48 ms·

Share of Income Gains by Quintile - Great Depression til Now

321 points by watmough 15y ago

bilbo0s 15y ago
Is anyone able to explain this chart for me? When they say that the 'Top Fifth' are all of the people in the labor force making over USD112541, does that mean that 20% of American workers make more than that? That's pretty astounding to me, if it is indeed the case. At a labor force size of about 154 million people, that means that over 30 million people are making over USD112541. I know that a good number of people are making WELL over USD112541 actually, though I thought it was just because of my neighborhood and social group. To see the aggregate numbers is staggering. Where is the money coming from to pay that many people that much? I have some inkling that this is what leverage and debt do for an economy, but ... wow. Any econ profs, or grad students around to explain ho this is possible?
- rayiner 15y ago
  These are household income quantiles, not personal income quantiles. It's not stated on the chart, but that lines up better with: http://en.wikipedia.org/wiki/Household_income_in_the_United_States http://en.wikipedia.org/wiki/Household_income_in_the_United_...
  - pinko 15y ago
    Yes -- many families have shifted from single to dual-earner in order to maintain the same standard of living, so the household income charts really understate the decline in individual wages over this period.
    - klbarry 15y ago
      That is not true. They vastly overstate the decline in wages, due to the rise of more single person households. See: http://www.google.com/publicdata/explore?ds=a7jenngfc4um7_&ctype=l&strail=false&nselm=h&met_y=personal_income_per_capita&hl=en&dl=en#ctype=l&strail=false&nselm=h&met_y=personal_income_per_capita&scale_y=lin&ind_y=false&rdim=region&ifdim=region&tdim=true&hl=en&dl=en http://www.google.com/publicdata/explore?ds=a7jenngfc4um7_&#... Individual wages have risen steadily since 1910, with no gaps. The household income chart is a misleading chart.
      - iaskwhy 15y ago
        Does this take into account inflation? It could be that they are actually decreasing with inflation. I don't think it's like that but I'm just curious.
        klbarry 15y ago
        Either way, it shows the growth as steady, since inflation has not been particularly high in the last 20 years.
      - cperciva 15y ago
        Note: That graph is personal income per capita, not personal income per worker or per hour worked.
        klbarry 15y ago
        Also see: http://visualizingeconomics.com/2007/11/04/has-middle-americas-wages-stagnated/ http://visualizingeconomics.com/2007/11/04/has-middle-americ.... Incredibly stable since 1960.
      - william42 15y ago
        http://www.google.com/publicdata/explore?ds=a7jenngfc4um7_&ctype=l&strail=false&nselm=h&met_y=personal_income_per_capita&scale_y=log&ind_y=false&rdim=region&ifdim=region&tdim=true&tstart=-1272139200000&tend=1284004800000&hl=en&dl=en&uniSize=0.035&iconSize=0.5&icfg http://www.google.com/publicdata/explore?ds=a7jenngfc4um7_&#... This is a log-scale graph, which is what you want in order to compare rates of increase. You can see sort of an inflection point around the early 80s, but I'm not sure if it's significant.
      - woobar 15y ago
        This chart has nothing to do with individual wages. This is a sum of all incomes from all possible sources devided by population.
      - dogwelder 15y ago
        That chart shows per capita income without adjusting for inflation. It's not very useful for drawing conclusions about real income. And per capita is a simple average, while looking at medians or quintiles gives you a clearer picture. Per capita, a roomful of middle class workers all become billionaires if Bill Gates walks in.
  - mistermann 15y ago
    Furthermore, running $1 trillion deficits helps. $1 trillion / 153 million workforce = ~$6500 / worker = $13,000 per household It's not too hard to imagine that somehow this money tends to flow moreso towards people in the upper quintile (straight wage-earners would miss out, whereas the investing class has many avenues to receive it), so it wouldn't surprise me at all that 1 household could end up with their "share" plus that of 2 others, so: $13,000 * 3 = $39,000 household income based on govt deficit spending $112,541 - $39,000 = $73,500 household, /2 = 36,500 per person in "real", non-deficit enhanced earnings required to make the top quintile. Made up entirely, but I don't think it is an unrealistic scenario at all. The enormous deficits we are now running can go a long way in hiding the truth for a very long time. Meanwhile, the debt grows and grows, and the interest on that debt gets larger every year. I just don't see how debt is inconsequential, but the vast majority of people seem to act as if it is (at least those who are even aware of it).
victorbstan 15y ago
So the working class has been taken to the slaughterhouse? My billion dollar question: What happened at the end of the 70's / beginning of the 80's?
