So, the US has grown increasingly unequal over recent decades. This is because the rich folks have been sucking up all the income growth leaving the poor to fight over scraps. This probably isn’t true, at least not in hte sense we’re being told it is. So, what’s been done to prove this to us?
Hanauer and Rolf cite a report released by the Rand Institute that concluded if the “more equitable income distributions of the three decades following World War II (1945 through 1974) merely held steady, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in the year 2018 alone.”
They correctly observe that’s “equal to nearly 12 percent of GDP—enough to more than double median income—enough to pay every single working American in the bottom nine deciles an additional $1,144 a month. Every month. Every single year.”
Another – and entirely true – manner of putting this is that if this is Nick Hanauer on economics then clearly it’s wrong.
The report is here. And here’s what’s wrong with it:
In this paper, we explore these trends in income growth and relate to the overall economic
growth using a new metric that measures the degree to which overall economic growth is shared
across the income distribution. Using this metric, we first characterize the trends in income
inequality described above and then use it to explore the nuances of these trends by demographic
Our focus throughout this work is on taxable income as opposed to other income measures.
Compared to more expansive definitions of income, taxable income is more convenient because
of the data limitations and subjectivity involved in assessing the value of employer benefits.
Benefits have become – for the bottom 90% – a much larger portion of the compensation from having to go to work over these decades. That rising cost of healthcare first, then add in 401(k) matching and then maternity pay – sure, no legal requirement but many do get it – and all that. Measuring the income distribution by not measuring income is always going to bring analysis to some sort of grief.
But it’s also true that benefits for the top 10% – more accurately, the top 0.1% but they’re a number that really do matter – have become a smaller portion of income. At least, what were previously untaxed benefits have now been moved over into being taxable, the effect of which h been for people to say bugger the benefits I’ll take the cash.
This actually being, as Jamie Galbraith will point out if you give him half a chance, the entire point of the 1986 tax reforms. So that all that Barbarians at the Gate stuff, private air forces, 15 country clubs and apartments scattered around the country – they’re taxable now and weren’t before.
So, concentrating upon taxable incomes captures this change in the form of compensation of CEOs etc, sure it does, but it registers it as a rise in come, not a change in the form of income.
So, by analysing taxable income only we underestimate the change in total income of the bottom 90%, that rise in non-wage income, and we over-estimate the change in top incomes by registering a change in the form of income even if it hasn’t increased at all.
Isn’t that fun? And do note what it also means – Hanauer hasn’t broken his run yet.