About The Growing Income Divide

[Annie]

Seems it may not be the real deal:

http://opinionjournal.com/editorial/feature.html?id=110010855

Movin' On Up
A Treasury study refutes populist hokum about "income inequality."

Tuesday, November 13, 2007 12:01 a.m.

If you've been listening to Mike Huckabee or John Edwards on the Presidential trail, you may have heard that the U.S. is becoming a nation of rising inequality and shrinking opportunity. We'd refer those campaigns to a new study of income mobility by the Treasury Department that exposes those claims as so much populist hokum.

OK, "hokum" is our word. The study, to be released today, is a careful, detailed piece of research by professional economists that avoids political judgments. But what it does do is show beyond doubt that the U.S. remains a dynamic society marked by rapid and mostly upward income mobility. Much as they always have, Americans on the bottom rungs of the economic ladder continue to climb into the middle and sometimes upper classes in remarkably short periods of time...

 

[BaronVonBigmeat]

The disparity in incomes does not interest me as much as the fluidity between classes. I forget the saying but it's something about rags to riches to rags in three generations(?). However whatever growing divide we've seen in recent years is probably caused by asset inflation. If you owned multiple properties from 2001-2005 or so, then the fed's money inflation was a great benefit to you. If you were an ordinary family just looking to buy a house, it wasn't so hot.

 

[Toro]

That's an interesting article but it flies in the face of almost every other study, also conducted by non-political economists. Here are a few.

The U.S. wage structure evolved across the last century: narrowing from 1910 to 1950, fairly stable in the 1950s and 1960s, widening rapidly during the 1980s, and “polarizing” since the late 1980s. We document the spectacular rise of U.S. wage inequality after 1980 and place recent changes into a century-long historical perspective to understand the sources of change. The majority of the increase in wage inequality since 1980 can be accounted for by rising educational wage differentials, just as a substantial part of the decrease in wage inequality in the earlier era can be accounted for by decreasing educational wage differentials.

Although skill-biased technological change has generated rapid growth in the relative demand for more-educated workers for at least the past century, increases in the supply of skills, from rising educational attainment of the U.S. work force, more than kept pace for most of the twentieth century. Since 1980, however, a sharp decline in skill supply growth driven by a slowdown in the rise of educational attainment of successive U.S. born cohorts has been a major factor in the surge in educational wage differentials. Polarization set in during the late 1980s with employment shifts into high- and low-wage jobs at the expense of the middle leading to rapidly rising upper tail wage inequality but modestly falling lower tail wage inequality.

http://papers.nber.org/papers/w13568

We document the spectacular rise of U.S. wage inequality after 1980 and place recent changes into a century-long historical perspective to understand the sources of change. The majority of the increase in wage inequality since 1980 can be accounted for by rising educational wage differentials, just as a substantial part of the decrease in wage inequality in the earlier era can be accounted for by decreasing educational wage differentials.

http://gregmankiw.blogspot.com/2007/11/katz-vs-krugman.html

 

[Toro]

Fed Chairman Ben Bernanke has acknowledged widening inequality.

http://runningofthebulls.typepad.com/toros_running_of_the_bull/2007/02/widening_inequa.html

 

[Toro]

http://bigpicture.typepad.com/comments/2007/03/income_gap_cont.html

 

[Annie]

Fed Chairman Ben Bernanke has acknowledged widening inequality.

http://runningofthebulls.typepad.com/toros_running_of_the_bull/2007/02/widening_inequa.html

I was no whiz at stats, so feel free to correct me. The top is growing and the bottom is shrinking. That is good, no?

 

[Toro]

Blacks born into the middle class in the late 1960s are far more likely than whites to earn less than their parents, a new study of economic mobility has found.

The study examined how children born in the late 1960s fared in the late 1990s and early 2000s. Overall, it found that two-thirds of the adult children earned more, adjusted for inflation, than their parents did at the same age in the late 1960s. ...

But when the study examined families by race and their rank by income, they found stark differences between black and white families.

Children of black parents earning in the middle 20% of all families in the late 1960s had a 69% chance of earning less than their parents, the study found. For white children, that chance was just 32%. ...

The report is part of a continuing examination of economic mobility conducted under the auspices of the Pew Charitable Trusts, with contributions from Brookings, the American Enterprise Institute, the Heritage Foundation and the Urban Institute.

The study used data from the Panel Study of Income Dynamics, run by academics with federal funding, which has been following several thousand sets of parents and children since the 1960s. The study's sample comprised 2,367 individuals between the ages of birth and 18 in 1968; their median family income in 2006 was $71,900, up 29%, after inflation adjustment, from the median income of their parents' generation.

