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Tuesday, March 26, 2013

Are 92% of all Americans wrong about what they believe to be the equitable distribution of wealth in the USA?





Income declining, inequality rising: Federal Reserve


By Bill Knight
Retired WIU Journalism Professor

Mar. 7, 2013 12:06 pm

Income from working "has been declining as a share of total income earned in the United States for the past three decades," according to a new analysis on income inequality from a very unlikely supporter of economic justice: the Federal Reserve.

It adds that the income share from "capital," in contrast, has been increasing.

This new analysis from the Federal Reserve Bank of Cleveland examines both "labor" and "capital" income in America since 1980. "Labor" income includes all compensation from jobs: wages and salaries, pensions and benefits. "Capital" income comes not from working but from owning: ownership of assets, including interest, dividends and the capital gains from buying and selling stocks, bonds and other forms of property.

The end result, according to the piece by Margaret Jacobson and Filippo Occhino: Americans have been making less from work and more from wealth. But only a relative few Americans, the Cleveland Fed shows, have significant quantities of such wealth. The unsurprising consequence is that U.S. society has undergone a significant "spike in inequality" over the past generation.

Both authors are with the Research Department at the Federal Reserve Bank of Cleveland. Jacobson is a research analyst and Occhino a senior research economist.

One outcome of labor's declining share has particularly raised concerns, they write. Since labor income is more evenly distributed across U.S. households than capital income, the decline made total income less evenly distributed and more concentrated at the top of the distribution, and this contributed to increased income inequality.
"We look at three different data sources and each provides broad evidence of the decline," they explained, "According to data from the Bureau of Economic Analysis, labor's share of gross national income fluctuated around 67 percent during the 1980s, 1990s and early 2000s, but it has declined since then and now stands at 63.8 percent. According to the Bureau of Labor Statistics, the ratio of compensation to output for the nonfarm business sector fluctuated around 65 percent until the early 1980s and has declined steadily since, from 63 percent during the 1980s and 1990s to 58.2 percent most recently. Finally, a 2011 study of income tax returns and demographic data by the Congressional Budget Office finds that labor's share of income decreased from 75 percent in 1979 to 67 percent in 2007.
"These three data sources … agree in indicating a significant drop of 3 to 8 percentage points in labor's share of income since the early 1980s, with the trend accelerating during the 2000s," they note. "As a result, total income inequality rose."

Inequality declined "up to the late 1970s," the continued, "but it has since reversed course. It rose sharply during the 1980s and early 1990s and currently is at near record-high levels."

Inequality affects a variety of other important economic variables, such as the composition of consumption and investment, tax revenue and government spending, government policies, economic mobility, human capital accumulation, and growth, the researchers say. Some economists have suggested that rising income inequality contributed to the debt accumulation and financial imbalances that led to the recent financial crisis.

"And, of course, income inequality is the focus of much attention as an indicator, albeit imperfect, of the inequality of lifetime income and welfare across households," they write.

Contact Bill at Bill.Knight@hotmail.com; his twice-weekly columns are archived at billknightcolumn.blogspot.com

29 comments:

  1. The question begs the answer: If 92% of those Americans polled believe that wealth distribution is so radically different from the desired distribution, something is wrong.

    Perceived “wrongs” have consequences, especially in this instance. It explains the vast expansion of food stamps, disability insurance, subsidies, extended unemployment, Obamacare and a general gaming of the system.

    What caused this?

    What should be done about it?

    Is it just the normal state of affairs or is it the result of crony capitalism and a corrupt system of spoils and favors?

    ReplyDelete
  2. Would we be better off with a tax system that was based on neutrality of outcome?

    ReplyDelete
    Replies
    1. I don't understand what you mean by this. Could you expand just a tad bit?

      Delete
  3. Heh

    Good question.

    How about just outlawing 'wasting your money'?

    bob

    ReplyDelete
  4. Labor doesn't seem to amount to much anymore.

    All the old cattle and sheep ranching around here is gone, buried by the feed lots in the mid west. And those guys really worked. Forestry still hangs on, a little. Even the local governments have made developing so expensive it is hardly worth it. Farming has fewer and fewer involved.

    The way out?

    Around here, become a professor of something or other.

