[Marxism] A Bigger Economic Pie, but a Smaller Slice for Half of the U.S.

Louis Proyect lnp3 at panix.com
Tue Dec 6 12:54:58 MST 2016


NY Times, Dec. 6 2016
A Bigger Economic Pie, but a Smaller Slice for Half of the U.S.
By PATRICIA COHEN

Even with all the setbacks from recessions, burst bubbles and vanishing 
industries, the United States has still pumped out breathtaking riches 
over the last three and half decades.

The real economy more than doubled in size; the government now uses a 
substantial share of that bounty to hand over as much as $5 trillion to 
help working families, older people, disabled and unemployed people pay 
for a home, visit a doctor and put their children through school.

Yet for half of all Americans, their share of the total economic pie has 
shrunk significantly, new research has found.

This group — the approximately 117 million adults stuck on the lower 
half of the income ladder — “has been completely shut off from economic 
growth since the 1970s,” the team of economists found. “Even after taxes 
and transfers, there has been close to zero growth for working-age 
adults in the bottom 50 percent.”

The new findings, by the economists Thomas Piketty, Emmanuel Saez and 
Gabriel Zucman, provide the most thoroughgoing analysis to date of how 
the income kitty — like paychecks, profit-sharing, fringe benefits and 
food stamps — is divided among the American population.

Inequality has been a defining national issue for nearly a decade, 
thanks in part to groundbreaking research done by Mr. Piketty at the 
Paris School of Economics and Mr. Saez at the University of California, 
Berkeley.

But now a new administration in Washington is promising to reshape the 
government’s role in curbing the intense concentration of wealth at the 
top and improving the fortunes of those left behind.

During his tenure in the White House, President Obama pushed to address 
income stagnation by shifting more of the tax burden from the middle 
class to the rich and expanding public programs like universal health 
insurance.

Both strategies are now targeted by President-elect Donald J. Trump and 
Republicans in Congress, led by House Speaker Paul Ryan. Like many 
conservatives, Mr. Ryan argues that aid to the poor is ultimately 
counterproductive because it undermines the incentive to work. Proposals 
put forward by Republican leaders, though short on details, make clear 
that they want to roll back benefits like Medicaid and the Affordable 
Care Act, which primarily help the poor, and direct the largest tax cuts 
to the wealthiest Americans.

About 30 percent of the country’s income is channeled to federal, state 
and local taxes. Apart from military spending and performing basic 
public services, much of that is distributed back to individuals through 
various programs and tax benefits in the form of Social Security checks, 
Medicare benefits and veterans’ benefits. But until now, no one has 
truly measured the full impact that tax payments, government spending, 
noncash benefits and nontaxable income together have on inequality.

Abundant documentation of income inequality already exists, but it has 
been challenged as incomplete. Studies have excluded the impact of taxes 
and value of public benefits, skeptics complained, or failed to account 
for the smaller size of households over time.

This latest project tries to address those earlier criticisms. What the 
trio of economists found is that the spectacular growth in incomes at 
the peak has so outpaced the small increase at the bottom from public 
programs intended to ameliorate poverty and inequality that the gap 
between the wealthiest and everyone else has continued to widen.

Stagnant wages have sliced the share of income collected by the bottom 
half of the population to 12.5 percent in 2014, from 20 percent of the 
total in 1980. Where did that money go? Essentially, to the top 1 
percent, whose share of the nation’s income nearly doubled to more than 
20 percent during that same 34-year period.

Average incomes grew by 61 percent. But nearly $7 out of every 
additional $10 went to those in the top tenth of the income scale.

Inequality has soared over that period. In 1980, the researchers found, 
someone in the top 1 percent earned on average $428,200 a year — about 
27 times more than the typical person in the bottom half, whose annual 
income equaled $16,000.

Today, half of American adults are still pretty much earning that same 
$16,000 on average — in 1980 dollars, adjusted for inflation — while 
members of the top 1 percent now bring home $1,304,800 — 81 times as much.

That ratio, the authors point out, “is similar to the gap between the 
average income in the United States and the average income in the 
world’s poorest countries, the war-torn Democratic Republic of Congo, 
Central African Republic and Burundi.”

The growth of incomes has probably increased a bit since 2014, the 
latest year for which full data exists, said Mr. Zucman, who, like Mr. 
Saez, also teaches at the University of California, Berkeley. But it is 
“not enough to make any significant difference to our long-run finding, 
and in particular, to affect the long-run stagnation of 
bottom-50-percent incomes.”

He was to present the findings at a close-door workshop at the City 
University of New York on Tuesday.

Tax credits and programs like Medicare and disability payments have 
helped families at the lower half of the income scale. But they have 
just nipped at the heels of the underlying trend.

“It confirms the surge in income at the top,” said Raj Chetty, an 
economist at Stanford unaffiliated with the project, who called the work 
“terrific and very important. And it shows government redistribution 
doesn’t really change the picture.”

Lawrence Katz, an economist at Harvard who also independently reviewed 
the research, agreed that the data underscored the inadequacies of 
programs that try to redress inequities after the fact. “It suggests 
that if you don’t do something earlier in the market, before 
distribution, through better education or greater bargaining power, it’s 
really tough to offset completely,” Mr. Katz said. “Countries with less 
inequality do some of both.”

Mr. Katz and Claudia Goldin, a Harvard economist, have argued that 
advances in technology, while crucial to improving productivity and 
generating economic growth, also have exacerbated inequality by driving 
down wages of low-skilled workers. The rewards of education are greater 
than they have ever been, but advancement nationwide has slowed and the 
system confers many of its favors on the children of the affluent.

If there is a bright spot in the new comprehensive research, it is that 
after taxes and government spending, the middle class is in better shape 
than previous studies had shown. That earlier research had missed growth 
in nontaxable income like employee benefits. “The real income of the 
middle class is a bit better than we thought,” Mr. Katz said.

As troubling as some may find inequality, it is not necessarily the 
fault of a rigged system, said N. Gregory Mankiw, an economist at 
Harvard who is familiar with the new research. He argues that large 
disparities in income more often than not accurately reflect widely 
varying economic contributions.

“Inequality is a symptom of a variety of things,” Mr. Mankiw said. 
Technological progress may be a cause, but it benefits society over all, 
whereas the weakness of the educational system is clearly negative.

Edward Conard, the author of “The Upside of Inequality” and a former 
business partner of Mitt Romney, agreed. “People say this is zero-sum 
game, and you’re taking money that would have gone to the other 50 
percent,” he said. “That’s not what happened.”

Instead, Mr. Conrad said, entrepreneurs in the United States have been 
willing to take big risks that have helped foster an infrastructure that 
promotes innovation, not just in Silicon Valley but in many other 
growing places around the country. “When rewards go up, people are more 
inclined to take risks,” he said. Some of those risks pay off and create 
wealth for everyone.

The new research challenges that contention, at least in part.

Mr. Piketty, Mr. Saez and Mr. Zucman concluded that the main driver of 
wealth in recent years has been investment income at the top. That is a 
switch from the 1980s and 1990s, when gains in income were primarily 
generated by working.

That divergence can slow innovation and further entrench inequities, 
said Heather Boushey, an economist at the Washington Center for 
Equitable Growth. When labor income provides the primary route to 
riches, it creates incentives for people to improve their education and 
work harder, Ms. Boushey explained. But if getting ahead requires 
already having a stockpile of cash or inheriting a windfall from your 
parents, then it is much harder to work your way up.

“If you’re closing off entryways, then you are basically shutting off 
avenues to competitiveness, innovation and growth,” Mr. Boushey said, 
“even if you don’t care about fairness.”



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