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2007 March 28 Wednesday
Income Inequality Same As 1928

The rich are getting richer and the rest are doing worse.

Income inequality grew significantly in 2005, with the top 1 percent of Americans those with incomes that year of more than $348,000 receiving their largest share of national income since 1928, analysis of newly released tax data shows.

The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.

While total national wealth grew substantially in 2005 incomes for the bottom 90% went down!

While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.

The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.

The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.

What I wonder: How fast does the membership in that top 300,000 change? If someone sells their stock options in a successful VC start-up then they might pop up into that top group for a year and then not show up again in that group.

One of my worries with such drastic income inequality: A large chunk of total demand depends on a much smaller number of people who, if they get spooked, could just stop buying and throw the country into a deep recession or even depression. The rich do not need to buy much new stuff each year because they already own so much. Therefore their demand for goods is a lot more optional than is the case for the middle and lower classes. So is this trend putting us at risk of another great depression?

New England has the most severe income inequality in the United States.

The gap between rich and poor grew at a faster rate in New England than in any other region of the nation over the last 15 years, according to a University of New Hampshire study released Thursday.

The widening income gap has shrunk New England's middle class and disrupted many of the region's communities, according to the study's authors from UNH's Carsey Institute.

I would expect that result. Why? Because New England probably has the highest average IQ of any region in the United States. Income inequality is being driven by the huge earnings of a portion of the brightest. Not every very bright person is scoring big time in business and professions. But enough are that a population that has a lot of very bright people is going to have more big winners and therefore larger income inequality.

Share |      By Randall Parker at 2007 March 28 10:18 PM  Economics Labor


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Comments
Ned said at March 29, 2007 7:30 AM:

I wonder how much illegal immigration (and legal immigration, especially H-1B's, for that matter) contributes to holding down the incomes of lower to middle class Americans?

Irish Savant said at March 29, 2007 9:56 AM:

Doesn't Mississippi have the highest average IQ?

Ryan said at March 29, 2007 10:06 AM:

This should be tied into your 'massive consumption' posting over on futurepundit. There won't be massive consumption by the weathly if the income inequality gap grows so large that the poor decide to vote themselves a bigger slice of the economic pie. See Barack Obama's 'social darwinism' speech.

Mensarefugee said at March 29, 2007 10:24 AM:

Well..
The rich will just leave if it gets too bad...
Currently the US is better than europe and Canada, but that could change. And when you throw in some up and coming countries in Asia. And perhaps Argentina (not up and coming but low crime, mostly white liberal property laws etc) Id say the 'poor' are limited in what they can do. :)

John S Bolton said at March 29, 2007 11:59 PM:

This growing gap has been attributed to a supposedly accelerating pace of technological improvement in America.
That attribution is not plausibly presented as honest analysis, though.
The exceedingly grave deceleration of technological improvement, which tracks, and is likely to be largely caused by, the swelling tide of lower and lower-productivity immigrants,
is of very serious danger to the continuity of civilization,
specifically: the advancement of technology.
Now we have an income distribution like that of the savage places where the new populations come from, and this is not a coincidence,
but an evident consequence, at least in large part,
of the growing bifurcation of populations that is seen here.
Meanwhile, a deceitful power-servile professoriate, which ought to tell us why this happening, is from both the left and the right,
participating in an omerta, on the way declining quality of population induced by mass immigration, allows for a slowdown of technological improvement,
combined with income disparity between classes already rivalling the third world.

Guy Gold said at March 30, 2007 4:12 AM:

Our education policy is a major contributor to this. As you note in many of your blogs, it is ridiculous to presume that low to average IQ students can master the subject matter in college to become an engineer-but our education system has become geared towards that goal. In the past we had vocational training in high school where people could obtain middle income jobs by working with their hands. Now we import illegal immigrants to do those jobs or buy products from overseas (there is little manufacturing in America anymore).

Our local talk show host Jeff Ward made a fool of himself this week spouting the ridiculous ideology of higher education, and it is relative to this topic. I wrote about that on my blog:

http://blog.360.yahoo.com/blog-YNiMBk4neqgOl2HKRbQjTECjA.pedt4-?cq=1&p=1912

Ryan said at March 30, 2007 6:44 AM:

Mensarefugee,

I agree that the rich could leave, but I wouldn't be so sure that they would be able to just take their money with them. It's not like the wealthy keep just keep their money in a suitcase under the bed.

Mensarefugee said at March 30, 2007 10:32 AM:

No,
They cannot leave immediately. But over a span of years or a decade...when the time comes to build that new plant - they will relocate or rebuild it somewhere else. Or they can send their children abroad while they stick around. It happened/ is happening in Malaysia - let least as mentioned in Thomas Sowell's "Affirmative Action around the World: An Empirical Study" (brilliant book btw).

Mensarefugee said at March 30, 2007 10:40 AM:

Brilliant article Guy Gold!

Kurt9 said at March 30, 2007 1:05 PM:

I think some of this is driven by the fact that we don't have alot of manufacturing industry any more. Manufacturing tends to create wealth opportunities. The finance industry, on the other hand, tends to centralize and concentrate wealth towards fewer people.

Randall Parker said at March 31, 2007 9:20 AM:

Irish Savant,

I'm guessing you are joking about IQ and Mississippi. No?

See crush41's posts Better state IQ estimates and State IQ estimates from McDaniel of Virginia Commonwealth University.

Randall Parker said at March 31, 2007 6:06 PM:

Ryan,

Rich people who hold stocks can take their money with them by transferring to a foreign brokerage to hold their stocks. They'd have to renounce citizenship. Some have, especially as they get older and want to escape US inheritance taxes.

But an en masse flight of the rich is harder because if they all sold their fixed real estate assets prices would plunge. Also, if they pulled out of the dollar en masse the dollar would plunge. They'd lose a lot of money.

Though they are already gradually investing more abroad.

Brent Lane said at April 1, 2007 1:04 PM:

Remind me again, what was it that happened in 1929?


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