Explaining Income Inequality

EXPLAINING INCOME INEQUALITY….It’s worth reading Jon Chait’s entire article about rising income inequality in the New Republic this week, but for my money here’s the most important factoid to lodge firmly in your brain:

Over the last quarter century, the portion of the national income accruing to the richest 1 percent of Americans has doubled. The share going to the richest one-tenth of 1 percent has tripled, and the share going to the richest one-hundredth of 1 percent has quadrupled.

Whenever you hear someone propose an explanation for skyrocking income inequality over the past few decades, try to think about whether it explains the fact that inequality has gotten immensely worse not just between the top 20% and the bottom 20%, but between the top 1% and the 9% just below them. For example:

Greater returns to education? Do you really think that the top 1% are better educated on average than the next 9%?

Greater rewards for technical skills? Do you really think the top 1% have greater technical skills than the next 9%?

Globalization?

More stable families?

Race and gender?

A failure to take account of the growing value of health benefits?

Do any of these things plausibly seem like big differences between the top 1% and the next 9%? Pretty clearly they aren’t. So why is the top 1% outpacing even the well-to-do who inhabit the next 9%? What’s the big difference between these groups? If you’re interested in reading more about this, it’s below the fold.


Here’s the answer: the top 1% have a lot more money. The rest is left as an exercise for the reader.