Rich and Poor

The New York Times has an excellent graphic showing alarming statistics:

http://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html?ref=sunday

This should be noted by everyone.   Most important points:

Productivity 1949 – 79 Up 117%, productivity 1979-2009 up 80%
Average hourly compensation 1949-79 Up 100%, average hourly compensation 1979-2009 Up 8%
Average hour wage 1949 – 79 Up 72%, average hourly wage 1979-2009 up 7%

(note compensation takes into account benefits)

INCOME GAINS, 1949-79

Bottom Fifth – 122%
Second Fifth – 101%
Third Fifth – 113%
Fourth Fifth – 115%
Top Fifth – 99%

INCOME GAINS 1979 – 2009

Bottom Fifth –  -4%
Second Fifth – + 7%
Third Fifth – +15%
Fourth Fifth – + 25%
Top Fifth –  + 55%

Debt as a percentage of household wealth leveled off under 70% before taking off in the 1980s and is now at 120%.  To earn a decent household income 47% of households had two incomes in 1975, while 71% do now.

The share of the wealth owned by the TOP 1% reached a high of 23.9% in 1928.  Even during the days of the robber barons in the 1890s and on it was under 20%.   Then it started to decline, and in 1976 reached a low of only 8.9%.   Since then it has climbed steadily higher, at 23.5%.   The average income of the top one percent is $713,000.

This statistics make an overwhelming and compelling case that the the last three decades have seen the very wealthy get more of the pie, while workers and the middle class get much less — and have to often add another income to keep up.

There is no way one can look at this evidence and say that the price of getting us out of debt should just come from government programs that help the poor and middle class.  The wealthy can definitely afford to pay a bit more; they’ve been making out big time the last thirty years.

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  1. #1 by modestypress on September 7, 2011 - 03:28

    Well, a few people, such as the Gates and Buffet are likely to say “Sure, no problem,” but let me introduce you to a few very aggrieved people named Romney, Perry, Bachman, Palin, etc., not to mention their millions of tea partying fans.

    Welcome to class war, 2012 and for decades to come.

  2. #2 by Alan Scott on September 9, 2011 - 12:48

    Gates and Buffet belong to that class of rich liberal hypocrites that says, now that I got mine raise taxes on those coming behind me. None of these guys was for high taxes when they made their billions. Buffet in particular is hypocritical. The guy uses every tax dodge there is.

    They built wealth that brought plenty along for the ride. Now they are old Socialists.

  3. #3 by Scott Erb on September 9, 2011 - 13:03

    Jon Stewart put it best “Calling Buffet a socialist is like someone saying, gee, look at how that guy goes after all the girls, isn’t he queer?” The fact of the matter is the wealthiest are taxed at a very low rate with loop holes that allow them to pay less of a percentage of their wealth in middle class folk. That’s not fair, and it’s harmful to the economy. To call addressing that “socialism” is to show complete ignorance at what the term ‘socialism’ means. What is said is how so many wealthy elite have the middle class fooled into defending them, while they take what they can get and use power to rig the game in their favor. Talk radio jocks use emotion to cloud reason. But right now the Republican congress has lower approval ratings than Obama, as does the tea party. Obama showed last night why he’ll win re-election — he has the facts on his side, and he’s the moderate. The GOP has embraced emotional extremism, and that’s not what has historically defined the party. They’ve allowed the Hannitys and Limbaughs — emotion driven entertainers who defy reason — to define the party, and that means they’re doomed. Maybe Romney or Huntsman can pull them back from the brink — either would be a decent President — but the others are a bit over the top. I guess if I were you and looking to defame through labeling I’d call them fascists. But that would be playing your game, and that game isn’t rational.

  4. #4 by Alan Scott on September 11, 2011 - 02:47

    Scott,

    Awhile ago you played the middle of the road non partisan role. Now you are being more honest. Again Buffet is an incredible hypocrite . He uses every tax argument he can to keep his money.Buffet reminds me of Andrew Carnegie. After being one of the 19th century’s most ruthless robber barons, Carnegie gave away much of his money to buy his way into Heaven.

