A Change in Socioeconomics?

From a NY Times article by David Leonhardt and Geraldine Fabrikant:

The rich have been getting richer for so long that the trend has come to seem almost permanent.

They began to pull away from everyone else in the 1970s. By 2006, income was more concentrated at the top than it had been since the late 1920s. The recent news about resurgent Wall Street pay has seemed to suggest that not even the Great Recession could reverse the rise in income inequality.

But economists say — and data is beginning to show — that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

Go read the whole article.

This is a welcome trend if you want to live in a middle class society and not in a two-tier system with the gated rich and the slums for the rest of us. Opportunity has to be brought back to the broad population so that effort gives reward and there is an equal opportunity for advancement for a broad segment of the population.

The article asks:

The relative struggles of the rich may elicit little sympathy from less well-off families who are dealing with the effects of the worst recession in a generation. But the change does raise several broader economic questions. Among them is whether harder times for the rich will ultimately benefit the middle class and the poor, given that the huge recent increase in top incomes coincided with slow income growth for almost every other group. In blunter terms, the question is whether the better metaphor for the economy is a rising tide that can lift all boats — or a zero-sum game.

My answer would be that the 1950s and 60s provide the answer. This was the low water mark for the super rich and it was also the period of greatest comfort and ease and best prospects for the future for the middle class. I don't think that was an accident. I think the Reagan "trickle down" economics strangled the middle class. I'm hopeful that this trend can now be reversed and a better future is ahead. Too late for me, but at least others will get to enjoy the possibility.

Here's the bad news (I've bolded the key bit):

“We had a period of roughly 50 years, from 1929 to 1979, when the income distribution tended to flatten,” said Neal Soss, the chief economist at Credit Suisse. “Since the early ’80s, incomes have tended to get less equal. And I think we’ve entered a phase now where society will move to a more equal distribution.”

Few economists expect the country to return to the relatively flat income distribution of the 1950s and 1960s. Indeed, they say that inequality is likely to remain significantly greater than it was for most of the 20th century. The Obama administration has not proposed completely rewriting the rules for Wall Street or raising the top income-tax rate to anywhere near 70 percent, its level as recently as 1980. Market forces that have increased inequality, like globalization, are also not going away.

To get an idea of how the super-rich zoomed into the stratosphere. Here is the data on the top 0.01% of incomes:

Perhaps the broadest question is what a hit to the wealthy would mean for the middle class and the poor. The best-known data on the rich comes from an analysis of Internal Revenue Service returns by Thomas Piketty and Emmanuel Saez, two economists. Their work shows that in the late 1970s, the cutoff to qualify for the highest-earning one ten-thousandth of households was roughly $2 million, in inflation-adjusted, pretax terms. By 2007, it had jumped to $11.5 million.

...

In 2007, the top one ten-thousandth of households took home 6 percent of the nation’s income, up from 0.9 percent in 1977. It was the highest such level since at least 1913, the first year for which the I.R.S. has data.

That is a 600% increase in income for the super rich.

Meanwhile the rest of us made do with less than a 20% increase:
By contrast, pay at the median — which was about $50,000 in 2007 — rose less than 20 percent, Census data shows. Near the bottom of the income distribution, the increase was about 12 percent.

That in a nutshell was the "Reagan Revolution" -- the rich became superrich and the poor were supposed to live off the crumbs that fell from their table. That was the wet dream of the radical right. It has now exploded, just like that last era of greed blew up in the late 1920s. The lesson of history: only a middle class society can be both stable and grow dynamically. Don't let the rich talk you into another "Reagan Revolution". (But, sadly, the radical right can be seen busy selling another lie with its "death panels" and "socialized health care". These ghouls will take down everything in order to appease their masters, the super-rich who are very, very comfortable with their vise-like grip on the economy that they've enjoyed for 30+ years.)

Here is the truth:

“I think incredibly high incomes can have a pernicious effect on the polity and the economy,” said Lawrence Katz, a Harvard economist. Much of the growth of high-end incomes stemmed from market forces, like technological innovation, Mr. Katz said. But a significant amount also stemmed from the wealthy’s newfound ability to win favorable government contracts, low tax rates and weak financial regulation, he added.