The latest figures on income inequality in the USA

America has one of the most unequal distributions of income among the developed nations.  Here are the latest numbers on that trend.  It’s boring stuff.   Unless you consider its importance to the survival of our political order.  Throughout history, extremes of income inequality have destabilized societies.  Democracies might be esp vulnerable to this.

Contents

  1.  “Poverty Rose, Median Income Declined, and Job-Based Health Insurance Continued to Weaken in 2008“, Arloc Sherman et al, Center on Budget and Policy Priorities, 10 September 2009
  2. Share of Aggregate Income Received by Quintile of Households, ugly numbers from the US Census
  3. Changes in the Distribution of Workers’ Annual Earnings Between 1979 and 2007“, Congressional Budget Office, October 2009
  4. Afterword and where to go For More Information

(1)  Poverty Rose, Median Income Declined, and Job-Based Health Insurance Continued to Weaken in 2008“, Arloc Sherman et al, Center on Budget and Policy Priorities, 10 September 2009 — “Recession Likely to Expand Ranks of Poor and Uninsured in 2009 and 2010” — Excerpt:

Poverty increased, median household income fell, and the percentage of Americans with employer-based health coverage continued to decline in 2008, according to Census data for 2008 issued today.

The figures reflect the initial effects of the recession. Median household income declined 3.6% in 2008 after adjusting for inflation, the largest single-year decline on record, and reached its lowest point since 1997. The poverty rate rose to 13.2% , its highest level since 1997. The number of people in poverty hit 39.8 million, the highest level since 1960.

These data include only the early months of the recession. The figures for 2009, a year in which the economy has weakened further and unemployment has climbed substantially, will look considerably worse, and the figures will likely worsen again in 2010 if, as many economic forecasters expect, unemployment continues to rise in that year. (In the last two recessions, the unemployment rate continued rising for 15 to 19 months after the recession officially ended.)

(2)  To see the rising concentration of income in America, go to this Census table:  Share of Aggregate Income Received by Quintile of Households.

This looks ugle.  The bottom 80% saw their share of the pie shrink during the past 40 years.  No evidence that either political party made a difference.

Year Bottom 20% Second fifth Third fifth Fourth fifth Top 20%
2008 3.4 8.6 14.7 23.3 50.0
1998 3.6 9.0 15.0 23.2 49.2
1988 3.8 9.6 16.0 24.2 46.3
1978 4.2 10.2 16.8 24.7 44.1
1967 4.0 10.8 17.3 24.2 43.6

Let’s examine this in more detail.  As you see below, the bottom 80% of all households lost 6.3% of national income to the top 20%.  The top 5% of households got 2/3 of that (4.2%).

Year Bottom 80% Top 20% to 5% Top 5%
2008 50.0 28.5 21.5
1998 50.8 27.8 21.4
1988 53.6 28.0 18.4
1978 55.9 27.3 16.8
1967 56.3 26.4 17.3

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(3a)  “Changes in the Distribution of Workers’ Annual Earnings Between 1979 and 2007“, Congressional Budget Office, October 2009 — A graph tells the story.

Real Annual Earnings of Workers at Selected Percentiles of the Earnings Distribution, by Sex (2007 dollars)

All workers

Percentage………2007……2008…….….Change

10th Percentile…$10,800…$09,700…-10%
50th Percentile…$35,000…$33,900…-03%
90th Percentile…$85,000…$83,200…-02%

Men

10th Percentile…$014,600…$12,600…-14%
50th Percentile…$041,000…$39,700…-03%
90th Percentile…$100,000…$96,800…-03%

Women

10th Percentile…$08,000…$07,700…-04%
50th Percentile…$30,000…$29,000…-03%
90th Percentile…$68,000…$66,800…-02%

Everyone (in aggregate) in the bottom 90% of income lost ground.  Men in the bottom 10% of income lost far more than everybody else.  While there were many factors at work, the massive flow of unskilled male immigrants must have played a major role.

(4a)  For more information from the FM site

To read other articles about these things, see the following:

Reference pages about other topics appear on the right side menu bar, including About the FM website page.

Other posts on the FM webstite about this topic:

  1. A sad picture of America, but important for us to understand, 3 November 2008
  2. America’s elites reluctantly impose a client-patron system, 5 November 2008
  3. Inequality in the USA, 7 January 2009

(4b)   Afterword

Please share your comments by posting below.  Per the FM site’s Comment Policy, please make them brief (250 word max), civil and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

20 thoughts on “The latest figures on income inequality in the USA

  1. Fantastic source of ugly numbers here. Too bad there is no breakdown between the peaceful agreement ‘private’ economy, and the involuntarily funded government / ‘public’ economy. As more resources are absorbed by the less-efficient gov’t economy, there will be less overall pie.

