Concerning the pain of the top one percent!

THURSDAY, DECEMBER 15, 2011

The New York Times offers some facts: No, it didn’t make the front page. The front page of the New York Times is reserved for Mitt Romney’s marriage and hair.

But in Tuesday’s New York Times, Jason DeParle offered an intriguing report about the pain of the top one percent. Things haven’t been going well for this group, a fact you may not have heard.

We don’t mean to direct our snark at DeParle, who compiled a fact-filled report. That said, the gentleman opened his piece with a counterintuitive fact:
DEPARLE (12/13/11): Top Earners Not So Lofty in the Days of Recession

Hold the condolence cards, but the recession cost the rich.

The share of income received by the top 1 percent—that potent symbol of inequality—dropped to 17 percent in 2009 from 23 percent in 2007, according to federal tax data. Within the group, average income fell to $957,000 in 2009 from $1.4 million in 2007.

Analysts say the drop largely reflects the stock market plunge, and most think top incomes recovered somewhat in 2010, as Wall Street rebounded and corporate profits grew. Still, the drop alters a figure often emphasized by inequality critics, and it has gone largely unnoticed outside the blogosphere.
Zounds! That’s a rather large drop over just two years, but we’ll assume the data are accurate. For us, the humor began when DeParle consulted one of the nation’s many brilliant professors:
DEPARLE (continuing directly): By focusing on the top 1 percent, the Occupy Wall Street movement has made economic fairness a subject of street protest and political debate.

“It’s very interesting that this has become such a big topic now when the numbers are back to where they were in the 1990s,” said Steven Kaplan, an economist at the University of Chicago’s business school. “People didn’t seem to be complaining about it then.”
If people weren’t complaining then, DeParle’s report plainly suggests that they should have been. In 1980, the top one percent were gobbling up ten percent of the nation’s income, DeParle reports. By the year 2000, the percentage had risen to 22 percent. If there’s a problem with that degree of inequality, people should have been complaining during the 1990s. Kaplan made a wonderful try, but we'd say his logic failed.

Is there a problem with that degree of inequality? The Times reserves its big news holes for analyses of friendship patterns among the Republican candidates. For that reason, DeParle got secondary billing (below the fold on page B1), and a limited number of words. If the Times had given this piece larger play, DeParle might have addressed two limitations of this report:

DeParle discusses the top one percent. But as Paul Krugman often notes, the real story involves a smaller cohort—the top one-tenth of the top one percent. That is where the big money goes. We would be curious about the way their income has slid.

Beyond that, the problem with this pattern involves more than income alone. The people who make the really big swag will sometimes use it to buy politicians. From a progressive standpoint, it’s a good idea to stress this part of the problem, which extends beyond the fact that some folk make much more than most.

Finally, we were struck by DeParle’s attempt to explain the growth in lucky-duck income. He listed quite a few alleged factors:
DEPARLE: [I]nequality has been growing for three decades, driven by economic and political forces. Globalization created larger markets for those with scarce talents but hurt less educated workers by pitting them against cheap foreign labor. New technology also hurt unskilled workers, by replacing many with machines.

Unions declined, eroding blue-collar bargaining power. The financial industry grew, with paydays heavily weighted toward the top. Corporate culture accepted the growing gap between the executive suite and the factory floor.

Falling tax rates on the highest earners added to the net income divide, by allowing top earners to keep more of their pay and increasing their incentive to maximize it.

In the decades after World War II, by contrast, the average income of the top 1 percent grew only marginally faster than inflation and significantly slower than middle-class incomes. That combination caused inequality to decline throughout much of the 1950, ’60s and early ’70s.
Why did the lucky duckies start to score so much swag in the past few decades? DeParle starts with several alleged factors which don’t seem to reflect anyone’s deliberate choices. Before long, though, he hits a few more interesting points, factors he doesn't explain. Why were “paydays heavily weighted toward the top?” Why did “corporate culture accept the growing gap between the executive suite and the factory floor?” And good grief:

If the lucky duckies were snorkeling in so much additional swag, why on earth did we also see “falling tax rates on the highest earners?” In our view, there is a fascinating cultural story here, the story told in the film Wall Street. That story is obscured in DeParle’s list of causes, which is ruled by some category errors.

That said, this was a fact-filled report. But it didn’t concern Romney’s marriage or hair or hisrecent use of "zany." For these reasons, it was buried below the fold on B1.

