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Frank Bernheisel: The View From Here
Frank Bernheisel
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Frank Bernheisel
Posted 09.10.10
Just Outside Washington

FRANK BERNHEISEL

Yes, the rich are getting richer

Slate's Tim Noah is running a multi-part series "The Great Divergence," focusing on the growing income inequality in the U.S.

He says: "... according to the Central Intelligence Agency (whose patriotism I hesitate to question), income distribution in the United States is more unequal than in Guyana, Nicaragua, and Venezuela, and roughly on par with Uruguay, Argentina, and Ecuador.

Income inequality is actually declining in Latin America even as it continues to increase in the United States.

Economically speaking, the richest nation on earth is starting to resemble a banana republic."

The Slate article included the graph below, showing income growth rates for the modern political era. The red bars shows growth during Republican administrations, while the blue bars show growth during Democratic administrations.

graph

"Did the United States grow more unequal while Republicans were in power?" Noah asked.

It sounds crude, but Princeton political scientist Larry Bartels has gone a long way toward proving it. Bartels looked up income growth rates for families at various income percentiles for the years 1948 to 2005, then cross-checked these with whether the president was a Republican or a Democrat. He found two distinct and opposite trends.

Under Democrats, the biggest income gains were for people in the bottom 20th income percentile (2.6 percent). The income gains grew progressively smaller further up the income scale (2.5 percent for the 40th and 60th percentiles, 2.4 percent for the 80th percentile, and so on).

But under Republicans, the biggest income gains were for people in the 95th percentile (1.9 percent). The income gains grew progressively smaller further down the income scale (1.4 percent for the 80th percentile, 1.1 for the 60th percentile, etc.)."

So the graph indicates that "the rich got richer" when a Republican was president and people with lower incomes have done better when a Democrat was president.

To help out on this the income percentiles from Wikipedia are shown in the graph below in 2007 dollars. So you were in the top 5 percent if you made $200,000 or more in 2007. Notice that in the 1950s and 1960s everyone was going up together and after that the lines start to diverge.

graph

None of this is new, many have raised the issue before including Paul Krugman and Allen Greenspan.

In 2002 Kevin Phillips published Wealth and Democracy: A Political History of the American Rich. In this book, Phillips presented income distributions and went into excessive detail on who was rich and how they made their money; how the trend of the rich get richer reversed with the Great Depression through the 1960s.

Tim Noah in Slate is going to explain and pose some solutions. I have a several.

First, let the Bush tax cuts die; all of them. Make a substantial "death tax" permanent -- it amazes me that the idle rich are favored over the idle poor.

Privatize infrastructure -- if the American people do not want to increase taxes to pay for the needed infrastructure, new and repaired -- let the private sector provide the capital, do the job, and charge tolls.

Industry in the U.S. is sitting on over $1 trillion because they have excess capacity in the production facilities and demand is not high.

This would put people to work.

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