    One of the best ways to reduce this now would be to end gov’t protection for intellectual monopolies on selling and sharing easily copiable digital information. It’s not “intellectual property”, it’s monopoly. (Property has the fixed amount quality that when it is stolen, the one who loses it no longer has it. Copying a film does not take anything away from those who have, only adds to those who have not.) (Yes, it ruins business models, much like Wal Mart moving into a neighbor ruins Mom & Pop store business models.)
    Sharing should never be illegal.

    Yet I don’t believe absolute poverty increased in the USA over any 5 or 10 year period since 1980 ending before 2007. For morality, absolute poverty (measures of nutrition and death rates/age) is more important than relative differences. In fact, it is focus on and against the peaceful rich, which cause policies to be enacted that reduce economic growth — like Mugabe did in ex-unequal, ex-food exporter, ex-Rhodesia now much more poor Zimbabwe.

    Using 2007 $ as the base might be suspect due to influence of overpriced houses. Counting Big Macs might be a better comparison (but harder to measure?) (dup comment?)
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    Fabius Maximus replies: I agree that the government’s computation of poverty is misleading and inaccurate on many levels. Failure to accurately include non-cash government aid (e.g., food stamps, medicaid). Failure to account for the massive gap between the poor’s recorded spending and the far lower recorded income. Plus the oddity that they tend to suffer from obesity, and many have a level of assets comparable to the middle-class in 3rd world nations (i.e., there is a large number of asset-rich but low income people).

    But the story of this post is inequality, which has grown to problematic dimensions in the US. The related story — not discussed here but perhaps more serious — is low and falling social mobility. I was not aware of this until Oldskpetic pointed to the research. That changed my view of American society, and where we’re going.

  2. What we have seen over the last century is the ideology of the Southern Slave-holding Democrats take over our nation. It is:
    1. Inequality is good and right and any attempts to fix it violate the rights of the oligarchs.
    2. Business must be allowed to conduct itself any way it wants without interference or morality. Contracts and property must be protected and maintained, even if unethical, immoral, and against common sense.
    3. Any attempt by the government to improve society and fix problems must be resisted.
    4. Government must step in to protect these interests if threatened by the failures of the oligarchs.
    This was the ideology of the Old South and is the ideology of the oligarchs who rule the country today.

    I do not blame the Democrats for this — it is the basis for their party since Thomas Jefferson. The Bourbon Democrats were the party of Wall Street in the Gilded Age and Bill Clinton was a prime example of a Bourbon Democrat.

    I do blame the Republicans — from the Federalists to the Whigs to the earlier generations of Republicans, they used to stand for things such as: law and order (including regulation of society and business and attempts to repair damage from the excesses of business) and protecting and building the country. Henry Clay’s “American System” was not far from Alexander Hamilton’s vision of America and directly opposed to British System highlighted by an ideology of aggressive free trade and exploitive business.

    Oh, well. The predecessors of the Republican Party failed and were replaced by a better and more vigorous party. Maybe we will see that again before the end of this great country.
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    Fabius Maximus replies: Thank you for posting this! I’ve written about these trends from a different perspective, but somewhat similar conclusions:
    * Migration from the south into America: new people, new foods, new political systems, 4 November 2008
    * America’s elites reluctantly impose a client-patron system, 5 November 2008
    * Immigration as a reverse election: our leaders get a new people, 6 November 2008

  3. ‘Better to reign in Hell than serve in Heaven’ — John Davidson

    New motto for the GOP?
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    Fabius Maximus replies: is this a joke? That was said by Satan, in Milton’s “Paradise Lost.”

  4. What actually worries me the most is what happens when the elites get to a point where they do not need even the shell of the USA to maintain their lifestyle, power and position.

  5. Whats really ugly is if you look at the top 1%, .1%, and .01%
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    Fabius Maximus replies: Agreed. The wealth, income, and power of the upper tier is astonishing.

  6. According to this piece in Business Insider, the Census data may even understate the magnitude of the problem. Of course, regardless of the exact numbers of the last few years, it’s been going on for quite some time, with the wealthy waging deliberate class warfare against the rest of the country, and winning. What’s really dangerous is that it is subject to positive feedback, as further wealth begets further power.

