| |
Under the headline, "Income Slides to 1996 levels" in The Wall Street Journal, we read, "The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak" (14 September 2011).
The WSJ neglected to tell its loyal readers that while the household "at the middle" fell, average household income rose, by almost one percent. In addition, the WSJ headline was off one year. It should read 1997, a year when the "at the middle" household had an income higher by over one percent than in 2010. By contrast, the average household in 2010 was up by almost five percent compared to 1997.
What is going on here - the average going up and the "middle" going down? It is no statistical trick. It is why thousands are occupying Wall Street and bad-mouthing bankers.
Total household income divided by the total number of households calculates mean household income (aka "the average"). That went up. The income that exactly divides households, half above and half below is median income. That went down. How can the middle/representative/typical family do worse and the average improve? The answer does not require a degree in statistics. The households above the mid point did much, much better than those below the mid point. Rich won, non-rich lost.
This extraordinary contradiction, average up, most households down, is a relatively recent trend. From 1950 through 1980, the opposite was the case. Incomes of the poorer fifty percent rose faster than those of the richer half (see Chart 1). In 1950 mean (average) household income was fifteen percent above the median (middle) income. It declined to the postwar low of nine percent in 1958, implying that for those eight years the incomes of the top half grew at 2.5 percent, and the bottom half 3.1 percent.
Chart 1: Which side (of the line) are you on?
US Mean and Median Household Income, 1950-2010
Even by the mid-1970s the ratio was close to the postwar historic low, though it returned to the 1950 ratio by the end of the decade (with a sharp, brief reduction during the recession of 1980-1981, see Chart 2).
Mean income staying close to the median does not mean an equal distribution, but it does imply that inequality is not becoming worse. In the United States over the last thirty years distribution became very worse, indeed. About ten years ago two economists, David Dollar and Aart Kraay, wrote a not terribly convincing article, "Growth is Good for the Poor", in which they optimistically argued that rare are instances in any country when an increase in total incomes does not raise the incomes of everyone including the poorest.
Once true in the United States, but true no longer. To be specific, over the last fifteen years economic growth in the United States benefited the richest, period. As Emmanuel Saez, University of California economist, concluded in a study of changes in distribution in the United States, "The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007", with its share of income rising from about ten percent in 1980 to 23 percent in 2006 (latest statistic, http://elsa.berkeley.edu/~saez/saez-UStopincomes-2006prel.pdf)
Chapter 2: The New Law of Averages:
Ratio of Mean to Median Income, 1950-2010
Shocking as it is (or should be), what does this growth in inequality have to do with bankers? The answer is straightforward. What many analysts call the "financialization" of economic and social relations creates and enhances the mechanisms to redistribute income from productive activities to non-productive finance. The rich alone are the winners in that transfer, because it involves no productive activity that might possibly "trickle down" to the rest of us. Many writers have identified the sequence of causality for financialized redistribution: deregulation of financial institutions beginning in the 1980s, combined with successive reductions in the progressiveness of the federal tax structure.
The consequence of garnering income by unproductive redistribution is demonstrated when we compare the recession of 1980-1982 to the current one. In 1983 when the economy recovered after three consecutive years of decline, the ratio of mean to medina income was the same as it had been before the recession in 1978, seventeen percent. In other words, the two halves of the distribution suffered and recovered together. In 2006 before the Great Recession, the ratio had risen to thirty percent in the course of pro-rich expansion. In 2010 when all incomes increased by a sluggish one percent after three years of decline, the mean rose to thirty percent above the median.
It is difficult to appreciate the current extraordinary economic dynamics in the United States: the appropriation of an increasingly larger share of national income by the rich continues through prosperity, crisis and recovery, apparently free of constraint or countervailing force. It is a constraining and countervailing force that the people demonstrating on Wall Street seek to create. If there is hope, they provide it and the rest of us should join to change "they" to "we".
|
