Saturday, January 14, 2012

Median Household Income -- What Could Have Been

Paul Krugman points to a Lane Kenworthy post which includes this graph:

Krugman's notes that:
You see the contrast: a doubling of family incomes in the post war generation compared with maybe 20 percent since, and family incomes growing in line with GDP before, lagging far behind since, with the difference basically being the rising share of the 1 percent.
But Krugman omits this even more telling chart.
Kenworthy explains:

The dashed line in the ... chart shows what median income would have looked like had it risen in sync with per capita GDP. The difference is huge: in 2007, the median family’s income would have been $91,000 instead of $61,000.
Alan Kreuger, Obama's Chairman of the Council of Economic Advisers, noted much the same in a speech at the Center for American Progress earlier this week. From 1947 to 1979, each quintile performed about the same, with the lowest quintile actually performing the best. (All charts are from Kreuger's speech, and are generally based on Census Bureau and CBO data).

But from 1979 to the present, something(s) went very much awry.

And we note that the lowest quintile actually lost ground. Kreuger doesn't really address the causes for this, although he notes several possibilities, including changes in technology, decline in union participation and changes to the tax code.

But look what happens when a Democratic president gets elected.

Everybody does better. The bottom 80% of household perform at or near their historic averages, and the top 20% just cranks.

And if the median household income had continued to rise at it did during the Clinton years, it would now be at about $59,000, instead of about $50,000.

 But we do know where the money went.

As Kreuger notes:
Because of these trends, the very top income earners have pulled much further ahead of everyone else. The following chart shows the share of all income earned by the top 1 percent and 0.1 percent of households.

Not since the Roaring Twenties has the share of income going to the very top reached such high levels. 
The magnitude of these shifts is mind-boggling. The share of all income accruing to the top 1% increased by 13.5 percentage points from 1979 to 2007. This is the equivalent of shifting $1.1 trillion of annual income to the top 1 percent of families
A trillion dollar shift. Annually. To the 1%.

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