Over The Last 50 Years The Rich Have Gotten Much Richer & The Poor Much Poorer
Policies Designed To Make The Rich Richer Did Make The Rich Richer, And They Also Made The Poor Poorer
By David Grace (www.DavidGraceAuthor.com)
In preparation for a new column, I began to research the changes in wealth and income in the United States over the last fifty years or so.
I found the numbers so interesting, and disturbing, that I decided to write a column about them. If you want to do your own research, here are a couple of links that might get you started:
http://apps.urban.org/features/wealth-inequality-charts/
https://www.russellsage.org/sites/all/files/chartbook/Income%20and%20Earnings.pdf
You can also google terms such as “Household Net Worth” “U.S. Wealth Distribution” and “U.S. Income Distribution.” The U.S. Census Bureau has decades of income and wealth data broken down in many different ways and downloadable in PDF files.
Conclusions First
Since the Reagan era, conservative economists have claimed that cutting taxes for corporations and the top 20% of the population would be good for the bottom 40% of Americans. Their theory was that cutting taxes for those on the top would increase jobs and wages for everyone else, that the extra money would “trickle down” because the corporations and people at the top would use that extra money to start or expand businesses and thus increase employment and wages.
The numbers show that just the opposite is true.
The Reagan, Bush and Trump tax cuts for corporations and rich people over the last fifty years or so, together with the loss of unionized manufacturing jobs through automation and moving them off-shore, plus a failure of the minimum wage to keep pace with inflation, and the 2008 financial crash have made the top 20% of households much richer and the bottom 40% of households much poorer in both wealth and income.
Wealth Summary
Between the 1960s and the present, the average wealth of the top 10% of households has has increased by over six times and the average wealth of the bottom 10% of households has decreased by about ten times.
Over this period, the top 10% became over 6 times richer and the bottom 10% became over 10 times poorer.
In the period between the early 1980s and the early 2000s, the net wealth of the top 20% of households increased by about 71% while the net wealth of the bottom 40% (not 20%) of households declined by about 76%.
The top 20% got about 70% richer while the bottom 20% got about 75% poorer.
Income Summary
Over the period between 1967 and 2012 the income of the households in the 80th percentile (explained below) increased by about 46%, and over the same period the income of the households in the 20th percentile increased by less than 1%.
After adjustment for inflation, between 1967 and 2012 the households in the 80th percentile saw their income increase by almost fifty-percent while the income for the households in the 20th percentile remained essentially the same as it was in 1967.
The income gap between the top 10% and the bottom 10% was almost six and a half times wider in 2016 than the income gap between the top 10% and the bottom 10% in 1963.
Between the late 1960s and 2018 the income gap between the top 20% and the bottom 20% increased by approximately 65%.
Explanation Of Terms
Household Numbers
This numbers in this column are for average household income and average household wealth.
Wealth Vs. Income
“Wealth” and “Income” are, of course, two different things.
Wealth is the net value of all the assets a household owns after subtracting all of its debts. Because of credit card debt, auto loan debt, medical debt, mortgage debt, etc. the net wealth for the bottom 15% or more of Americans is a negative number, that is they owe more than everything they own is worth.
Percentile
Percentile describes where a number falls in a list where the data is divided into equal segments, often from 1 to 99. For example, if 99,000 students took a standardized test the lowest 1,000 scores would be said to be in the 1st percentile and the highest 1,000 scores would be in the 99th percentile.
If the highest score of the bottom 1,000 scores was 36, then everyone with a score between 0 and 36 would be in the 1st percentile. The score for that percentile would be the average of those 1,000 scores.
If the lowest of the top 1,000 scores was 97, then everyone with a score of 97 or higher would be in the 99th percentile.
If you added up the scores for each of the percentiles 90 through 99 and then averaged those ten numbers you would get the average score for the top 10% of the students who took the test.
Ratios In General
If I have $100 and you have $1, then the ratio of my wealth to yours is 100 to 1.
If I have $100 and you are $10 in debt (-$10 net wealth) then I have to add $10 to your side to get you to zero and add that same $10 to my side to balance things. $100 + $10 = $110
So, in that case, the ratio of my wealth to yours is 110 to 1.
Ratios Of One Ratio To Another Ratio
If my net wealth is $10,000 and your net wealth is $1,000 then the ratio of my wealth to yours is 10 to 1.
If ten years later my wealth is $100,000 and yours is $100 the ratio of my wealth to yours is now 1,000 to 1
The change in our respective wealth over that ten years is 1,000 to 1 (current ratio)/10 to 1(original ratio) = a 100 times increase in my wealth relative to yours over that ten year period.
