In times of economic turmoil, nothing has a calming effect like a few colorful charts. Here are a couple of thought-provoking ones via E.D. Kain at Balloon Juice.
First, originally by Alex Knapp, we have the distribution of wealth in the U.S.:
If it looks like a more dramatic amount of inequality than you are used to seeing, it may be because this is plotting total wealth rather than yearly income. Knapp also points out that the tax system doesn’t really redistribute wealth very much; the top one percent pulls in 19% of the pre-tax income, which after taxes is whittle away to … 17%.
Of course their share is growing with time, courtesy of Mother Jones:
We can compare that reality to what people think it is, and what it should be:
What does it imply that most Americans think the distribution of wealth is much more even than it really is, and would like it to be more even still? By itself, nothing at all. These are just data — descriptions of the world — and science doesn’t imply morality. The data are just useful to keep in mind when we do think about how a just society should be ordered, and what strategies (“share the pain!”) might be most appropriate when thinking about how to recover from our recent economic pratfall.
How many comments do you think we’ll get before someone claims that taxation = slavery? I’m guessing five.
@71. Keith,
Your example reeks of bias. To cast the income distribution into letter grades as you did, there would not be “10 A’s and 2 F’s”. You’ve completely missed the point.
The distribution would be more like there is 1 A, 2 B’s, 27 C’s, 40 D’s, and 30 F’s. And the curve is steadily moving towards the low end of the grade scale, indicating ever higher concentrations of wealth into ever fewer hands.
The correlation is not to Socialism. The correlation is to the growth of the middle class in America itself, except in reverse. It’s the opposite of the American Dream. It’s the American Nightmare. You too can exit the middle class, watching your standard of living disintegrate as your real wage fails to keep up with inflation. Suddenly you lose your job, or have a health crisis, and you go directly to financial ruin.
That bottom 80% of Americans? Still in the top 1% of the world. No tears shed here.
Taxation==Slavery is not so ridiculous. Our taxation system funnels income to the government who then redistributes it to cronies. Many of the unproductive rich are rich BECAUSE of this system, not in spite of it.
Carl Brannen@75,
“I think the very high number now (comparable to 1929) is not an indication of where we’re going, but instead is an indication that the number has gone as high as possible. ”
Perhaps you’re right, but according to the Thomson Reuters/University of Michigan consumer sentiment gauge, which just rose to 77.5 in February, its highest level since January 2008. Among households with incomes of $75,000 or more, sentiment rose 9.7%, bolstered by more favorable job and income prospects. By contrast, the index fell 1.4% among lower-income households. See http://blogs.barrons.com/stockstowatchtoday/2011/02/25/wealthy-boost-consumer-sentiment-to-3-year-high/
From the looks of these numbers people at the upper end of the scale (noting this scale starts lower at 75K per year) think they’re going to be doing better while those at the lower end think the opposite.
People usually have a good idea of what’s going on around them — until they don’t — so perhaps the gap will continue to widen.
@Mike 78, I think the systemic problem in the near future is inflation from quantitative easing (which I was very much in favor of). When interest rates and inflation rises, people holding bonds get creamed while the middle class (who hold mortgage debt) get a gift as they end up with houses much cheaper than the real dollars paid for them.
CarlBrannen@79,
“. . . I think the systemic problem in the near future is inflation from quantitative easing . . . When interest rates and inflation rises . . .”
Won’t this, at least in the short run (however long), simply exacerbated the income discrepancies?