- lukesandberg 15y ago
  in short ronald reagan tax breaks and labor market deregulation: paul krugman has essentially a whole book on why this occurred (http://www.amazon.com/Conscience-Liberal-Paul-Krugman/dp/0393060691 http://www.amazon.com/Conscience-Liberal-Paul-Krugman/dp/039...) It is an amazing book that really changed my view of labor unions. i would recommend it to anyone. heres an example from his blog: http://krugman.blogs.nytimes.com/2011/07/30/more-about-the-reagan-non-miracle/ http://krugman.blogs.nytimes.com/2011/07/30/more-about-the-r... he has a lot of stuff on his blog discussing tax policies and their effect on things like income growth.
  - deleted 15y ago
    [deleted]
- silvio 15y ago
  The easy conjecture is to point to a combination of trickle down economic policies and the rise of cheap digital replacements, but I don't have a good analysis to back this up.
- dmm 15y ago
  End of the postwar boom? Following WWII the US dollar became the world's reserve currency, this created a situation of constant demand for USD. The raised the value of the US dollar and made resources cheap for the US. (It's also allowed us to abuse the currency quite a bit. This will not last.) Demographic changes which had been happening for years continued: in 1945 16% of the total labor force worked in agriculture, by 1970 only 4% did (it's <2% now). People were moving from rural areas to cities and getting jobs in industry, changes which brought immediate changes to income and living standards. In the 70s and 80s huge amounts of industry moved out of the country, first to Mexico and then to Asia, seeking cheaper labor. The rest of the world starting catching up with us, they were moving from agriculture to industry too. This made the more expensive labor of the US less competitive. The US economy shifted to something we couldn't use Chinese labor for: building houses(and weapons) for each other. The postwar period was really an exceptional time. Lots of things happened really. I don't think you can really attribute the changes that came at the of the 70s to a single event or policy.
daniel_solano 15y ago
The primary problem with this type of comparison is that it completely ignores economic mobility. Someone simply isn't born into a given income bracket and stays there for life. Most people's earning potential goes up over time. Speaking for myself, I think I've been in all five quintiles.
- bendotc 15y ago
  The US doesn't do terribly well in terms of economic mobility compared to other developed nations, either: http://www.npr.org/templates/story/story.php?storyId=4662456 http://www.npr.org/templates/story/story.php?storyId=4662456 It's hard to move out of the bottom quintile when the bottom quintile is generally doing so poorly, though of course it's possible, in some cases, to still do so.
- rayiner 15y ago
  Yup. The chart ignores changes in demographics. Compare the US population pyramid in 1950: http://tfw.cachefly.net/snm/images/nm/pyramids/us-1950.png http://tfw.cachefly.net/snm/images/nm/pyramids/us-1950.png To the US population pyramid in 2005: http://tfw.cachefly.net/snm/images/nm/pyramids/us-2005.png http://tfw.cachefly.net/snm/images/nm/pyramids/us-2005.png Look at just how many more people are in the 40-55 demographic (peak earning years).
- forinti 15y ago
  I'm not convinced. You have to look at each person's context, because your family's values will take you a long way (or hold you back). And the US seems to have lower mobility than other rich nations: http://voices.washingtonpost.com/ezra-klein/2010/08/research_desk_investigates_how.html http://voices.washingtonpost.com/ezra-klein/2010/08/research...
  - ellyagg 15y ago
    Every time this study or one like it is trotted out, it drives me nuts. What a society should be looking for is freedom of mobility, not arbitrary mobility. According to an article on NPR that was linked but then deleted here a minute ago, 80% of Americans think that one can still pull oneself up by their bootstraps. In the article, the subtext was that this mobility study proved that Americans were morons and don't realize how stuck they are. What hogwash. If we think about what Americans and immigrants are actually seeing that makes them feel so hopeful, it's the opportunity of mobility through one's own efforts. What opportunity of mobility does not imply is the greatest statistical father-son mobility. That would only be the case if each person born were randomly allotted IQ or EQ or whatever your favored intellectual attribute is for being more likely to succeed. But that's not how genetics work. Not only that, but each person would have to be born into families with precisely the same quality of upbringing. But neither is that the case. In fact, on average, successful parents have successful habits that they pass on to their children. The upshot is, the method of this study is absurd. The correlation between your dad's income and your income does not represent freedom of mobility, it's just a lot easier to measure. One can easily imagine societies arranged with more arbitrary success paths that lead to greater father-son mobility than a meritocratic society organized by families of natural born children. No money needs to be involved for the preceding to be case. Now, I actually favor an even greater level of meritocracy. I would be interested in something like a 90% death tax, to be put in a pool and distributed proportionally to children upon a certain birthday. I can see all sorts of problems with the naive version of that idea, but something in that spirit would be fantastic. Let's get rid of family money dynasties.
rgrieselhuber 15y ago
What happened in the late 70s?