Its findings may both contradict and reinforce Americans' image of their society as highly mobile. On the one hand, it found that parents' income ranking was a strong determinant of their child's. For parents born into the bottom 20%, 42% of children were also in the bottom 20% four decades later. For parents born into the top 20%, 39% of their children were also there four decades later. On the other hand, that means the majority of children ended up in a different income quintile than their parents.

Moreover, the poorest children were the likeliest to do better than their parents: 82% of the children of parents in the bottom quintile earned more as adults than their parents did; that was true of just 66% of children of parents in the middle quintile, and 43% of children of parents in the top quintile. Ms. Isaacs says it is easier to move up from the bottom than the top.

But Ms. Isaacs says the experience is quite different depending on race. For white families, 90% of children born to parents in the bottom 20% earned more by adulthood; for black families, it was 73%. In the middle quintile, commonly referred to as the middle class, 68% of white children grew up to earn more than their parents, but just 31% of black children did.

http://online.wsj.com/article/SB119492563733591022.html?mod=todays_us_page_one

 

[Toro]

I was no whiz at stats, so feel free to correct me. The top is growing and the bottom is shrinking. That is good, no?

What is happening is that incomes are growing faster at the top end than at the bottom end. Even after inflation, the poorest have seen a rise in income after inflation. However, that still means inequality is rising.

Why the Treasury data says different, I don't know, but I am highly suspicious of the idea that the richest 1% are falling, which is what the graph from your OP says. That sure doesn't jive with every other indicator around.

 

[Toro]

That's an interesting article but it flies in the face of almost every other study, also conducted by non-political economists. Here are a few.

The U.S. wage structure evolved across the last century: narrowing from 1910 to 1950, fairly stable in the 1950s and 1960s, widening rapidly during the 1980s, and “polarizing” since the late 1980s. We document the spectacular rise of U.S. wage inequality after 1980 and place recent changes into a century-long historical perspective to understand the sources of change. The majority of the increase in wage inequality since 1980 can be accounted for by rising educational wage differentials, just as a substantial part of the decrease in wage inequality in the earlier era can be accounted for by decreasing educational wage differentials.

Although skill-biased technological change has generated rapid growth in the relative demand for more-educated workers for at least the past century, increases in the supply of skills, from rising educational attainment of the U.S. work force, more than kept pace for most of the twentieth century. Since 1980, however, a sharp decline in skill supply growth driven by a slowdown in the rise of educational attainment of successive U.S. born cohorts has been a major factor in the surge in educational wage differentials. Polarization set in during the late 1980s with employment shifts into high- and low-wage jobs at the expense of the middle leading to rapidly rising upper tail wage inequality but modestly falling lower tail wage inequality.

http://papers.nber.org/papers/w13568

We document the spectacular rise of U.S. wage inequality after 1980 and place recent changes into a century-long historical perspective to understand the sources of change. The majority of the increase in wage inequality since 1980 can be accounted for by rising educational wage differentials, just as a substantial part of the decrease in wage inequality in the earlier era can be accounted for by decreasing educational wage differentials.

http://gregmankiw.blogspot.com/2007/11/katz-vs-krugman.html

 

[Annie]

That's an interesting article but it flies in the face of almost every other study, also conducted by non-political economists. Here are a few.



http://papers.nber.org/papers/w13568



http://gregmankiw.blogspot.com/2007/11/katz-vs-krugman.html

That it 'flies in the face of' other studies, regardless of your citing them. Does it make it wrong?

 

[Bern80]

What is happening is that incomes are growing faster at the top end than at the bottom end. Even after inflation, the poorest have seen a rise in income after inflation. However, that still means inequality is rising.

Which is only a problem if you think inequality of wealth is a problem.

 

[Toro]

That it 'flies in the face of' other studies, regardless of your citing them. Does it make it wrong?

Probably.

Usually, when many things point one way, and one thing points the other, you go with the overwhelming body of academic research.

It is interesting however. It would be interesting to see the data.

 

[Toro]

Which is only a problem if you think inequality of wealth is a problem.

Most sociologists believe it is a problem.

 

[Annie]

Probably.

Usually, when many things point one way, and one thing points the other, you go with the overwhelming body of academic research.

It is interesting however. It would be interesting to see the data.

I believe at one of those links you can see the methods and results.

 

[Bern80]

Most sociologists believe it is a problem.