    You can libel or label Republicans as extremists all you want. I guess to a big government type, having a Federal Government that lives with in it’s means and does not pick economic winners and losers via crony capitalism, is very very extreme .

    • #5 by Scott Erb on September 11, 2011 - 17:39

      You see the world too simplistically, Alan. You’re quick to label everyone who disagrees with you “big government,” and to call Warren Buffet names, but that’s lame. You have no argument to back it up. It’s just vitriol. I do not call Republicans extremists. My two Republican Senators are not extremist. My state Senator and State Rep — both Republicans — are not extremists. I talk to them often and respect them. Most Republicans I know are not extremists. Only those poisoned by simplistic ideology, demonizing the entire left, and giving in to the emotional irrationality of talk radio have drifted into the extremist camp. Unfortunately they’ve briefly taken control of the GOP — something that is probably good for the Democrats in 2012. The nation needs two parties with competing idea debating and working out compromises as they address the problems we face and chart a path forward. Ideological extremists left and right are dangerous.

      There is nothing wrong with Carnegie did, and Buffet based his argument on what is good for the country, and what is ethical. There’s nothing hypocritical in what a very successful capitalist who continues to invest said. Insulting someone because he doesn’t fall lock step in what you think he should believe based on your ideology is silly.

  5. #6 by ryan on October 18, 2011 - 22:56

    Wages are rising significantly in China. But that’s not on the graph. And hey, if redistribution of wealth is “moral” then try comparing wealth in America to the rest of the world; $ 2,313 dollars median monthly income in the States to $ 663 in Lithuania. Shouldn’t the Lituanians hate Americans and want some international power to make things more fair?

    I’m guessing people don’t really believe that redistribution is moral if it means they have to give away half their income. Which indicates that redistribution isn’t about morality at all.

    Also, regarding “household debt relative to income” I think this rose because people saw their houses as investments so they took out larger mortgages. They were basically investing on margin in the housing bubble.

    The article doesn’t support the “reversed by policy” part either. Unions got a lot of power after WWII because there was no international competition. Europe’s factories were bombed to dust. you’re not going to repeat that any time soon.

    Also, manual labor is not worth as much as it once was while intellectual labor is worth more. If one group becomes more productive and another becomes less productive, that SHOULD result in greater disparity of wealth because the disparity of value has increased.

    There’s also been a lot of consolidation. I don’t know how many auto companies there used to be in the US. 20+? Now there are just a few. There’s a larger population with more competition for a few slots.

    Also, regarding taxes;

    “The latest data show that a big portion of the federal income tax burden is shoul­dered by a small group of the very richest Americans. The wealthiest 1 percent of the population earn 19 per­cent of the income but pay 37 percent of the income tax. The top 10 percent pay 68 percent of the tab. Meanwhile, the bottom 50 percent—those below the median income level—now earn 13 percent of the income but pay just 3 percent of the taxes. These are proportions of the income tax alone and don’t include payroll taxes for Social Security and Medicare.”

    http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

    “Fair” would be if a group earned 19% of income and paid 19% of taxes. What those favoring redistribution are pushing for has nothing to do with “fairness”, though. Please, close loopholes. Pay regulators enough and then ban them from taking jobs in industry when they’re done or vice versa to close the revolving door between industry and government. It will cost us more money, but we should be willing to pay it. Quit government “Loan guarantees” for “green jobs” which do nothing but throw money away on companies like Solyndra and then give cheap loans to politically well-connected businesses which do nothing for the environment to even out the portfolio.

    http://www.theatlantic.com/business/archive/2011/10/who-besides-solyndra-got-loan-guarantees/246637/

    But emotional arguments like “people are making more than you! More! You should hate and envy them!” are emotional, not rational, responses however much people repeat that word.