    “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
    Warren Buffet quoted in the New York Times

    The implications of this for our society are not good. It has been long been recognized that a strong middle class and relative economic equality are necessary for a healthy democratic society. Developing nations with aristocrat / peasant wealth distributions tend to end up with dictatorships of right or left-wing persuasions. Historically, democratic institutions in Europe only arose after the establishment of a powerful bourgeoisie to demand their place at the political table.

    “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”
    Supreme Court Justice Louis D. Brandeis

  7. FM: “The related story — not discussed here but perhaps more serious — is low and falling social mobility

    Absolutely. Inequality need not be destabilizing provided there is churn. If you’re poor but feel you can escape the poverty it’s a strong incentive to work. If you feel you’re trapped in poverty it’s a strong incentive to revolt.

    What evidence do you have of falling social mobility?
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    Fabius Maximus replies: There is a vast body of research showing this. For an Introduction see A sad picture of America, but important for us to understand, 3 November 2008. The OECD report has many references to other research about this.

    Almost every post has links to additional information at the end.

  8. Gaius, take a look at Argentina during the 2001 crisis. A country with a relatively high standard of living with large budget deficits. Investors lose confidence, causing a contraction of the money supply including bank runs.

    This was painful but necessary. Without a depreciation of the currency and rise in import prices, Argentina would never earn the money needed to pay off her debts.

    However, amazingly, after the riots, the ruling class in Argentina was not ejected. Indeed they profited from the crisis as their standard of living did not go down that much. Compare that to formerly middle class Argentines picking through garbage for salvage.

  9. #8,

    Excellent point. However, I think the perception of social mobility is the more important factor, as you allude to by your use of “feel.”

    The U.S. seems to be fairly unusual in that the lower classes consistently support, and vote for, the class interests of the wealthy even when to do so runs contrary to their own interests. I think this is a legacy of two myths that are a core part of our national identity. The first is the myth of the “classless society” and a corresponding aversion to even conceiving of society and issues in terms of class. The second is the myth of upward mobility: Horatio Alger, rags-to-riches, Andrew Carnegie, al that. Even after the data show this to be no longer the case, the myth is deeply ingrained in our national consciousness.

    “Don’t harm the rich, for someday I’ll be one of them.” For the poor, it’s always one lottery ticket away. For the middle class, it’s starting a website in your den that will turn you into an internet billionaire. It’s a secular reflection of the medieval serf’s solace in the afterlife.

    And the media reflect and amplify this, letting us live the life of the upper classes vicariously through television, to the point that we identify with them instinctively.

    I think it’s this perception is what has kept the U.S. stable despite the long-running increase in inequality and decrease in social mobility, keept the rich safe from populist outrage. Some of that is falling away these days, as the sheep stir slightly in their pens, but not enough to alarm the shepherds.

    BTW here’s the post discussing the social mobility data: A sad picture of America, but important for us to understand

  10. The U.S. seems to be fairly unusual in that the lower classes consistently support, and vote for, the class interests of the wealthy even when to do so runs contrary to their own interests.

    The late By Lars-Erik Nelson, in the July 20, 2000 edition of the New York Review of Books article, Watch Out, Democrats!, provides the best discussion I am aware of that much of the purportedly “liberal” economic agenda is really no such thing. That liberals have been more interesting in advancing programs conveniently provide them with white collar jobs or that allow them to preen their own vanity. That much of liberalism – particularly of the social liberal variety – is useless at best if not counterproductive so far as economic justice is concerned. That liberals have been more concerned with elite women breaking through the glass ceiling than that working families generally prosper. And so forth.

    If, as he suggests, liberals are ineffectual or even disingenuous so far as economic justice is concerned, then the lower classes are not voting against their own interests when they vote Republican, who at least assert their cultural values. They are merely refusing to buy a pig in a poke.

  11. Joke, yes. Pardon my bizarre sense of humor :P
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    Fabius Maximus replies: My fault entirely. No accounts of the real Fabius Maximus mention him having a sense of humor. Neither do I, unfortunately.

  12. Whats really disturbing is we can tolerate income inequality better if the tax system is progressive, but for the ultra rich, it is now amazingly RE-gressive. The rich simply don’t really pay taxes.

    Warren Buffet has a standing bet to everyone in the fortune 100: $1M to the charity of their choice if their total tax rate is greater than that of their secretary’s (total tax, including social security and medicare, both parts). Nobody has taken it.

    For income, we have an incredibly REgressive 15% social security tax that stops at ~100K of income completely.

