A Vivid Visualization of Inequality in America

The rise of wealth and income inequality is a (thankfully) widespread topic in media and public discourse, so by now most readers will no doubt be familiar with the various charts, videos, and graphs that translate it for our viewing pleasure.

But the Washington Post, citing an NPR column, presents an even more dramatic approach to showing the growth of inequality in the United States:

Source: Quoctrung Bui/NPR

Columnist Matt O’Brien breaks down what the data mean and the context of this sobering development:

It compares how much, in inflation-adjusted 2012 dollars, average households in the bottom 90 and top 1 percent have made each year. Now, it’s hard to tell because everyone was making less back then, but inequality really was high during the 1920s. The bottom 90 didn’t make much progress then, while the top 1 rode the, well, roaring stock market to even higher highs. All that was erased, though, during the Great Depression. The top 1 got wiped out when stocks fell almost 90 percent, and the bottom 90 did too when unemployment shot up to 25 percent. It was a bad time to be rich or poor, but mostly poor.

But the New Deal set the stage for a new society. FDR made it easier for workers to unionize, and started taxing the rich at confiscatory levels. It didn’t hurt that first the war and later the baby boom put everyone back to work. The result, as you can see above, was the creation of the American middle class. Between 1940 and 1970, the bottom 90 percent went from making, on average, $12,000 to $33,000. The top 1 percent, meanwhile, were stuck making “only” $300,000 this whole time. It’s what economists call the “Great Compression,” and it was a story about workers having the bargaining power to ask for higher wages and the rich not having much reason to ask for higher wages themselves. That’s because top marginal tax rates were so high—at their peak, 94 percent—that it wasn’t worth it for CEOs to pay themselves that much more. Besides, that was just something executives didn’t do back then. George Romney, for example, turned down a $100,000 bonus in 1960—and those are unadjusted dollars—because he didn’t think anyone needed to make that much more.

This didn’t last. It all started to unravel in the 1970s. Inflation ate up everyone’s pay, so that incomes for the top 1 and bottom 90 percent both stagnated. But it wasn’t just a monetary problem. It was an educational one, too. Starting in the 1930s, America had led the way with universal high school, but by the 1970s this progress had petered out. Making matters worse was that the rest of the world was already catching up—especially Germany and Japan—and forcing our workers to compete against theirs.

Ronald Reagan’s answer to all this was to cut taxes for the rich and deregulate the economy. The idea was to give the top 1 percent the freedom and incentive to work more and invest more, which was supposed to make the economy grow more—and, yes, trickle down to everybody else. It didn’t. Now part of that was because U.S. workers had to compete against even more low-wage workers overseas after the Berlin Wall came down and billions of people joined the global economy. Another was that new technologies like the internet helped the people at the top more than those at the bottom by creating winner-take-all markets. But a big part of it, like we said, was policy. Wall Street, in particular, went from being a relatively sleepy sector to a wheeling-and-dealing one where a couple of good bonuses could make you set for life. Indeed, more than 60 percent of the increasing share of income going to the top 1 percent came from CEOs and financiers who make most of their money in the markets.

It turns out, though, that even if a rising tide lifts all boats, most people can’t afford a boat. The bottom 90 percent, in other words, haven’t done much better the last 30 years, even as the top 1 percent have created a second Gilded Age. The only exception was the late 1990s—highlighted in yellow—when a tight labor market gave workers the bargaining power that unions used to. But other than that, it’s been a tale of two economies. There’s the financial one, where the top 1 percent have tied their fortunes to the booming stock market, and the real one, where everyone else is struggling not to fall behind. Now it’s true that the picture isn’t as bleak if you account for the fact that, as people marry later and have fewer kids, households aren’t as big as they used to be. And it’s also true that government benefits from Social Security to Medicare to food stamps and unemployment insurance help out the bottom 90 percent too. But it’s also true that even with these caveats, a growing economy hasn’t really translated into growing incomes for median households the last 15 years.

The change in fortunes between the bulk of society and a relative handful of families could not be more stark.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s