Saturday, March 15, 2008

Rising income inequality in America - Lane Kenworthy gives us the bad news

In November 2007 my friend Lane Kenworthy, who teaches sociology & political science at the University of Arizona, started up what has proved to be a consistently interesting, intelligent, enlightening, analytically substantial, and usefully thought-provoking blog, Consider the Evidence. His first post offered the following self-introduction:
I’m a social scientist who studies causes and consequences of poverty, inequality, employment, mobility, economic growth, and social policy. I focus mainly on the United States and other affluent countries.

I’m planning (hoping) to post semi-regular comments here. Most will consist of my attempt to see how available evidence helps — or fails to help — answer interesting questions about political, economic, and social issues. Many will be related to policy debates. A few will be just for fun.
I've more than once meant to call attention to discussions on Lane's blog, and in some cases to engage issues he's raised, but I've never actually gotten around to it. The two posts below might be a good place to start.

Yours for reality-based discourse,
Jeff Weintraub
Lane Kenworthy (Consider the Evidence)
March 9, 2008
The Best Inequality Graph

Income inequality in the United States has been rising since the 1970s. What is the most effective way to succinctly convey this fact?

Here is my choice (a pdf version is available here):

The chart shows average inflation-adjusted incomes of the poorest 20%, middle 60%, and top 1% of households since the 1970s. The incomes include government transfers and subtract taxes. For the bulk of American households, incomes have increased moderately or minimally. For those at the top, by contrast, they have soared.

[Read the rest]
Lane Kenworthy (Consider the Evidence)
January 22, 2008
Size of the Pie, Distribution of the Pie

“Today’s problems have less to do with the size of the economic pie than the way it is divided.” This, according to a New York Times article, is what Hillary Clinton’s economic advisers believe. I’m certain John Edwards’ economic team would agree with the statement, and I suspect Barack Obama’s would too.

Is this a sensible view? That’s a large question, but here is one way to think about it. The solid lines in the following chart show trends since World War II in inflation-adjusted incomes of families at the 60th, 40th, and 20th percentiles of the income distribution. The data are from the Census Bureau (here).

From 1947 to 1973 [i.e., the quarter-century after WWII that looks to many people, in retrospect, like a "golden age" of continuous economic growth, increasingly pervasive affluence, and decreasing income inequality in all western societies--JW], incomes at each of these three levels grew at an annual rate of about 2.7%. That was approximately the same as — actually slightly faster than — the rate of growth of the economy as a whole; GDP per capita during that period grew at a rate of 2.5% per year.

Since 1973 incomes in the middle and lower portion of the distribution have increased much less rapidly: 0.8% per year at the 60th percentile, 0.5% per year at the 40th, and just 0.3% per year at the 20th. Is this because the economy as a whole has failed to grow? No. The annual growth rate of per capita GDP since 1973 has been 1.9%. Instead, it’s because most of that economic growth has gone to those at the top of the distribution.

The dashed lines in the chart show what incomes at the 60th, 40th, and 20th percentiles would have looked like had they grown at the same 1.9%-per-year pace as the economy since 1973. The difference is striking. Incomes for a very large swath of the American population would be much higher — $15,000 to $30,000 higher — if economic growth since the mid-1970s had been distributed more equally.

Some will respond that the heavily skewed distribution of post-1973 economic growth contributed to that growth. In other words, the pie would now be smaller if those below the top had gotten more of it during the past generation. If you believe that, see this post.