    But for unearned sources, capital gains is so incredibly favored its taxed at only 15% TOTAL! And the hedge fund managers, bankers, etc etc etc have ways of converting their massive $100M compensation packages to capital gains. So not only do they get a fortune, but they only pay 15% tax on it!

  13. Oligarches, oligarches. Cheaper to pay politicians a few million than R&D for hundreds of millions. The revenge of the Soviet ‘Commissars’, you won the cold war by becoming a irroe image of version of the Soviet Union (ah lah the Star Trek ‘Mirror-Mirror’ episode.

    Marx’s ‘rentiers’ (ie the rent seeking classes) have won in the US ‘for the moment’. Wonder how long they will ‘win’ for?

    Actually I feel sorry for them in the long run (the oligarches that is), the US people are slow to anger, and frequently, and deliberately, misdirected at their targets, but when they get angry and on focus …

    All those middle class, educated people becoming permanently unemployed will do the trick every time.

    So in the longer run, barring game changers like a breakup of the Union or WW3 I expect the US people to sort it out and rebuild, though this time it might be bloody.

    In the very end, which way will the US Army and the National Guard jump?
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    Fabius Maximus replies: First, you sound like Marx forecasting inevitable revolution in France and Germany. Pessimistic, fatalistic, deterministic.

    Second, the current situation is not unique in our history. There have been waves of walth concentration, followed by periods of change during which wealth/income distributions flattened out. Such as 1950-1970. No blood, nor did the US Army get involved. Conventional social policy worked effectively: progressive taxation, broader access to go education, unions, etc. The same policy mix, in the same forms, might not work today. But the principles seems valid.

  14. OldSkeptic,

    I sort of agree with FM on this one. Here in the US we’re seeing a tremendous amount of pain and anger at the lower half of the income scale but it is almost completely mis-directed and I don’t foresee it hitting the right targets any time soon.

    Right now, for example, the Republicans are cultivating that fear and anger to get re-elected in 2010 and perhaps to defeat healthcare reform.

    FM is also correct that the current situation is not unique in our history. We went through a very similar situation from 1870-1900 and the military was only occasionally called in. It ended in a series of huge crashes that partially leveled the playing field again.

    FM’s analogy of the 1950-70 period is inaccurate for our current situation because the country had a rapidly growing economy and believed it had a major external threat from the Soviet Union. Neither of which is true today.

    The US military is becoming increasingly concerned about civil unrest and domestic terrorism (see the establishment of NorthCom for further details). The police used non-lethal weapons against the demonstrators in Pittsburgh last month and I expect this to continue and to escalate.

    I don’t know whether it will reach the levels you anticipate but I do expect the US military and National Guard to be called out with increasing frequency to restore the peace over the next 20 years.

  15. This is a good article on the unrest in Pittsburgh last month: “Pittsburgh deploys teargas and sirens to keep G20 demonstrators at bay“, Guardian, 24 September 2009. I ask you, FM, how did SWAT teams from Kentucky get involved in this unless they were called in by the Federal government?
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    Fabius Maximus replies: Don’t kid yourself. SWAT teams are closely linked in many ways. Networked by formal organizational links, fraternal links though mutual training, and tied together by communication systems. They don’t need permission from Daddy in DC to move.

  16. Duncan,

    Definitely agree. I didn’t mean to imply that the Democratic party offered much more to the average voter than the Republican party. Possibly less, since the Repubs at least support the second amendment. They’re hardly even separate parties — more like two wings of the business & war party with slightly different sets of pet issues. And it’s true that the “big government” solution hardly helps the average person, most of the benefit of government programs goes to the already well-connected. Nathan Lewis had a great take on it in “Socialism vs. Capitalism” on his blog:

    About 40% of the U.S. economy is now government-related, up from perhaps 5% in 1900. The socialist types still seem to believe that there is some “income redistribution” involved. I see almost none. The Federal government is mostly involved in funding the military, outright theft, political payback (“pork”), corporate subsidy, and the debt incurred from the military, theft, pork and corporate subsidy of the past.

    The only meaningful “income redistribution” is Social Security and Medicare, both of which have run surpluses since inception (and thus can’t be blamed for the debt). You need to be over 65 to get any benefit from either of those. All the income is being “redistributed” to old people, a small fraction of the population. Which doesn’t seem to me like what the early socialists had in mind.

    This big government has been accompanied by higher taxes, which have a negative effect at all levels. The early socialists thought that higher taxes on high incomes/wealth was something like a moral good. It might be something like that if it actually funded something useful. But, I don’t see what is so morally wonderful about funding the military/theft/pork/subsidy/waste.

