{"id":11972,"date":"2015-04-07T12:40:23","date_gmt":"2015-04-07T16:40:23","guid":{"rendered":"http:\/\/multiplier-effect.org\/?p=11972"},"modified":"2015-04-07T12:43:39","modified_gmt":"2015-04-07T16:43:39","slug":"how-do-we-end-the-inequality-feedback-loop","status":"publish","type":"post","link":"https:\/\/blogs.bard.edu\/multiplier-effect\/how-do-we-end-the-inequality-feedback-loop\/","title":{"rendered":"How Do We End the Inequality Feedback Loop?"},"content":{"rendered":"<blockquote><p><em>&#8220;As Hyman Minsky argued, there are many varieties of capitalism, some more stable than others\u2014and, we can add, some more equitable than others.&#8221; &#8212; Pavlina Tcherneva<\/em><\/p><\/blockquote>\n<p>Pavlina Tcherneva has revisited her (in)famous inequality <a href=\"http:\/\/www.levyinstitute.org\/pubs\/op_47.pdf\">chart<\/a>, which showed an\u00a0ever-rising\u00a0majority\u00a0of the income growth during\u00a0post-1970s economic expansions being captured by the wealthy (specifically the top 10 percent of income earners). In a recently released policy note, &#8220;<a href=\"http:\/\/www.levyinstitute.org\/publications\/when-a-rising-tide-sinks-most-boats-trends-in-us-income-inequality\">When a Rising Tide Sinks Most Boats: Trends in US Income Inequality<\/a>,&#8221; she has updated the numbers through 2013 and broken down\u00a0the top decile\u00a0further (top 1 percent and 0.01 percent), compared\u00a0the results\u00a0of including or excluding capital gains, and looked at what happens to the distribution of income growth when we expand our scope to the entire business cycle (Tcherneva looks at NBER-dated GDP cycles as well as\u00a0&#8220;income cycles&#8221; based on\u00a0real income data from Piketty and Saez).<\/p>\n<p>Here are some\u00a0of the results:<\/p>\n<ul>\n<li>The\u00a0capital gains discussion yields a somewhat counterintuitive result: when you exclude capital gains, the distribution of income growth between the top 1 percent and bottom 99 percent appears <em>more<\/em> unequal. Tcherneva explains that this is because even\u00a0though the bottom 99 percent have barely any capital gains income to speak of (2 percent of their income), their shrinking wage incomes meant that, from 2009-13, these\u00a0meager\u00a0capital gains were\u00a0making the difference between declining (excl. cap gains) and merely stagnating (incl. cap gains) incomes for the bottom 99 percent.<\/li>\n<li>When we look at entire economic cycles (peak-to-peak GDP or peak-to-peak income) rather than just the expansion periods, the picture doesn&#8217;t look any better. In fact, it&#8217;s worse. As Tcherneva notes, although the wealthy tend to lose disproportionately more of their income very early on during\u00a0downturns, they recover faster and stronger than the bottom 90 percent: &#8220;Since the \u201970s, when we look at the period beginning only <em>one<\/em> year after a downturn [and ending at the subsequent peak of the income cycle], the cycle delivers between 78 percent and 107 percent of the income growth to the wealthiest 10 percent of families.&#8221;\u00a0In other words, she writes, &#8220;the <em>way we grow <\/em>recovers the incomes of the top 10 percent first.&#8221;<\/li>\n<li>She also includes the chart below, which, though not quite as striking at first glance, <span style=\"color: #333333\">becomes even more galling as you let it sink in<\/span>. The chart\u00a0shows\u00a0the shares of income growth captured by the bottom 99.99 percent and the top 0.01 percent. By contrast with the other charts (90 percent vs. 10 percent and 99 percent vs. 1 percent), the blue bar is still bigger than the red, but keep in mind we&#8217;re talking about a tiny fraction of a fraction of the population in that red bar &#8212; around 16,000 families &#8212; and as you can see, they gobbled up practically one-third of all the income growth in the last full expansion period (2001-07), with the same worrying trend suggesting itself.<\/li>\n<\/ul>\n<p><a href=\"http:\/\/multiplier-effect.org\/files\/2015\/03\/Tcherneva_Levy-Institute_When-a-Rising-Tide-Sinks-Most-Boats_Fig3.png\"><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-11989 aligncenter\" src=\"http:\/\/multiplier-effect.org\/files\/2015\/03\/Tcherneva_Levy-Institute_When-a-Rising-Tide-Sinks-Most-Boats_Fig3.png\" alt=\"Tcherneva_Levy Institute_When a Rising Tide Sinks Most Boats_Fig3\" width=\"400\" height=\"438\" srcset=\"https:\/\/blogs.bard.edu\/multiplier-effect\/files\/2015\/03\/Tcherneva_Levy-Institute_When-a-Rising-Tide-Sinks-Most-Boats_Fig3.png 494w, https:\/\/blogs.bard.edu\/multiplier-effect\/files\/2015\/03\/Tcherneva_Levy-Institute_When-a-Rising-Tide-Sinks-Most-Boats_Fig3-274x300.png 274w\" sizes=\"auto, (max-width: 400px) 100vw, 400px\" \/><\/a><\/p>\n<p>Tcherneva also comments on the\u00a0need to reorient\u00a0our\u00a0broader policy approach\u00a0(such that it\u00a0exists)\u00a0to\u00a0combating inequality.\u00a0One of the points she makes is that we\u00a0give up too much terrain when we focus\u00a0disproportionately\u00a0on raising top marginal income tax rates.<!