When comparing income and wealth one should bear in mind it takes 20 to 25 times as much wealth to generate a comparable amount of income so even those outside the top 5% of wealth generate less than the median income from it, while those at the top do very well indeed, so if anything the skewness is understated.
the top 10% pay 71% of the taxes: http://www.heritage.org/budgetchartbook/top10-percent-income-earners in a recent article in the economist, they’ve also pointed out that the world’s poor have all had their quality of life improve drastically in the last decade.
it’s a fallacy to think that there’s a requirement to redistribute wealth. you have a right in america to earn what you can, not have someone else’s money redistributed to you. don’t parrot marxist ideology unless you know what you’re actually talking about.
some of you folks would benefit from reading adam smith’s “wealth of nations”: http://www.econlib.org/library/Smith/smWNCover.html
Really? So you expect to be allowed to live in a country without paying your share? Filthy freeloading pirate! Taxes are rent on your space in the civilisation you live in.
If the wealth of that top 1% was taken off them, would the world be a better place? If you say yes, would it still be a better place five or ten years later?
What’s the bet that the graph would look exactly the same in a generation?
What’s the bet that it’s even more polarised somewhere like North Korea?
@Ikka:
“Actually, it does clearly imply that most Americans are deeply innumerate, assuming that most of them honestly believe that a superflat wealth distribution where the top 20% owns only three times as much wealth as the bottom 20% could be even mathematically feasible in any society short of draconian taxation and equalization programs that would make even North Korea shudder.”
Actually YOU clearly show most americans are deeply innumerate, by assuming that such a wealth distribution isn’t “mathematically” feasible (whatever that means) in any sort of society that would make north korea shudder. As Jens mentioned Denmark does just that, and you can compare Sweden’s top quintile of the population possessing only 18% of the total wealth with respect to the second quintile’s 35%, compared to the US’s 84% for the top quintile and 11% for the second. Only the most small-town american who’s never seen a passport in his life would claim sweden’s high standards of living and equality in a democratic society is comparable in any way to a communist state.
See here for more:
http://backreaction.blogspot.com/2010/11/americans-prefer-swedish-wealth.html
I scour the US Constitution looking for the authority to tax for the purpose of redistributing wealth. it is not there. What IS there is the power to tax in order to fund those powers specifically given to the federal government in Article 1 section 8.
Ah yes, I know. It is that little “general welfare” wording in the taxation clause. But is it REALLY in the interest of our general welfare to take money from those who have earned it and give it to those who didn’t?
The difference between the conservative and the liberal these days seems to be in the composition of the economic pie. The liberal sees it as a fixed size, thus the rich become so at the expense of the poor. The conservative sees it as limited in size only by the ingenuity and industry of those who work on it!
The rich are rich not because the poor are poor! They are rich because they worked harder than the poor.
@85. Tevong
I’m having a hard time finding how they measure wealth in Sweden, and I’m having an even harder time figuring out how they could possibly arrange society so that a sixty year old who owns their home, a nice car, a boat (he enjoys fishing), and has been putting 10% of their income for the last thirty years into a mattress doesn’t have more then three times what an 18 year old attending university has. I’m only 29 and would love to have 1/3rd of what my father has, and he has four kids, how do they set it up in Sweden so that between the four of us having cumulatively worked fewer years then our father would somehow have more then he does? Should he not own his home? Should we own it instead? Should I own his car and my brother his boat? And how do we cope with the fact that my brother would sell the boat so he could go out to dinner or clubbing every night until the money was gone?
Please let me know how they arrange society, I’ve seen the posts bragging about their land of milk and honey but have seen absolutely nothing explaining it and I’m worrying that it’s all based on something ridiculous like “well as a country we’re worth $x trillion, and we all own a part of that wealth! :D”
One explanation for that lack of superrich Swedes is that they have left, or at least don’t pay taxes. The Rausings (TetraPak) moved to Britain, Ingvar Kamprad (IKEA) put his money into inpenetrable Dutch foundations, and Stefan Persson (HM) struck a deal with the then-socialist government about tax exemption (for his OTC shares).
No one is talking about the Scandinavian’s character and values here: they are frugal, responsible with their money, and prefer to save for a rainy day than squander it on something they don’t need. And here are the myths about the economic system in Sweden:
http://www.youtube.com/watch?v=ENDE8ve35f0
Real growth came from free market ideas of robust secure property rights, privatization, a good justice system,,small gov/t with low taxes.