    The Democratic party is slightly friendlier to organized labor, but only barely. Both parties consistently come down in favor of business owners at the expense of workers. Part of this is the natural influence of money and power on the political class, but part of it is a consequence of the cultural illusions I mentioned. Any politician suggesting meaningful curbs on the power of the super-wealthy gets shouted down with cries of “class warfare.”

    The serfs come to the rescue of the lords every time, because in their hearts they know they are merely lords-in-waiting. I’m sure it’s always good for a chuckle or two down at the yacht club . . .

  17. Ah, but the eliminiation (or reduction to be more exact) of the US Oligarchs in the last century were a direct result of FDR, simply a continuation of his policies after WW2 (interesting he was of the US elite who turned on his own kind, similar to his relative Teddy).

    And there was an attempt to overthrow the US Govt. Various business interests tries to co opt Smedly Butler (look at http://en.wikipedia.org/wiki/Business_Plot) to overthrow the Govt.

    Fortunately the US, at that time, had a very small armed forces and Smedley was a true patriot .. so he blew the whistle. And I’m absolutely sure FDR kept that as a way of keeping the Oligarches under control (being the cunning, canny person he was) … “support my changes or … you will be shot as a traitor” was probably the message.

    But now this is modern US, with a huge M.I.C, plus a very ambitious General who has made no secret of his desire to be President.

    So I again ask which way will the US Military Industrial Complex will jump when push comes to shove? Will they shoot you when you protest? Or just beat you to death as the British police did recently (Britain is currently the poster child of an OECD country falling into dictatorship)?

    I also ask myself why the indoctrination (that is the only word you can use to describe it) is so successfull in the US that ordinary people always seem to vote for the ‘big boys’, in some twisted belief that they have more freedom that way. Cut taxes they always cry .. but note the tax cuts are nearly always for the rich. Are you going to be rich? Not a chance.

    So they continually vote for less pay, more work, jobs being shredded, a rubbish health system and more wars. “as long as gays can’t marry they can cut my wages as much as they want” seems to be the cry .. as they live in a tent.

    Clinton was the poster child of neo-liberal stuff (as was the British Tony Bliar), slashed social security, got in a war (in Bliar’s case several). And they were Democrats/Labour (supposedly left wing parties). But note: both are now rich beyond belief. Bliar makes at least 6 million pounds a year, who knows what Clinton makes but it must be far more.

    Plus there is no end to war .. the Long War .. which = Orwell. Some people are actually advocating an endless war … forever. Who is safe?

    And you wonder why the rest of the World looks upon you with a mixture of pity, sorrow and horror?
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    Fabius Maximus replies: There is no evidence that the Butler plot was a serious threat, and probably far less serious the Black Panthers or SDS (neither of which were serious threats, IMO).

    As for the last point, its true. But it is almost impossible to make Americans understand this.

  18. FM careful:

    “Second, the current situation is not unique in our history. There have been waves of walth concentration, followed by periods of change during which wealth/income distributions flattened out. Such as 1950-1970. No blood, nor did the US Army get involved. Conventional social policy worked effectively: progressive taxation, broader access to go education, unions, etc. The same policy mix, in the same forms, might not work today. But the principles seems valid.”

    Might make a social democrat out of you yet. ;)

  19. READY TO REVOLT: Oath Keepers pledges to prevent dictatorship in United States“, LAS VEGAS REVIEW-JOURNAL 18 October 2009 — “Group asks police and military to lay down arms in response to orders deemed unlawful”

    Launched in March by Las Vegan Stewart Rhodes, Oath Keepers bills itself as a nonpartisan group of current and retired law enforcement and military personnel who vow to fulfill their oaths to the Constitution.

    More specifically, the group’s members, which number in the thousands, pledge to disobey orders they deem unlawful, including directives to disarm the American people and to blockade American cities. By refusing the latter order, the Oath Keepers hope to prevent cities from becoming “giant concentration camps,” a scenario the 44-year-old Rhodes says he can envision happening in the coming years.

    It’s a Cold War-era nightmare vision with a major twist: The occupying forces in this imagined future are American, not Soviet.

    “The whole point of Oath Keepers is to stop a dictatorship from ever happening here,” Rhodes, a former Army paratrooper and Yale-trained lawyer, said in an interview with the Review-Journal. “My focus is on the guys with the guns, because they can’t do it without them. We say if the American people decide it’s time for a revolution, we’ll fight with you.”

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    Fabius Maximus: Strange how upsetting people find the idea of officers taking their oaths seriously.

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