders of the current order will keep trying to convince us that in a technologically advanced world of material plenty, more capitalism is still the solution to all our problems; but perhaps it is capitalism itself that is holding us back, and maybe it’s time for that integument to burst asunder.

In other words, it’s not new technologies that create mass unemployment and rising inequality but the way capitalists utilize these new technologies to displace workers and extract more surplus. A different way of organizing the economy would create the possibility of making different technological choices—different choices about the technologies that are developed and utilized, and different choices about the effects on employment, the amount of surplus, and the way that surplus is utilized.

Cartoon of the day

Special mention

How law works in the real world

A recent article in the Boston Globe, by Leon Neyfakh, just confirms my view that Elizabeth Warren is the Leonard Horner of the twenty-first century.

“Inequality is divisive and corrosive”

 

Chart of the day

source

The poor population in America’s suburbs — long a symbol of a stable and prosperous American middle class — rose by more than half after 2000, forcing suburban communities across the country to re-evaluate their identities and how they serve their populations.

The increase in the suburbs was 53 percent, compared with 26 percent in cities. The recession accelerated the pace: two-thirds of the new suburban poor were added from 2007 to 2010. . .

“The whole political class is just getting the memo that Ozzie and Harriet don’t live here anymore,” said Edward Hill, dean of the Levin College of Urban Affairs at Cleveland State University.

Cartoon of the day

Special mention

Protest of the day

Two nurses and a union organizer volunteering at the Occupy Chicago protest were arrested over the weekend.

National Nurses United is planning a protest at Mayor Rahm Emanuel’s office today.

The group, the nation’s largest union of registered nurses, is calling on its membership in Chicago to picket City Hall this morning to demand that misdemeanor trespassing charges against the nurses and all of the protesters be dropped.

The two nurses arrested were among a larger group marching with Occupy Chicago protesters and later set up a tent to provide first aid.

“It was the wrong move,” RoseAnn DeMoro, the group’s executive director, said Sunday. “We were there to make sure if the occupiers get harmed, they have first aid.”

Students and universities in the world today

Those of us of a certain age remember when students played an important role in social change, starting on their college and university campuses. What about today?

It seems that institutions of higher education have not played a particularly prominent role in recent protests movement, from the Arab Spring to Occupy Wall Street. The participants in those movements seem to have been more active in the streets and on-line than in classrooms and on campuses.

My sense is, on the other hand, some large percentage of the protestors have been students (either current students or recent graduates), and demands around education (against cuts and for better, more affordable education) have been central to the call for political, economic, and social justice.

Apparently, this contradictory role of students and universities was a theme in a recent education conference, as reported by David Wheeler [ht: ja].

The fact is, official academic administrators’ discourse within the corporate university has turned students into consumers. While that may mean universities and colleges are no longer the place for the kinds of discussion and activism occurring in recent protests movements, it may also be the case that students’ rejection of the role of customers is fueling those very same movements.

So, Wheeler may be right: we may be witnessing a “global shift in the way students see themselves.”