Economics

Update (10-1-08) – I’m not the only one who sees a reflection of 1980 in today’s events.

We have been hearing a lot about the economy and credit markets and such the last few weeks. I found some interesting historical data to help place some things in focus and help see what has been happening.

These charts are from the non-partisan group, Demos, and are based on data from named databases.

 Inequality Images Charts Top1Percent Thumb
Currently, the top 1% of households have income above $315,000 and there are about 100 million households in the US. So these 1 million households are now responsible for over 20% of our population’s income.

The last time it was this high, we had a depression starting. But what is interesting is that when we had a strong middle class (following WWII), the top 1% were only responsible for 10% of total income. The much larger middle class made a severe impact on the ultrarich’s total take. A balanced economy seems to have about 10% of the total income come from the top 1% of households.

Yet this trend stopped in 1979, with the rich more than doubling their percentage of the total economy. Looks like the rest of America could not keep up with the top 1%. I wonder what happened in 1980?

Looks like Reagan’s revolution was great for the economy, for businesses and the rich but had little effect on helping the middle class. This can be more easily seen in these two graphs.

 Inequality Images Charts Changesrealfamily4779 Thumb
Between 1947 and 1979, all families, no matter how wealthy, made about the same income gains. It did not matter if they were in the top 5% or the bottom 20%. In fact, the top 1% may have done slightly less well that the rest of the US. In other words, all of America shared in the same income gains.
 Inequality Images Charts Changesrealfamily7905 Thumb
Now, since 1979, only the top 1% has made gains comparable to the post-war era. Every other group has seen stagnation, or worse, in their income. The poor are actually making less money today than they were in 1979!

Now it defies reason to believe that starting in 1979 the rich continued to get rewarded for working hard by seeing increases in income while everyone else simply loafed around. Not just some of them but ALL of them. Do we want to say that starting in 1979 95% of all Americans became lazy? Hard to believe since productivity increased 64% in the last 32 years while compensation rose only 12%. There must be macro-economic reasons for this. People did not change. The economy did.

1980 seems to be the inflection point. This is the year when the Republican Revolution and Reaganomics took hold. This has pretty much been government policy for 28 years and we are finally seeing what the effect of Voodoo economics is. The greed of a few at the top has created a bubble that will not pop smoothly without a tremendous amount of luck and ingenuity.

All of us may very well pay for this experiment in economics. Supply-side economics without significant regulatory oversight does not really to appear to be the best economic philosophy for an egalitarian democracy. It seems to be better used for a plutocracy. I guess we will soon see just what sort of government we will have.

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