    People in the 70s were telling us how we’d all be starving by now. But world hunger has actually decreased. We have better science. Cleaner food. Better medicine. Better technology. Longer lifespans. (especially if you only include those born in America, not those who immigrate.) (The American diet, unfortunately, is still worse than other countries, and Japanese living in America who keep their native diet have lifespans comparable to those in Japan, not America.) The computer I’m typing on would have cost millions just a few decades ago. And the countries who bought hardest into envy like China have turned about face and adopted free markets. And they’ve seen their standard of living improve dramatically as they did so.

    If you raise taxes enough, you will NOT hurt international businesses who have tax havens overseas. You will hurt local businesses. Consider who you’re favoring there.

    Similarly, capital gains are taxed as they are because corporate income is taxed twice. Once when the corporation earns it, and then when the stock is sold. You need to consider both to get an accurate view.

  6. #7 by Scott Erb on October 19, 2011 - 00:23

    Unions have very little power in the US. Anyway, the wealthiest have benefited far more from the protections of the state and thus should be more. When the poor and middle class are hit by spending cuts, while taxes on the wealthy are the lowest in the industrial world and lower than any time in US history, then it isn’t wrong to ask them to pay more. Here’s more of argument on that:
    https://scotterb.wordpress.com/2010/12/16/the-tax-debate/

    Saying rising taxes will drive away jobs doesn’t stand the test of evidence. Higher taxes exist in every other industrialized state, and historically they used to be much higher here. Simply upper level tax rates are too low, especially given all the loopholes. Our debt started going through the stratosphere during the “borrow and spend” 80s after taxes were cut.

    It’s also not about redistribution, it’s about fixing a system that can be rigged and gamed by the moneyed elite to secure their advantage. That is a subversion of the market, and only a strong regulatory state can protect democratic capitalism. I don’t think welfare should be redistribution, nor do I see any call to hate the rich — that’s hyperbolic on your part, that’s not the message. The goal of social welfare should be to provide real opportunities and prevent things like bankruptcies from medical expenses, kids not able to go to college because their family is hurting, things like that. We have to invest in creating opportunities.

    Sure, poor Americans are rich compared to third world folk, but politics is relative. Relative gaps in wealth will always yield political anger, telling people to compare themselves to Lithuania or Zimbabwe is silly. The poor and working middle class have been hard, while the elite gamed the system in the bubble economies (investing in get rich schemes, not things to create jobs or help the economy). Read “All the Devils are Here” by Nocera and McLean, “The Big SHort” by Michael Lewis or for a more radical read “Griftopia” by Matt Taibbi.

    I agree with closing loopholes, and an extensive tax reforms (say a mildly progressive version of the fair tax). The reason the bottom pays so little is because they make so little, taking even a bit of their income creates real hardship. The wealthier have benefited from legal protections, infrastructure, and other things the state provides, and paying a bit more won’t hurt them (and higher taxes on the wealthiest might have prevented the bubble economy.) Remember: tax increases do less harm to the economy than spending cuts.

  7. #8 by Ryan W. on October 21, 2011 - 04:51

    Scott: “Unions have very little power in the US.”

    Ryan: I’ll agree that they have considerably less power than they did in, say, the 1970s. I don’t know I’d describe it as ‘very little.’ Especially out here in California. Perhaps in other states.

    Scott: “Anyway, the wealthiest have benefited far more from the protections of the state and thus should be more.”

    Ryan: I disagree here. Most corporations I’ve seen are are entirely capable of hiring their own security, etc. and many do so. Many wealthy people live in gated communities, etc. and corporations purchase of security scales well. The middle classes benefit most from government subsidized protection. The poorest often suffer as much as benefit from police enforcement.

    But then, I get the feeling that people discussing this (Though perhaps not you. Sorry if I cast undue aspersions) issue decide from the outset what the conclusion should be and their arguments are primarily rationalizations. I mean, if it could be demonstrated objectively that those with higher incomes did, in fact, benefit less than the middle class from police protection (since presumably there’s some sort of economy of scale to its purchase that the wealthy and governments would both enjoy) would you change your mind on the matter?