It didn’t run Ashley Parker length, with photos. You had to seek this one out.

16 comments:

  1. Bob Somerby writes, "In 1980, the top one percent were gobbling up ten percent of the nation’s income."

    Not so. They were earning ten percent of the nation’s income. Bob's formulation makes it sound as if there were a fixed pool of income just sitting out there to be effortlessly gobbled up by the most aggressive gobblers.

    E.g., before fully retiring, I spent 6 years doing part-time consulting, mostly outside the US. I paid state and federal income tax as well as self-employment tax, which took over half of my earnings.

    Now that I'm fully retired, my income is closer to the income of poor Americans. Is this reduction in disparity good for poor Americans? No, it's bad for them. My retirement means that less tax revenue is available to pay for help to the poor.

    ReplyDelete
  2. Again, DiC cheerleading for the rich.

    "When we make more /
    it's good for the poor!"

    ReplyDelete
  3. You got it, Anonymous. And, the rich who create employment do even more for the poor.

    E.g., Larry Ellison is the third richest American, with $33 billion. Would California's poor be better off if Ellison hadn't founded Oracle here and made all this money? Of course not. Not only does Ellison pay lots of income tax, property tax, sales tax, etc. He also provides employment for thousands of people, who also contribute tax money to state and federal government. Furthermore, Ellison and his employees buy lots of stuff, thus providing income to lots of other businesses and individuals. And, those individuals and businesses also pay lots of tax.

    At the moment, the federal government is able to run a huge deficit, since they can borrow money cheaply. So, the importance of federal tax collection isn't that obvious yet.

    However, California isn't allowed to run a deficit. We're seeing lots of cuts in government services. May of these cuts hurt the poor. Without the taxes paid by Ellison, his employees, his customers, and his suppliers, the poor would be facing even more cuts

    ReplyDelete
  4. David in Cal:

    Think of this: if you had had the good luck to be a Frenchman, German or Swede, you're taxes wouldn't have been much higher than you report here, but for all you're working life you would've saved big on medical care, gotten 5 weeks paid vacation annually, made use of a host of social benefits which are so far removed from the American experience that they're the subject of comedy here, and enjoyed higher quality of life generally. And, best of all, you'd be a lot less "poor" now, thanks both to money saved during your working years, better health and lower ongoing expenses associated with aging.

    So I'd say you made a great case for socialism.

    ReplyDelete
  5. Thanks, Anonymous. David in Cal is pitiful, just pitiful. And pitiable, since he clueless as well.

    ReplyDelete
  6. Jason DeParle's figures are backed up by Paul Krugman in his book, 'The Conscience of a Liberal'.
    Prof. Krugman calls the brief period after WWII "The Great Compression", a period when income inequality in the US was at its lowest.

    Robert Reich, in 'Aftershock' also backs up these figures, as do Thomas Piketty and Emmanuel Saez in numerous studies.
    Specific numbers may vary a bit, but the trend is undeniable.

    The issue is not 'kill the capitalists'.
    The issue is "Should government foster massive income inequality?"

    ReplyDelete
  7. "Gobbling up" is generally more accurate than "earn" in such cases.

    ReplyDelete
  8. What David in Cal (and many others) often miss is that no one is objecting to their wealth or their income. It is the fact that the growth in their income has come without a corresponding growth in the bottom 99% ...or really, the bottom 99.9%. The 0.1% and the 1% have been competing in a race to the top, whereas the rest of America has been forced into a race to the bottom.

    ReplyDelete
  9. @David in Cal:

    "And, the rich who create employment do even more for the poor. "

    The question which begs to be asked here is, what do we do with the rich who don't create employment? -- the rich who, in fact, destroy jobs and/or who lower the pay of those who still have jobs with evangelical fervor, to get the stock price up (and their bonuses paid)?

    For example, what's the appropriate tax bracket for a CEO who ships jobs to Asia? Or to a CEO who, like Mitt Romney, destroyed far more jobs, and far more companies, than he ever created or even dreamed of?

    Or for crony capitalists like Robert Rubin or Hank Paulson? Or for a state welfare whore like Donald Trump who, if he creates any jobs at all, they're for maids?

    One might also ask why the wealth of the middle-class has steadily declined since the 1970s, if our betters are so great at creating jobs or wealth for anyone but themselves.

    But these are no doubt idle questions, for a true believer.

    ReplyDelete
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