I doubt that to be true, but interesting that you cite sociolgy and not say, economics.

The question is do you think income inequality is a problem and why?

 

[Toro]

I doubt that to be true, but interesting that you cite sociolgy and not say, economics.

The question is do you think income inequality is a problem and why?

Why do you doubt that to be true? Have you studied sociology or do your cognitive biases preclude you from believing it to be the case?

I have not studied sociology, but people I know have and they tell me it is so. I have also seen it referenced numerous times in economics books.

I think dramatic differences in income inequality result in unstable societies, best witnessed by the problems in Latin America, but elsewhere in the world too. It can breed unstable political institutions and policies that retards economic growth. Pat Buchanan and Lou Dobbs offer policies which invite economic stagnation, for example.

 

[M14 Shooter]

I doubt that to be true, but interesting that you cite sociolgy and not say, economics.

The question is do you think income inequality is a problem and why?

Hmm. What did I read once?

According to Democrats, it’s greedy to want to keep your own money, but it’s “justice” to demand someone else’s.

 

[Bern80]

Why do you doubt that to be true? Have you studied sociology or do your cognitive biases preclude you from believing it to be the case?

I have not studied sociology, but people I know have and they tell me it is so. I have also seen it referenced numerous times in economics books.

I think you're missing the question. Perhaps better put, would be to ask if they and you support an entirely equal distribution of wealth.

It can breed unstable political institutions and policies that retards economic growth. Pat Buchanan and Lou Dobbs offer policies which invite economic stagnation, for example.

Be specific. What policies would cause economic stagnation? How do you know they policies they support would do that? Ask yourself the ramification of what you support. How do you suppose society will improve if income were evenly distributed amongst everyone?

 

[Toro]

I think you're missing the question. Perhaps better put, would be to ask if they and you support an entirely equal distribution of wealth.

No, of course not. However, rising income inequality has generally occurred when the majority of people see little economic gains while a minority (usually but not always the highest income groups) earn a great deal. This is what occurred in the 1920s and is occurring now. It is less of a problem when the inequality is occurring when everyone is gaining at a fair rate, as occurred in the 1990s.

Be specific. What policies would cause economic stagnation? How do you know they policies they support would do that? Ask yourself the ramification of what you support. How do you suppose society will improve if income were evenly distributed amongst everyone?

Protectionism. Specific "Made-in-America" policies create inefficiencies in the economy and induce dead weight loss by requiring consumers to pay more for goods than they otherwise would. For example, if a foreign good costs $50 and the same good made in America costs $100, the economy loses $50 if you prohibit the foreign good from coming into the country. Americans are poorer for such policies, even though it "saves" the jobs of the workers who make the $100 good. What you don't see are all the economic activities lost, and all the other jobs lost, because of the $50 extra you have to pay for the same product, not to mention the inferior outcome for the consumer who now has $50 less to spend.

 

[Bern80]

No, of course not. However, rising income inequality has generally occurred when the majority of people see little economic gains while a minority (usually but not always the highest income groups) earn a great deal. This is what occurred in the 1920s and is occurring now. It is less of a problem when the inequality is occurring when everyone is gaining at a fair rate, as occurred in the 1990s.

To accept that thinking though you have to beleive that economic gains are largely out of your control. That simply isn't true. It also assumes that you think someone other than you is suppossed to provide you with said economic gain. Also not true.

I believe the whole have/have not issue centers around that. While not wanting full income equality for obvious reasons many still support some form of wealth redistribution. Inherent in that support is that people don't have control over their economic gains. That simply isn't true.

Protectionism. Specific "Made-in-America" policies create inefficiencies in the economy and induce dead weight loss by requiring consumers to pay more for goods than they otherwise would. For example, if a foreign good costs $50 and the same good made in America costs $100, the economy loses $50 if you prohibit the foreign good from coming into the country. Americans are poorer for such policies, even though it "saves" the jobs of the workers who make the $100 good. What you don't see are all the economic activities lost, and all the other jobs lost, because of the $50 extra you have to pay for the same product, not to mention the inferior outcome for the consumer who now has $50 less to spend.

I do recall that from Buchanen now. While I wouldn't support it, the opposite argument can be made. Forget about goods and focus on jobs for a second. How do American's gain econimcally if their jobs are taken from them and moved overseas to the lowest bidder. In alot of industries American businesses simply can not compete dollar for dollar with overseas labor. But the question remains how the have nots are going to gain economically if the jobs if they are qualified for given their skill sets are shipped overseas?