I just read a few Dr. Pangloss-style wingnut posts on AOL that claim we have just about the best of all possible economies and I felt I should make an attempt to reply.
Starting at the nominal top:
Pres. Fredo:I know some of our citizens worry about the fact that our dynamic economy is leaving working people behind. We have an obligation to help ensure that every citizen shares in this country's future. The fact is that income inequality is real; it's been rising for more than 25 years. (1/31/07)
Now we can move on to someone who is actually knowledgable:
Remarks by Chairman Ben S. Bernanke
Before the Greater Omaha Chamber of Commerce
Omaha, Nebraska
February 6, 2007
Although average economic well-being has increased considerably over time, the degree of inequality in economic outcomes has increased as well. Importantly, rising inequality is not a recent development but has been evident for at least three decades, if not longer.2 The data on the real weekly earnings of full-time wage and salary workers illustrate this pattern. In real terms, the earnings at the 50th percentile of the distribution (which I will refer to as the median wage) rose about 11-1/2 percent between 1979 and 2006. Over the same period, the wage at the 10th percentile, near the bottom of the wage distribution, rose just 4 percent, while the wage at the 90th percentile, close to the top of the distribution, rose 34 percent.3 In 1979, a full-time worker at the 90th percentile of the wage distribution earned about 3.7 times as much as a full-time worker at the 10th percentile. Reflecting the relatively faster growth of wages of higher-paid workers, that ratio is 4.7 today. The gap between the 90th and 10th percentiles of the wage distribution rose particularly rapidly through most of the 1980s; since then, it has continued to trend up, albeit at a slower pace and with occasional reversals.
The long-term trend toward greater inequality seen in real wages is also evident in broader measures of financial well-being, such as real household income.4 For example, the share of income received by households in the top fifth of the income distribution, after taxes have been paid and government transfers have been received, rose from 42 percent in 1979 to 50 percent in 2004, while the share of income received by those in the bottom fifth of the distribution declined from 7 percent to 5 percent. The share of after-tax income garnered by the households in the top 1 percent of the income distribution increased from 8 percent in 1979 to 14 percent in 2004 (Congressional Budget Office, 2006).5 Even within the top 1 percent, the distribution of income has widened during recent decades.6
Wednesday, February 28, 2007
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2 comments:
Okay, but what does this mean? And is the concern with income disparity another form of class envy? To my mind, the key questions are this: 1. Are the poor better off today than in times past? 2. What is the status of the middle class; is it strengthening or weakening? Many commentators to the contrary, there appears to be strong evidence that the middle class is shrinking because many are moving into the upper classes not falling to the lower.
Although averages are an imprecise, and therefore dangerous economic statistic, the fact that the average economic status of Americans is improving is a good sign.
John,
I am unaware of strong evidence that the middle class is moving into the upper class, so I'd appreciate any links you could provide.
Disenchantment with the system is one potentially serious problem that may be brought about by increasing disparity.
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