    Scott: “When the poor and middle class are hit by spending cuts”

    Ryan: Cuts or increases shouldn’t matter for the purpose of ‘fairness.’ Consider it from a zero-based accounting perspective. If the tax rate were 90% on the Americans with the highest income and it was reduced to 80% would the taxes then be too low? If taxes had been 10% and were raised to 15% would they then be too high? Do we have any objective standard of fairness to discuss?

    Scott: “while taxes on the wealthy are the lowest in the industrial world and lower than any time in US history”

    Ryan: I’m sorry, but that’s simply wrong. National income taxes were original to the 20th century (though there was an income tax in the North during the civil war.) Without income taxes, I’m not sure how you could support your argument.

    “… the first income tax was actually levied almost fifty-one years earlier by an act of Congress on July 1, 1862 (12 Stat. 432)…. The Civil War income tax was the first tax paid on individual incomes by residents of the United States. …The Civil War taxes were not immediately repealed at the end of the war but continued in force until 1872…But the Supreme Court surprised the nation, reversing its earlier decision and declaring the law unconstitutional in 1895. This ruling, declaring that an income tax is a direct tax and therefore unconstitutional, led to the ratification of the sixteenth amendment in 1913. ”
    http://www.archives.gov/publications/prologue/1986/winter/civil-war-tax-records.html

    “In 1913, the top tax rate was 7% on incomes above $500,000 ($10 million 2007 dollars).”
    http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Tax_rates_in_history

    You could have argued that rates were as low as they’d been since the end of WWII. But there are also fewer deductions now than at some points in US history. Rate isn’t the only significant number here. Above a certain income, itemization of deductions isn’t even allowed.

    Also, mutlinational corporations can tax shift profits overseas. So high tax rates are primarily taxes on local businesses and individuals.

    Likewise, the assertion that capital gains income tax rates are too low needs to include, to be fair any taxes applied to corporations prior to the profit taking. (15% to 35% according to a very quick search) http://en.wikipedia.org/wiki/Corporate_tax_in_the_United_States

    This puts the effective capital gains tax rate at 25% to 45%, excluding corporate tax loopholes.
    And I agree that we’d benefit from closing corporate tax loopholes.

    Scott: “Saying rising taxes will drive away jobs doesn’t stand the test of evidence.”… “Simply upper level tax rates are too low, especially given all the loopholes”… “It’s also not about redistribution, it’s about fixing a system that can be rigged and gamed by the moneyed elite to secure their advantage.”

    Ryan: I’d be happy to discuss specific evidence or specific loopholes and how they should be closed, if possible. There are certainly some investments like roads, education, etc. that have a positive return on investment. There are also many government programs where the multiplier is less than 1, arguably. (Loan guarantees are currently a hot topic it seems, and a bad way to fund anything. They tend to be more expensive than many people expect.) Generally there’s some lag, however, in an increase in tax rates and a decrease in actual wealth. Several decades of accumulated wealth won’t be destroyed in one year or in five.

    Scott: “Our debt started going through the stratosphere during the “borrow and spend” 80s after taxes were cut.”

    Agreed. Debt as a % of GDP reached a trough in the 1980s and is currently back up to ~1950s levels where debt was still being payed off from WWII.

    Of course, spending has increased steadily as well. US Gov’t spending as a % of GDP is about 5 times what it was in 1910 and nearly twice what it was in 1950.

    http://www.usgovernmentspending.com/us_20th_century_chart.html

    Scott: “I don’t think welfare should be redistribution, nor do I see any call to hate the rich — that’s hyperbolic on your part, that’s not the message.”…
    “What is said is how so many wealthy elite have the middle class fooled into defending them, while they take what they can get and use power to rig the game in their favor. ”

    Ryan: I’ll certainly agree that there are particular wealthy individuals who have gamed the system in a corporatist fashion. Could we discuss the specifics and mechanisms of this?