    Go into Solutrean Studies on some grant, if you can grease the skids.

    In a nation so large and diverse, tax policy itself is just a part of it.

    What is the goal anyway?

    Equality?

    What is that, from the Bronks to Boise?

    I am waiting for a system that allows an older man and wife to have a pickup and camper at the end of their lives.

    :)

    Design that, please.

    bob

    ReplyDelete
  5. I have, for instance, an old friend, down in Las Vegas, whose husband is an ex Marine. Perfect American. He was in the supply business to the local builders, mostly plumbing. He got wiped out in the latest down turn, liquidation. They have both worked their asses off their whole lives. He is now thinking off what to do next. They need to supplement Social Security

    Any suggestions?

    They have paid taxes their whole lives.

    bob

    ReplyDelete
  6. All Empires end the same way; the 0.01% finally collect All the money, and ruin ensues.

    ReplyDelete
  7. 92 % have an idea about fairness.

    ReplyDelete
  8. At some point the hoi polloi will always revolt.

    Even monkeys react violently to perceived unfairness.

    ReplyDelete
  9. In the 1930's the United States had at least one year of net emigration of white men to Soviet Russia. Something like 190,000, if I remember correctly.

    ReplyDelete
  10. Here's something interesting to think about.
    An increase in the minimum wage virtually Never loses when it's placed on the ballot.

    Yet, it's not placed on the ballot (by either party) very often.

    ReplyDelete
  11. Your style is unique in comparison to other folks I have read stuff from.

    Many thanks for posting when you have the opportunity, Guess I will just book mark this page.


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    ReplyDelete
  12. All you hear about is shareholder value.

    ReplyDelete
  13. Humans are, by nature, "obsessive." A business owner that extracts 99% of the value from a business (compared to the workers) will, many times, spend sleepless night after sleepless night, trying to figure out how to get it to 99.5%.

    Eventually, the bubble bursts.

    ReplyDelete
  14. I was more than a bit bemused by the number of uninsured, white, minimum-wage Mississippians that voted for the Republican in this last election.

    There is quite a skewed distribution of G-2 in the human race. A pretty unequal distribution of income is only to be expected, I guess. :)

    ReplyDelete
  15. All you ever hear about is “shareholder value”. A good friend of mine, long passed away, Hal Whitman, father of Meg Whitman, knew the rich and moneyed class as well as anyone I ever knew. We both worked together for a subsidiary of a major New York Bank. Hal had a beautiful home in Cold Spring Harbor, Long Island, and an apartment on Madison Avenue. He was a regular member of the Harvard Club and often took me there for lunch.

    He understood finance from every level and how the very wealthy through trusts, charities, tax lawyers and politicians gamed the system to their own benefit. He was also convinced that the only fair tax system was a 100% death tax less a reasonable deduction for widows and small children. All other taxes would end. Maybe that would work.

    Note: If I could meet revive Hal and take him for a drink and tell him what his “Meg” accomplished, he would be astounded.

    ReplyDelete
    Replies
    1. "less a reasonable deduction for widows and small children."

      It's an itty-bitty loophole, but I bet you'd be amazed at what they could do with it. :)

      Delete
  16. For sure. Rot everywhere you look.

    ReplyDelete
  17. He was also convinced that the only fair tax system was a 100% death tax

    Your friend was NUTS, because almost all parents get up thinking I will go to work today to provide for my children's future.

    And that is the way it should be.

    bob

    ReplyDelete
    Replies
    1. Otherwise, let's just all fuck off.

      bob

      Delete
    2. I have worked all my life to provide for my children, now I wish to be left alone.

      bob

      Delete
  18. Hal believed inherited wealth did more harm than good. He thought the obligation of a parent was to prepare a child for life on their own. Great believer in education.

    ReplyDelete
  19. My experience tells me he was right.

    ReplyDelete
    Replies
    1. Stay out of my family life, thank you.

      bob

      Delete
    2. That might be the least one could ask of a 'Libertarian'.

      bob

      Delete
  20. A government that is tricked towards one class is by nature against another.

    ReplyDelete
  21. You are arguing for privilege and I come down on neutrality. Taxes and regulations are zero sum games.

    ReplyDelete