Income inequality is not the disease. It's a symptom of other issues.
A better indicator of economic health is to look at changes in the individuals with highest net worth. In countries with government-granted monopolies, the list remains relatively constant year upon year. In more competitive countries, the list churns new wealth in with the old.
I do wish we could get over this "1% vs 99%" meme though. Incomes are mostly continuous as you go up the scale. The change in annual income / net worth of the bottom guy in "the 1%" and the top guy in the "the 99%" is immaterial.
If the article is warning us that we're on the brink of a Depression, mentioning the 1927 stats, I would like to see some sort of charts showing this 1% slice over time[1].
And for "the rest of us," it isn't the fault of "the 1%" that median incomes haven't matched productivity gains over the last 40 years[2]. This is where more scholarly work should be focused, in my opinion. Basically, it doesn't matter how much wealth the top earners have, as long as the median income is growing. The headline and article are simply engendering class warfare instead of examining the deeper causes of median income stagnation.
And for "the rest of us," it isn't the fault of "the 1%" that median incomes haven't matched productivity gains over the last 40 years[2].
Who says? The top 1%, in any given year, mostly consist of capitalists (literally: people who invest capital for a living) or rentiers (people who control commons resources like land or mineral wealth). The top industrial sectors, often the only healthy sectors, in most of the developed world, are now: FIRE (Finance, Insurance, and Real Estate), Resource Extraction (basically: energy and raw materials), and technology (us on this site).
Income has always been divided between capital, labor, and rentiering (even though economists like to operate in a True Scotsman Efficient Market, where rentiering is eliminated by perfect competition). Recently, more and more of that income has been going to capital and rent, less to labor [1]. "Since labor income is more evenly distributed across U.S. households than capital income, the decline made total income less evenly distributed and more concentrated at the top of the distribution, and this contributed to increased income inequality."
So actually, what we are seeing is very much class warfare, in the Marxist sense of the word. Even the tax system (normally the tool of obnoxious redistributive Big Government) is now configured to favor capital over labor [2], contributing to income inequality, the deterioration of national infrastructure, and the accumulation of national debts.
“There’s class warfare, all right,” Mr. Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.”
I have to say I really enjoy your posts that discuss things in plain labor/capital terms. It seems to be out of vogue, but you don't have to be Marxist to appreciate that the basic dynamic of labor versus capital is simply a description of reality.
Income inequality is a disease as it eventually will cripple an economy. It's foolish to assume that it "isn't the fault of the 1% that median incomes haven't matched productivity gains..." How is it not the fault of the 1%? Who pushes for tax measures favoring the wealthy? Who pushes for outsourcing? Who squashes labor movements? Who created a $1200 TRILLION derivatives market? Who got bailed out when the economy crashed? Who gets the all of the federal reserve loans and the benefits of their policy decisions? As for class warfare, Warren Buffet said it best: "There's class warfare alright, but it's my class, the rich class, that is making war, and we're winning".
Its a false assumption that it doesn't matter how much the income of the 1% grows as long as the median goes up. Humans intrinsically measure relatively, not in absolute terms. The goal of a democratic society should be to figure out how to maximize the growth of the median income, not simply accept stagnation at the median so long as a few people are getting rich.
You seem to miss the point that this is a zero sum game, you only have 100% of the pie to go around. If the top 1% take more of it, it means the other 99% get less. So it does in fact matter how much the top earners make because it will lower the median income if they take more money.
The pie we are looking at is in percent, the article stated that the top 1% took a bigger share of it than before. This means they took a bigger share of your productivity gains. But why argue about such things, it would be easier if you can show me a mathematical example where the top 1% take a bigger percentage of the pie yet the median increases. Let me know if you like the results you come up with.
At this state in our economy, those with the most resources have the best chance to get even more resources with little to no effort. Assuming they wish to do so.
We could easily squash this by reducing investment activities that don't generate economic value, including certain types of stock trading, derivatives, most kinds of futures trading, and by forcing more fair lending practices(which lending does generate positive economic value, but can be a long term binder of the poor).
I'm not sure there won't be unintended consequences by implementing regulations in this area. But it would help to flatten the income inequality curve while also lowering prices and increasing stability of common goods like oil, corn, and whatever else people are betting in the futures markets.
These kind of stories annoy me, because none of them ever give me enough information to understand the significance of their numbers.
In any wealth distribution other than everyone having the exact same wealth, it is mathematically necessary that the top X% have more than X% of the wealth. The same observation applies within wealth groups, so for example the top 25% of the middle third wealth group must have more than 25% of that group's wealth unless everyone in that group has exactly the same wealth.
When you apply this recursively, things accumulate at the top and and the bottom end. For instance, if within each wealth group the top 50% has 60% (which seems to me likely to be flatter than reality), then for the whole group the top 1% would have 5.6% of the wealth. If the top 50% of each group has 75% of that group's wealth, then the top 1% of the whole group would have 19.7% of the overall wealth.
Given this, I have no idea whatsoever whether I should react to this kind of article with outrage or indifference.
All drama and no interesting data. They could at least quote some numbers (what's the 1% income, what's the median income, etc), graphs of historic trends, breakdowns by state or whatever. Otherwise it's just an extended headline.
A better indicator of economic health is to look at changes in the individuals with highest net worth. In countries with government-granted monopolies, the list remains relatively constant year upon year. In more competitive countries, the list churns new wealth in with the old.
I do wish we could get over this "1% vs 99%" meme though. Incomes are mostly continuous as you go up the scale. The change in annual income / net worth of the bottom guy in "the 1%" and the top guy in the "the 99%" is immaterial.
If the article is warning us that we're on the brink of a Depression, mentioning the 1927 stats, I would like to see some sort of charts showing this 1% slice over time[1].
And for "the rest of us," it isn't the fault of "the 1%" that median incomes haven't matched productivity gains over the last 40 years[2]. This is where more scholarly work should be focused, in my opinion. Basically, it doesn't matter how much wealth the top earners have, as long as the median income is growing. The headline and article are simply engendering class warfare instead of examining the deeper causes of median income stagnation.
[1] http://en.wikipedia.org/wiki/File:2008_Top1percentUSA.png
[2] http://upload.wikimedia.org/wikipedia/commons/4/45/Productiv...