    Are we discussing a revolving door between industry and regulation like with Goldman Sachs? Are we discussing government loan guarantees to companies like Solyndra (or the other companies in that program which received cheap loans?)

    Scott: “It’s also not about redistribution, it’s about fixing a system that can be rigged and gamed by the moneyed elite to secure their advantage. That is a subversion of the market, and only a strong regulatory state can protect democratic capitalism. ”

    Ryan: I might agree or disagree depending on how we defined those terms. Specifically, what are the core principles on which regulation should be based? There’s good regulation and there’s bad regulation. What distinguishes one from the other?

    Scott: “The goal of social welfare should be to provide real opportunities and prevent things like bankruptcies from medical expenses, kids not able to go to college because their family is hurting, things like that.”

    Ryan: Well, that depends on how it’s done. If it’s done in such a way that medical and college costs inflate disproportionate to benefit, that well-intentioned move could end up decreasing people’s health and their opportunities. How do we measure cost vs. benefit?

    Scott: “The poor and working middle class have been hard, while the elite gamed the system in the bubble economies”

    Ryan: The poor and working middle class also gamed the system. That’s what no-doc loans were.

    Scott: Sure, poor Americans are rich compared to third world folk, but politics is relative. Relative gaps in wealth will always yield political anger, telling people to compare themselves to Lithuania or Zimbabwe is silly

    Ryan: What if the people in Zimbabwe are angry? If we’re talking about what’s “fair” why are other countries irrelevant? Or is anger just a way that people try to get what they want? If people in Zimbabwe were “angry” but couldn’t manage a credible threat to Americans then their claim on American wealth isn’t “fair?” What does “politics is relative” mean in relation to fair standards? And if we’re really talking about making credible threats, etc. then we aren’t really discussing the implementation of standards at all. There’s benefit in arguing towards an objective standard (vis a vis principled negotiation.) Without an objective standard to argue towards, the term “fair” loses most of its meaning and becomes synonymous with what a person is capable of taking and keeping by whatever means available, i.e. the proverbial “class warfare.”

    Scott: “Remember: tax increases do less harm to the economy than spending cuts.”

    Ryan: I’d like to see some support for that assertion. (Not just book names, but the citations those books refer to.) I think it would hinge greatly on what spending was cut or which taxes were increased. Different tax increases will distort the economy differently. I’m not sure how someone could even make a generalization on this point.

  8. #9 by Scott Erb on October 21, 2011 - 11:52

    Only the largest corporations could afford to take care of themselves completely, and they would not have gotten to that position without the state. Instead, organized crime would control things. Thats how it works everywhere you don’t have an effective regulatory state. Markets need a strong and effective state to work, that’s proven throughout history.

    The no-doc loans were the BIG BANKS gaming the system to be able to offer more OTC derivatives rated AAA by rating agencies who didn’t want to lose the business of those banks. The poor suffered because of those loans, they were being manipulated by big money. This is a crisis caused by the big financial institutions.

    It’s an economic fact that tax increases do less harm to the economy than spending cuts, and its very logical. Tax increases tap money that goes to a lot of different things — spending on foreign goods, savings, etc. Thus the money raised only partially comes out of funds that would go into stimulating the economy. Spending that is directly putting money into the system goes completely into the economy. That’s why economists say that tax cuts are a very poor stimulus while spending is an effective one.

    There is no ‘objective standard’ in politics because people will always disagree on what it should be. Thus it is a politically derived standard; it must be. When wealth disparity grows to the point it is in the US now, and when the poor and working middle class are asked to feel the brunt of the pain while the wealthy refuse even slight tax increases (yet live very luxurious lives) then there will be a reaction — it’s the way the world works.

    You are right to point out that I should have said lower than any time in recent history for tax rates, I was thinking of post-WWII. Note that high tax rates corresponded with the highest growth rates.

    Gotta run, so this is disjointed, but I have more here:
    https://scotterb.wordpress.com/2010/12/16/the-tax-debate/

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