Inequality: Cycle and Structure

December 13th, 2011 at 11:52 am

Just wanted to make sure that anyone reading this—an interesting piece by Jason DeParle at the NYT on the cyclicality of income inequality—also sees this: a recent post of mine on the topic.  In particular, note my graph at the bottom (shown here again) that asks this question:

Based on the correlation between corporate profits and the share of income going to the top 1%, should we expect inequality to have started growing again in 2010 or so?

And the answer is “yes.”  The inequality data come with a lag but we have corporate profits through 2010.   The tick up at the end of the figure is indicative of the point a number of commentators, myself included, make in the NYT piece.  The forecast below is not at all definitive, of course—this is just a simple correlation of a complex set of relationships.  But the structural forces driving inequality up remain in place.

Source: CBO, my forecast using corporate profits/GDP from NIPA.

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3 comments in reply to "Inequality: Cycle and Structure"

  1. Artie Gold says:

    Thank you, Jared.
    Far too often we hear things like “Well, inequality goes up during an expansion, so that’s a ‘good thing’.” As you point out, it’s the longer term situation, the trend across cycles that really matters. And that’s where the dangerous folly of our recent decades — rather like a similar period eight decades or so ago — is revealed.


  2. Bud Meyers says:

    By focusing on the top 1 percent, the Occupy Wall Street movement has made economic fairness a subject of street protest and political debate. “It’s very interesting that this has become such a big topic now when the numbers are back to where they were in the 1990s,” said Steven Kaplan, an economist at the University of Chicago’s business school. “People didn’t seem to be complaining about it then.”
    http://www.nytimes.com/2011/12/13/business/economy/recession-crimped-incomes-of-the-richest-americans.html

    People were aware, but they were too busy just trying to survive to complain. Mom and dad were trying to pay the mortgage. Now with 27 million more people out of work just since 2008, they have time to address the issue.

    The difference between $957,000 in 2009 and $1.4 million in 2007 is nothing compared to someone who once earned $40,000 a year and then was reduced to living on $15,000 with unemployment benefits, to living on ZERO DOLLARS a year when those benefits expired and they were forced to file for food stamps after their car was repossessed and their home was foreclosed on.

    We now have over 10 million vacate homes.
    http://www.gao.gov/products/GAO-12-34

    To increase demand for homes, Senators Chuck Schumer and Mike Lee have introduced a bill offering residential visas to any immigrants who buy housing in the United States. But bringing in more foreign homeowners will also expand the oversupply of workers that we have today.
    http://economix.blogs.nytimes.com/2011/12/12/unwanted-homes-unwanted-workers/

    There are over 27 million Americans unemployed, and most have long ago exhausted all their jobless benefits — and very few ever found full-time work again.
    http://bud-meyers.blogspot.com/2011/12/simple-math-proves-jobs-report-lie.html

    No, I don’t think those people will sympathize with the rich any more than the rich sympathize with them.

    Tax capital Gains as REGULAR INCOME to restore a fair tax base and tax corporations at an ACTUAL tax rate, not an EFFECTIVE tax rate. CEOs pay less on their salaries (15% capital gains tax on exercised vested stock options) than the middle-class at 25%.

    Gift Taxes on the Fabulously Rich
    http://bud-meyers.blogspot.com/2011/12/gift-taxes-on-fabulously-rich.html

    Chinese Wages Too High – Now Hiring Robots
    http://bud-meyers.blogspot.com/2011/12/chinese-wages-too-high-now-hiring.html

    Low Wages Kill Jobs, Not High Taxes
    http://bud-meyers.blogspot.com/2011/11/low-wages-kills-jobs-not-high-taxes.html

    Where the Jobs Are
    http://bud-meyers.blogspot.com/2011/12/where-jobs-are.html

    Gift Taxes on the Fabulously Rich
    http://bud-meyers.blogspot.com/2011/12/gift-taxes-on-fabulously-rich.html

    Newt Gingrich Supports Andy Stern
    http://bud-meyers.blogspot.com/2011/12/newt-gingrich-supports-andy-stern.html


    • Carl Buhlmann says:

      Alan Reynolds made the same assertion in the WSJ last week and tried to get away with it.

      The fact is, “incomes” for the top 1% have not gone down.

      The reason you see what appears to be a big drop, is due to the aggressive use of capital gains avoidance through multi-party financing arrangements (aka conduit) variable pre-paid forward contracts and other capital gains perpetual deferrment schemes.

      If one were a billionaire, you would be crazy to take “income” when these schemes are readily avaiable through any prime broker.

      I’ll bet, that in fact, the top 1% share of income has increased over this period.


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