(The problem the Swedes and Danes are going to have to face is their growing population of extremist Muslims, who refuse to assimilate into the country they are living in. The Swedes are too nice. This will be the biggest challenge for them.)
The founding fathers of the US were adherents to the ideas of individual freedom, free markets, and low taxes.
In terms of the economic pie, if gov/t got out of the way of it’s citizens and stopped taxing people to death, there would be more job opportunities, more productivity, more wealth. Federal and state gov/t policies are sending many businesses out of certain states, and across seas, since the taxes are such a burden here. (Just look at the Gov/t Accounting Standards that allow loopholes for states to misrepresent pension liability figures.)
The problem with the welfare state is that it eventually goes broke because it runs out of other people’s money. Just look at the economic crisis going on in Europe right now. They have to either raise the retirement age, require citizens to start contributing to benefit plans, or risk going broke.
I really don’t buy the argument that poor people receiving welfare are going to be motivated to start earning on their own: if they are getting gov/t handouts, unemployement checks that are more than what they could be making to start out with, WHY on earth would they actively look for a job? Fact is, people always do a better job saving and being responsible if the money they have is their own. Just look at expense accounts: are you more careful with your bosses money when you go out to lunch on their dime, or with your own money?
The problem with the liberal mindset is that you think Gov/t can solve all your problems. That we are a family, not a nation of individuals, and we need Daddy to take care of us. But eventually Daddy will run out of money.
the gov/t takes some of your money, and gives it to other people. It doesn’t put as much care into how efficiently that money is spent-just look at public housing, public education, medicaid, etc., because it’s NOT THEIR MONEY. If the money was in the people’s hands instead of the gov/t’s, I’d bet we’d see those hospitals that never turned anyone away in the 1950’s, much more charity, incredible amounts of wealth and growth, because people are inherently generous.
Of course, there is greed. This is human nature, as we saw in the financial crisis. But it was the gov/t that created the problem so people took advantage of it.
Margo,
“I’d bet we’d see those hospitals that never turned anyone away in the 1950′s, much more charity, incredible amounts of wealth and growth, because people are inherently generous.”
The top marginal tax rate in 1950 (when you think everyone was generous and the government stayed out of peoples’ business) was 84%. Today it’s 35%. Government is taking less money than it did in your mythical “leave it to beaver” world.
Facts are facts. The government is taking less money and the gap between the rich and poor is growing ever wider. I’m not saying the entire answer is “taxing the rich”, but since you tea party folks want to cut the budget back to what it was in past years (which generally is OK with me depending on what’s cut), how about having the same tax rate as in prior years as well? Just asking . . . .
Karl,
Only during periods of free market,laissez-faire capitalism did countries experience high levels of growth. Just look at Sweden between 1870-1970. I prefer to leave the money in the people’s hands to decide what they want to do with it, not some enormous bureaucratic goliath like the gov/t.
It is true that we had higher taxes back then, but the gap between the rich and poor in 1950 was much more severe than now a days. The poor are not as badly off as they were in 1950. And we could afford having exhorbitantly high tax rates back then because of the huge boom in the economy from WWII. Then we really bit the dust as the high tax rates caught up with everyone, and no one could live off the gov/t handouts anymore. Just look at Carter’s disastrous leadership. That’s why we elected Reagan, who promised fiscal conservatism. He lowered income taxes, but unfortunately, because he raised the payroll tax, he didn’t get rid of the entitlement programs that were crippling the economy.
HEalth care is a limited commodity with a never-ending demand. So you either have health care rationing where people pay a portion of their income to health care, or you have never-ending lines.
Health care in the supposedly idealic Scandinavian countries is flawed because people have to wait in line for years to get seen for a brain tumor. The swedish health care system gets all their innovation from the US, which has allowed for innovation and new technologies through lower taxes.
