Sunday, November 20, 2011

Inequality, take II

So what I was saying yesterday is that graphs like this don't intrinsically bother me:

What is worrying to me is how we got to this graph, as described here:

CBO finds that, between 1979 and 2007, income grew by:

275 percent for the top 1 percent of households,
65 percent for the next 19 percent,
Just under 40 percent for the next 60 percent, and
18 percent for the bottom 20 percent.

If we had gotten to the graph via say 75% growth in the bottom quintile with correspondingly faster growth in the other groups, I'd see no no problem at all.

But we didn't.

Incomes in the lower part of the distribution are not really growing. 18% growth in 29 years stinks. 40% growth in 29 years is really not much better either.

To me, it's the lack of absolute improvement in incomes at the bottom of the distribution that we need to address, not the big growth at the top.

And I just don't see how hammering the 1 percent is going to sustainably raise income growth for the bottom 20-40 percent.

We need to fix public education, and the problem there is not really a lack of overall expenditures.

We need to not put so many young people in prison and the problem there is not a lack of expenditure.

We need stronger and more stable family lives for more children. I am not sure if greater expenditure would help here. Maybe.


Anonymous said...

The numbers are bogus measures to begin with. Bill Gates and Steve Jobs were in the lower quintiles in 1979 and now they are in the top 1% in 2007. What is missing is income mobility. Those in the lowest bracket are often the younger generations who have yet to make their mark and end up in the top quintiles in 30 years. The lowest quintile isn't supposed to move much at all--there will always be poor people.

BR said...

Agree w/ Anon. How many of us have been in all 5 quintiles (or atleast the top 4) in the last 30 years? What role does age distribution play in this chart?

The Outsider said...

How does immigration factor in? How about year-over-year variation on who comprises these various fractions (i.e., What if you're just in the top group for one year? What if everybody gets into the top group once they're 55?)? How about native ability?

I'm so sick of these breakdowns in income distribution with no context whatsoever.

John Thacker said...

And one final interesting factor is households versus people. If divorce becomes more common (especially at the lower end), then divorce creates two lower income households from one higher income households.

If some people don't marry but others do, the effect increases household inequality.

However, even given all that, I think that the growth at the lower end has been weak.

Angus said...

Guys there are a LOT of people who spend their whole lives in the bottom two quintiles.

BR said...

Isn't the question whether or not the quantity identified as "a LOT" has changed significantly over time.

Angus said...

Well, the fraction of people in the bottom quintiles who stay there is growing over time, not shrinking. Is that what you mean?

I'm just saying that invoking temporal mobility doesn't serve to dismiss the issue.

Dave Hansen said...

How do these charts look when we consider AFTER tax and redistribution income?

LowcountryJoe said...

"We need..."

That's policy talk right there. And I can't go for that. No-oh, no can do.

Angus said...

@Dave Hansen: these are net of taxes and transfers.

Tom said...

Searching TFA for "inflation" and "constant dollar" fails, so I'm just going to assume that CBO wouldn't be so dense as to leave out that adjustment. Given that, the poor are better off now than before. PLUS the quality of the cell-phones that they can afford is much improved. Even the quality of the 5-year-old used cars they buy is far better now than in 1979. (CBO would NOT adjust for that.)

The net of that is that the poor are much better off now than in 1979. They are annoyed because some others are MORE better off than they. This is called envy. It's ugly. But cheer up: you can attempt to address envy with policies that destroy the wealth of the 1%, while (not much) improving the lot of the poor. If everybody is worse off, the envy will be... ... ... still festering.

Anonymous said...

Blogger Angus said...

"Guys there are a LOT of people who spend their whole lives in the bottom two quintiles."

Really? Perhaps for the second quintile, but I suspect that two-thirds of those in the bottom quintile are there in their 30s and will move to the 3rd or 4th by their 50s. But this misses the point.

Measuring the change in average income in a quintile in two years is not very informative. Measuring the change in income over these years for those *beginning* in a specific quintile would actulaly inform a discussion of inequality. These will be much greater that 18 and 40%.

The Outsider said...

@Angus "Guys there are a LOT of people who spend their whole lives in the bottom two quintiles."

Okay, but *why*? Just throwing a graph like that up without noting that there are significant mitigating considerations is... what? Irresponsible? Exasperating?

Pelsmin said...

First of all, there are two issues here; equity and social stability. If a strict meritocracy left a wide divide between people who had great wealth because they deserved it, and those who didn't because they didn't, that could be perfectly fair, and lead to revolution.
Secondly, there will be people who never move out of their quintile; the point is that in America there are people who DO; we don't lock you in based on your current status. There are other factors that cause people to stay in the bottom besides the fact that they started there. That makes this a social issue, not an economic one.

Hmmm, how do the libertarians deal with that? Not by voting for Sarah Palin, I would imagine.

Lastly, I think we're fine as long as there aren't more people in the bottom quintile. I ran a quick analysis and found the proportion has stayed stable, at approximately 20%. And that's good news for EVERYBODY!

BR said...

LOL. The bottom quintile has been stable at 20% Pelsmin?

Pelsmin said...

BR --

I was a student of Mungowitz, so I learnt from the best.

Anonymous said...

How can an intelligent person draw conclusions from these charts without knowing how household size and demographics have changed in the past 40 years?