The gap between my wealth and yours has expanded by 100 times from 10 to 1 ten years ago to 1,000 to 1 today, a 100 times increase in my wealth relative to yours today versus the ratio of my wealth to yours ten years ago.
Time Differences
Accounting For Inflation
You need to adjust results that are in dollars to take inflation into account. Dollar value results are usually adjusted by the reporting agency to be represented in some year’s dollars, e.g. 2011 dollars or 2016 dollars, so that if a table gives data from 1965 through 2011, the numbers can be compared without being skewed by inflation over that time period.
The Need To Compare Changes Over Time
If the average score for the top 10% of the people who took the test in our earlier example was 91 and the average score for the bottom 10% of the people who took the test was 46 then the ratio of the scores of the top 10% to the scores of the bottom 10% would be 91/46 = 1.98 to 1.
That tells us that the top 10% of the students scored approximately twice as well as the bottom 10%, that there was a 2 to 1 gap between the best performing students and the worst performing students.
All other things being equal, you would expect that this 2 to 1 ratio of the top 10% of scores to the bottom 10% of scores to remain relatively constant from year to year.
But, suppose that the school system tried a new teaching method and it wanted to find out if it was working well or poorly. They would compare the scores for the test taken when the schools were teaching the old way with the scores for the test after the schools switched to the new teaching method.
Numbers That Show A Benefit For One Group & A Detriment To Another
Suppose that the top 10%’s average score went up to 98 but the bottom 10%’s average score went down to 36.
That means an increase in the average score in the top 10% of about 8% (98/91 = 108%) and a 21.7% decrease in the average score in the bottom 10% (46 X 21.7% = 10. 46–10 =36)
91/46 = the ratio of the old top 10% to the old bottom 10% of about 1.98 to 1
98/36 = the ratio of the new top 10% to the new bottom 10% of 2.72 to 1
2.72/1.98 = 137% or a 37% increase in the gap between the scores of the top 10% vs the bottom 10% under the new teaching method versus the gap under the old method.
WEALTH
Comparison Of 1963 & 2016 Wealth In Selected PERCENTILES
Here’s a table showing the average household wealth by percentile expressed in 2016 dollars for the 95th percentile vs. the 5th percentile, 90th vs 10th and 80th vs 20th for both 1963 and 2016:
In 2016 the 95th percentile households were 5.83 times richer than the 1963 95th percentile households and in 2016 the 5th percentile households were 8.3 times poorer than the 1963 5th percentile households.
The 2016 gap between the wealth of the households in the 95th percentile and the wealth of the households in the 5th percentile increased by 5.85 times (2,404,550/411,262) compared to the gap between the wealth of the people in the 1963 95th percentile and the wealth of the people in the 1963 5th percentile.
585%
The wealth gap between the 2016 90th percentile households and the 2016 10th percentile households increased by 5 times over the wealth gap between the 1963 90th and 10th percentile households.
500%
In 1963 the ratio of the wealth of the people in the 80th percentile to the wealth of the people in the 20th percentile was 75 to 1.
In 2016 the ratio of the wealth of the people in the 80th percentile to the wealth of the people in the 20th percentile was 104 to 1, an increase of the 80th percentile/20th percentile gap between 1963 and 2016 of 39% (104/75).
139%
Comparison Of The Wealth Of the Top 10% and Bottom 10% (NOT Percentiles) For 1963 & 2016
Here’s the table comparing the average wealth of households in the top 10% to the wealth of the households in the bottom 10% for 1963 and 2016:
The households in the top 10% in 2016 were 640% richer than those in the top 10% in 1963 and the 2016 bottom 10% were 1060% poorer than the 1963 bottom 10%.
Over this time period the households in the top 10% became about six and a half times richer and the households in the bottom 10% became ten and a half times poorer.
The gap between the top 10% and the bottom 10% in 2016 was 640% wider (3,303,093/515,545) than the gap between the top 10% and the bottom 10% in 1963.
Here’s the table comparing the average wealth of households in the top 20% to the wealth of the households in the bottom 20% for 1963 and 2016:
Adjusted for inflation, the top 20% of households in 2016 were 5.8 times richer than the top 20% in 1963 and the bottom 20% in 2016 were 6.55 times poorer than the bottom 20% in 1963.
1,995,571/344,008 = 5.8X increase in the Top 20%/Bottom 20% gap in 2016 vs the Top 20%/Bottom 20% gap in 1963.
In 2016 the gap between the wealth of the top 20% of households and the bottom 20% of households was 5.8 times greater than the gap between the wealth of the top 20% of households and the bottom 20% in 1963.
