Rich are getting richer? Exactly right
Article by: JAY COGGINS Updated: March 29, 2011 - 2:32 PM
There's a noisy band of American inequality deniers who are trying to convince us otherwise.
Steven Cunningham ("The rich are getting richer -- right?" March 25) tells us that the rich in America aren't getting richer.
To paraphrase Artemus Ward, a 19th-century humorist: It ain't so much the things he don't know that get him into trouble. It's the things he does know that just ain't so.
Economists, a famously contentious bunch, disagree about many things. On the question of economic inequality, though, they disagree hardly at all: American inequality is high and rising.
Economists use three main tools to study inequality. They measure poverty.
They compute the Gini coefficient. And they compare the income or wealth of the rich (or the very rich) to that of the rest of us.
On all of these counts the U.S. record since 1970 is grim for all but those at the top.
The Census Bureau's 2009 poverty threshold for a family of two adults with two children was $21,756; for a single adult aged less than 65, it was $11,161.
The poverty rate, giving the percentage of Americans living below this threshold, varies over time as the economy waxes and wanes.
Lately it's been rising. In 2009, 43 million Americans, one of every seven (14.3 percent), lived in poverty. That's up from 25.5 million (12.6 percent) in 1970.
The Gini coefficient measures inequality for all of us, not just the poor. It can be zero (if income is distributed equally); it can be 100 (if, impossibly, a single family captures the entire national income), or anything in between.
A higher Gini means more inequality.
The Census Bureau tells us the U.S. Gini has risen from 39.4 in 1970 to 46.2 in 2000, and to 46.8 in 2009.
Government programs and taxes can and do reduce inequality, though. After accounting for their effects, the U.S. Gini coefficient falls to 38.
How does this compare to Ginis for other rich countries? We take the top prize. Our 38 leaves us tied with Portugal atop the rankings of the richest countries. American exceptionalism indeed.
Not since the Roaring Twenties have the richest in America had it so good.
Economists Thomas Piketty and Emmanuel Saez have calculated the share of U.S. income going to the top 1 percent of American households.
The share was a lofty 18.9 percent in 2007, more than double the 8.3 percent from 1970. The 2007 number was last surpassed in 1928, when the share reached 19.6 percent.
And the other rich countries? The most recent numbers for Germany and Japan, for example, are 8.9 percent and 9.2 percent. We win again, going away.
Inequality of income is high, but inequality of wealth is much higher still. Those on Forbes magazine's 2010 list of the 400 richest Americans, headed by Bill Gates with a net worth of $54 billion, together own wealth totaling $1.27 trillion.
Compare that with the total net worth of the bottom 50 percent of households: $1.61 trillion as of 2007, the most recent number.
That's right. The 400 richest people in the country are worth nearly as much as the poorest 57 million households.
And the Gini coefficient for household wealth, as opposed to income? An eye-popping 86.5.
Income mobility, on which Cunningham dwells at some length, is different than inequality, but related in an important way.
High mobility, if true, sums up the American dream and lightens the burden of inequality. It means that the poor have a good chance to climb the economic ladder.
Economists measure mobility in different ways. Some compare all families at two different moments, say 10 years apart; they find that mobility appears to be relatively high.
This is the approach taken in the government reports cited by Cunningham.
It has a serious weakness. Using it, much of what appears to be mobility is just college students beginning their careers or older workers retiring.
That's not income mobility. It's the normal cycle of economic life.
One can, more usefully, compare families only to others in the same age cohort over time. By this measure mobility is much lower, and it's hardly budged in two generations.
In a recent study, economist Wojciech Kopcuz of Columbia and his coauthors estimated mobility by looking within cohorts.
They found that only about one person in 30 can expect to move from the bottom 40 percent of the income scale into the top 20 percent within 10 years. Mobility is not high, and it is not rising.
There exists a determined and noisy band of American inequality deniers, to which Cunningham evidently belongs. We all need to on guard against believing the things they know that just ain't so.
Jay Coggins is an applied economics professor at the University of Minnesota.