--more--><\/p>\n<p>Rates on top earners were certainly much higher during the &#8220;Golden Age&#8221; of US capitalism, back when the majority of (pre-tax, pre-transfer)\u00a0income\u00a0growth went to the majority of people, but the more significant policy shift, Tcherneva argues, is not found in the tax code:<\/p>\n<blockquote><p>In the immediate postwar era, when government prioritized pro-employment and pro-wage policies, growth brought shared prosperity. Wages were rising in lockstep with productivity, public investment and public works were still a standard government response to downturns, the financial sector took only 7\u201315 percent of total corporate profits (compared to 30 percent today, after peaking at over 40 percent in the early 2000s), and long-term unemployment was a small share of total unemployment. The focus on pro-employment and pro-wage policies slowly weakened, but after the \u201870s the shift was decisive\u2014away from labor markets and toward top marginal tax rates and financial markets.<\/p>\n<p>[&#8230;]<\/p>\n<p>Returning to a more equitable variety of capitalism requires far more than just rolling back regressive tax cuts; it requires resuscitating and modernizing those labor-market focused policies left behind by the shift to a trickle-down, financial-sector-driven policy regime.<\/p><\/blockquote>\n<p>Tcherneva places part of the blame for post-1970s inequality trends on this shift in the policy approach toward\u00a0stimulating economic growth.\u00a0Returning to a policy (and growth)\u00a0model focused on\u00a0tight full employment and decent wages, she argues\u2014including creating mechanisms to tie productivity gains to wage increases, addressing the gender wage gap, and providing\u00a0a robust employment safety net\u2014would help lead to\u00a0improvements in the pre-tax, pre-transfer inequality that&#8217;s on display in her charts\u00a0by\u00a0raising incomes at the bottom and middle of the income scale faster than incomes at the top.<\/p>\n<p>Given that\u00a0one of the\u00a0more prominent economic policy discussions in this country these days hinges on the question of whether unemployment is (or will soon be) <em>too low <\/em>(such that, so the theory goes, we may\u00a0need to throw more people out of work\u00a0by raising interest rates), we&#8217;re likely quite a ways away from placing tight full employment back at the center of the\u00a0debate.<\/p>\n<p>And when the top 10 and top 1 percent (and now, increasingly, the top 0.01 percent) are securing a greater and greater share of\u00a0the income gains from a growing economy, the need for tight full employment and rising wages at the bottom becomes both more\u00a0pressing and <em>ever-more difficult<\/em>\u00a0to (re)insert into the policy discussion. Here&#8217;s Robert Reich, focusing on one <a href=\"http:\/\/robertreich.org\/post\/102926070780\">angle<\/a> of the problem:<\/p>\n<blockquote><p>In the 2012 election cycle (the last for which we have good data) donations from the top .01 accounted for over 40 percent of all campaign contributions, according to a study by Professors Adam Bonica, Nolan McCarty, Keith Poole, and Howard Rosenthal.<\/p>\n<p>This is a huge increase from 1980, when the top .01 accounted for ten percent of total campaign contributions.<\/p><\/blockquote>\n<p>One might note the similarity of\u00a0this trend in campaign contributions to\u00a0Tcherneva&#8217;s chart of the top 0.01&#8217;s share of income growth.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;As Hyman Minsky argued, there are many varieties of capitalism, some more stable than others\u2014and, we can add, some more equitable than others.&#8221; &#8212; Pavlina Tcherneva Pavlina Tcherneva has revisited her (in)famous inequality chart, which showed an\u00a0ever-rising\u00a0majority\u00a0of the income growth during\u00a0post-1970s economic expansions being captured by the wealthy (specifically the top 10 percent of income [&hellip;]<\/p>\n","protected":false},"author":202,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[89,4],"tags":[194,1029,233,249,961,46,315,375],"class_list":["post-11972","post","type-post","status-publish","format-standard","hentry","category-distribution","category-economic-policy","tag-1-percent","tag-campaign-contributions","tag-capital-gains","tag-full-employment","tag-income-growth","tag-inequality","tag-pavlina-tcherneva","tag-wages"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/11972","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/users\/202"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/comments?post=11972"}],"version-history":[{"count":79,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/11972\/revisions"}],"predecessor-version":[{"id":12054,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/11972\/revisions\/12054"}],"wp:attachment":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/media?parent=11972"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/categories?post=11972"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/tags?post=11972"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}