Wealth Comparison Of The Top 20% To Bottom 40% for 1983 and 2001
The average household in the top 20% in 1983 owned $184 for every $1 owned by the average household in the bottom 40%.
For every $1 owned by the average 2001 household in the bottom 40% the average household in the top 20% owned $553.
Between 1983 and 2001 the wealth of the top 20% increased by about 71%. In the same period the wealth of the bottom 40% decreased by about 76%. So, over that period, the bottom 40% got poorer by about the same amount that the top 20% got richer.
In 2001 the wealth gap between the top 20% and the bottom 40% was about three times larger (553/184) than it was in 1983.
In other words, in 2001 the households in the top 20% compared to those in the bottom 40% were three times richer than the top 20% compared to the bottom 20% were in 1983.
INCOME
Comparison Of Household INCOME (Not Wealth) By PERCENTILE For 1965 & 2016
In 1965 the average household income for people in the 90% percentile was approximately 717% greater than the average household income for people in the 10th percentile.
For every dollar earned by a household in the 10th percentile in 1965 a household in the 90th percentile earned $7.17.
In 2016 the 90th percentile/10th percentile ratio increased from 7.17 to 1 to 12.6 to 1. For every dollar earned in a household in the 10th percentile in 2016 a household in the 90th percentile earned $12.64.
12.64/7.17 = 176%
The 2016 household income gap between the 90th percentile and the 10th percentile was 76% greater (12.64/7.17) than the income gap between households in the 90th percentile and households in the 10th percentile in 1965.
After adjustment for inflation, in 2012 the average income of households in the 80th percentile was 46% greater than the average income of households in the 80th percentile in 1967.
Over the period between 1967 and 2012 the income of the households in the 80th percentile increased by 46% while over the same period the income of the households in the 20th percentile increased by less than 1% (.7%).
Share Of Total Income By Quintile — 1968 & 2016
In 1968 the bottom 20% of households earned 4.2% of all income and the top 20% earned 42.6% of all income.
In 2018 the bottom 20%’s share of income fell to 3.1% of all income and the top 20%’s share of income increased to 52% of all income.
The ratio of the 1968 top 20%’s share of all income vs. the 1968 bottom 20%’s share of all income is 10.14 to 1 (42.6%/4.2%).
The ratio of the 2018 top 20%’s share of all income vs. the 2018 bottom 20%’s share of all income is 16.77 to 1 (52%/3.1%).
The top 20%’s share of all income increased by 22% (42.6% X 22% =9.4 + 42.6=52) between 1968 and 2018 while the bottom 20%’s share of all income decreased by 26% (4.2 X 26% = 1.1. 4.2–1.1 = 3.1) over the same period.
Between 1968 and 2018 the top 20% increased its relative share of total income versus the bottom 20% by 65% (16.77/10.14).
By the late 2010s the income gap between the top 20%’s share of all income and the bottom 20%’s share of all income had become 65% wider than it was in the late 1960s.
Summary
Whether you’re comparing the numbers for households in a single percentile or for a range of percentiles, e.g. top 10%, they all show the same things.
After adjustment for inflation, today the the people in the top 10% are many times richer than the top 10%ers were in the 1960s and the people in the bottom 10% are many times poorer than the bottom 10%ers were in the 1960s.
That also applies to the people in the top and bottom 20% and also to the bottom 40%.
After adjustment for inflation, today the income of the people in the top 10% and top 20% is much greater than it was in the 1960s while the income for the people in the bottom 40% is essentially unchanged from what it was in the 1960s.
The gap between both the wealth and the income of the top 20% and the bottom 20% today is much greater than the gap between them was 1960s.
Policies that make rich people richer do make rich people richer, but they also make poor people poorer in both wealth and income.
If you want a plutocratic society, Mission Accomplished.
If you want a country were the top 10% are extremely wealthy and have very high incomes and the bottom 10% are extremely poor and don’t earn enough money to feed themselves (almost 10% of the population qualifies for food stamps), Mission Accomplished.
If you want a country where the bottom 40% of the population are so poor that they have total savings of less than $400, Mission Accomplished.
If you want a country where taxpayer-funded welfare programs are required to provide food, housing and medical care (about 20% receive Medicaid) for the bottom ten to twenty percent of the population, Mission Accomplished.
It doesn’t have to be this way. Welfare programs (UBI for example) are not the answer.
Job training, living wages, an intelligent corporate tax structure, and the rejection of the myth that making rich people richer is good for anyone other than rich people, can go a long way to returning the relationship between those at the top and those at the bottom to what it was in the 1960s.
— David Grace (www.DavidGraceAuthor.com)
