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February 27, 2006

Rising Income Inequality

Paul Krugman has a great editorial behind the NYT wall exploring statistics that root out the only people who are benefiting from the economy of the last five years.  He says that the new chairman of the Federal Reserve, Ben Bernanke, is spot on in describing monetary and fiscal policy but willfully wrong in how he characterizes the rising inequality in this society.  Like most everyone else, Bernanke, like many others, says that there is a growing split between knowledge workers and those who don't have the skills to take advantage of new technology and the global economy. 

Krugman says that what actually happened between 2000 and 2004 was that the real earnings of college grads on average fell more than 5 percent.  The average over the longer time of 1975 until 2004 was a gain of only 1 percent per year.

So who is benefiting?

A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, "Where Did the Productivity Growth Go?," gives the details. Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains.

But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint.

Just to give you a sense of who we're talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn't give a number for the 99.99th percentile, but it's probably well over $6 million a year.

This puts numbers beside what some of us has come to think.  I think most of us just assume that far more people are getting the benefits than really are.

Krugman then talks for a moment about why people like Mr. Bernanke might not acknowledge the true nature of the inequality  - because to do so would be very disturbing.  As long as we think it's about education, we can focus or at least pretend to focus on improving education and educational opportunities.  But if the nature of our inequality is oligarchic, then we are shifting everything we believe about this country and we are also forced to really look at the massive corruption involved. Krugman again:

Both history and modern experience tell us that highly unequal societies also tend to be highly corrupt. There's an arrow of causation that runs from diverging income trends to Jack Abramoff and the K Street project.

And I'm with Alan Greenspan, who — surprisingly, given his libertarian roots — has repeatedly warned that growing inequality poses a threat to "democratic society." . . . It's time to face up to the fact that rising inequality is driven by the giant income gains of a tiny elite, not the modest gains of college graduates.

Posted by Lynn Allen on February 27, 2006 at 09:31 PM in Miscellany | Permalink

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The Krugman article is available for free at truthout.org.

Posted by: ivan | Feb 28, 2006 9:19:05 AM

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