“As Hyman Minsky argued, there are many varieties of capitalism, some more stable than others—and, we can add, some more equitable than others.” — Pavlina Tcherneva
Pavlina Tcherneva has revisited her (in)famous inequality chart, which showed an ever-rising majority of the income growth during post-1970s economic expansions being captured by the wealthy (specifically the top 10 percent of income earners). In a recently released policy note, “When a Rising Tide Sinks Most Boats: Trends in US Income Inequality,” she has updated the numbers through 2013 and broken down the top decile further (top 1 percent and 0.01 percent), compared the results of including or excluding capital gains, and looked at what happens to the distribution of income growth when we expand our scope to the entire business cycle (Tcherneva looks at NBER-dated GDP cycles as well as “income cycles” based on real income data from Piketty and Saez).
Here are some of the results:
- The capital gains discussion yields a somewhat counterintuitive result: when you exclude capital gains, the distribution of income growth between the top 1 percent and bottom 99 percent appears more unequal. Tcherneva explains that this is because even though the bottom 99 percent have barely any capital gains income to speak of (2 percent of their income), their shrinking wage incomes meant that, from 2009-13, these meager capital gains were making the difference between declining (excl. cap gains) and merely stagnating (incl. cap gains) incomes for the bottom 99 percent.
- When we look at entire economic cycles (peak-to-peak GDP or peak-to-peak income) rather than just the expansion periods, the picture doesn’t look any better. In fact, it’s worse. As Tcherneva notes, although the wealthy tend to lose disproportionately more of their income very early on during downturns, they recover faster and stronger than the bottom 90 percent: “Since the ’70s, when we look at the period beginning only one year after a downturn [and ending at the subsequent peak of the income cycle], the cycle delivers between 78 percent and 107 percent of the income growth to the wealthiest 10 percent of families.” In other words, she writes, “the way we grow recovers the incomes of the top 10 percent first.”
- She also includes the chart below, which, though not quite as striking at first glance, becomes even more galling as you let it sink in. The chart shows the shares of income growth captured by the bottom 99.99 percent and the top 0.01 percent. By contrast with the other charts (90 percent vs. 10 percent and 99 percent vs. 1 percent), the blue bar is still bigger than the red, but keep in mind we’re talking about a tiny fraction of a fraction of the population in that red bar — around 16,000 families — and as you can see, they gobbled up practically one-third of all the income growth in the last full expansion period (2001-07), with the same worrying trend suggesting itself.
Tcherneva also comments on the need to reorient our broader policy approach (such that it exists) to combating inequality. One of the points she makes is that we give up too much terrain when we focus disproportionately on raising top marginal income tax rates. continue reading…