The thing that keeps Swedish health care system able to function is that the Swedes are fairly healthy people who eat well and exercise. Can’t say the same for Americans, and certainly would not want to be responsible for other people’s obesity problems. but that’s what is going to happen with ObamaCare.
And I am a Libertarian. I am happy to see a grass-roots movement (the tea party) fighting to rein in Big Government. Finally people are saying NO again.
The creation of wealth started out as a way for any given population to pay for goods and services. The system usually works well untill someone decides they need an egde as a hedge against their possibly loss of their fortune. After that taxation and redistibution of said wealth is reduced to a Penzi scheme. All flow of money is headed to the top of the food chain. The wealth in this country ARE accumulating vast amounts of worthless cash. This is why this cash not being invested in jobs, infastructure, or educational grants, its being invested in liquid asset acquisions. The wealthest 2% is trying to buy themselves a future and screw everyone else. Madoff was using the same system the US Treasury uses, take it from the mid-class and give it to the presious few. The problem with the US Treasury is they know better but its legal for them. Why do you think very frew people have gone to jail for the 800 billion dollar bail out. We are so screwed.
Margo,
I agree that a widening gap does not negate the fact of a rising absolute standard of living for the poor. There is less absolute poverty today than there was in 1950 — but it is very clear that the gap between rich and poor is widening now at an increasing pace. The price we pay for “freedom”? Perhaps. The just deserts of the uneducated, lazy and freeloading people of the United States? Some on this thread say so. Having grown up in the lower middle class and having been relatively successful since then — I count myself lucky — and I don’t credit most of my limited success to my own superior personal qualities.
Where do poor people come from? The banks are still at it. Any one with a dollar is a target.
Go to the library or, online and get the last issue of AARP. Look for an article titled “The Time Bomb in Your Nest Egg.” The top 2% are not after the poor they’re after YOU ,your mama, and your daddy. That means you get zip as an inheritance. You must be a lazy blogger and don’t need money. The above scamn is still being sold at your local banks by bank brokers and big brother can’t or, wont stop them even when there is a major law suit in progress for 56 billion. To date 164 billion dollars have been lost. These elected officals in DC have you talking about the definition of finanance while they have their hands stuck in your pockets. At the request of the top 2%. We are all going to be poor!!!!!!!
The disparateness of income and wealth between the so-called haves and have nots has dismissed now any meaningful dialogue between rich and middle class – both communism and capitalism are now obsolete archaic systems.
MIT economist Ravi Batra has shown that once a society reaches a certain amount of concentrated wealth that a collapse is unavoidable.
I think we can all agree that Ronald Reagan was one of the greatest presidents of the modern era.
That being said, why don’t we return to Reagan’s tax brackets, rather than the current socialist-wannabe Obama tax brackets that we use today? I suspect returning to Reagan’s trickle down economics tax rates will bring the deficit back under control.
Your taxes / your wage = number of hours you worked for the government.
Thanks Sean. Sometimes you raise my hackles on the subjects of religion and morality but I don’t doubt you are smart and I like seeing the “scientific brain” examining economic questions. The meaningfulness of statistics can be difficult to pin down and it is easy to confuse people because we are not born with much of an understanding of math. Logically hammering away at the distortions and misunderstanding is the only way the general public will eventually see the truth. This type of information can be presented without any value judgment attached and the different perspectives can be presented side by side allowing people to conclude for themselves what it “means”. Keep it up and we will all have to reach the same conclusion eventually (whatever it may be).
You can read the AARP article “The Time Bomb in Your Nest Egg” at http://www.aarp.org/money/investing/info-03-2011/how-safe-are-your-savings.1.html and read even more by the attorney quoted in the piece here: http://www.lehmannotes.com/2011/03/wall-street-using-principal-protected-notes-and-other-structured-products-to-borrow-collateral-free-.html.
No. No, we can’t. No way.