- rayiner 15y ago
  Reagan (1981-1989).
  - bendotc 15y ago
    To be fair, Carter's reign wasn't exactly an economic wonder-time, and I don't think Reagan was influencing the economy that much as governor. I do think there's a political dimension to the change, but laying the blame at Reagan's feet exclusively seems like simple political point-scoring. Edit: it's funny seeing this comment getting down-modded. I think I'm significantly more liberal than most people here, but it looks like people are upset that I called out empty partisanship? I fail to see anything particularly inflammatory about what I wrote.
    - rayiner 15y ago
      The article gives two ranges: 1947-1979, 1980-Present. Reagan's presidency (1981-1989), and the political changes it brought, coincided with the beginning of the second range.
      - bendotc 15y ago
        Right, again, I think there's a political dimension to this, but I don't think Reagan created the problems two years before he got into office. My gut tells me economic repercussions like this probably lag their causes by several years, and looking at the graph, there's reason to think the problem started even earlier in the seventies. In short, saying Reagan had a big part in this is a claim I would support, but saying it's all Reagan's fault is clearly untrue, barring time travel.
  - johngalt 15y ago
    So by extension the current economic downturn is entirely Obama's fault then? Also, take a close look at the graph. Looks like things had stagnated in the early 70s, but the graph does it's best to hide that. Now off we go to partisan bickering about who was in control of congress blah blah... it's all BS. It's silly for presidents to talk about the economy at all. It's just another way for politicians to take credit for something they aren't responsible for. Do you think Jobs and Woz started Apple because of Carter's economic policy? Do you think Microsoft succeeded because of Reagan? Of course some companies rise and fall along with the political tides. I suspect that a close examination of these will show you bribes and favoritism. Companies that depend on a favorible political climate probably aren't adding to the economy at all.
AlexC04 15y ago
I don't know if I saw this on HackerNews or Reddit, but this one has a graph that goes well with the link in the parent post. Left behind in America: Who's to blame for the wealth divide? http://www.cbsnews.com/8301-503544_162-20102289-503544.html http://www.cbsnews.com/8301-503544_162-20102289-503544.html
- cperciva 15y ago
  The 'what people want' on that page shows that people are confused between wealth and income; nothing more. The simple fact of saving money for retirement creates more wealth concentration than that.
adamjernst 15y ago
This analysis also ignores actual purchasing power (non-core inflation). Wages may have stagnated, but purchasing power for non-core goods has soared. Free trade is a powerful cause of both wage stagnation and purchasing power. Sure, eliminate free trade and the working class will see wages go up; but they'll spend those wages on $4000 plasma TVs and $50,000 economy cars.
- akeck 15y ago
  Do the limits in the chart (both parents working and household debt maxed) and your observation mean that increases in consumer demand in the near-to-medium term can only come from increases in purchasing power?
- forensic 15y ago
  People making your argument always mention TVs, they never mention rent, land, food, education, childcare, or healthcare. 1. Rent 2. Land 3. Food 4. Education 5. Childcare 6. Healthcare You know, the stuff that actually matters. I'll give up my $400 LCD TV to be able to afford having my spouse stay home. No problem. I'll give up my Hyundai to be able to get a degree on the cheap like they did back in the 60s. I'll give up 100% of my silicon-based technology if in exchange I can afford to own some land. Easy choice. If I have to become a silicone-smashing luddite to return to 1960s level wealth, fine. I don't love computers THAT much.
  - Vivtek 15y ago
    I'll give up 100% of my silicon-based technology if in exchange I can afford to own some land. Easy choice. You can't possibly be serious. Why aren't you already in Nebraska, then? There's plenty of land in the United States, most of it dirt cheap (being dirt). If you're not already from the country, you probably don't know why we all left the country. (Myself included.)
    - forensic 15y ago
      I'm not talking about any crappy dirt pile anywhere, I'm talking about owning my own place to live in a community where there are jobs and 1960s technology. I could move to Nebraska but it is unlikely I could find a job that would afford me a residence. This isn't about social norms, this is about whether the computer revolution has been worth it for the great majority of Americans. A lot of Americans would kill right now for a job in steel or coal. And in 1960s America you didn't even need a high school diploma to own a house.
johnnyg 15y ago
How is productivity measured? GDP / (Hours Worked * Salary) = Productivity?
- bendotc 15y ago
  It's a bit more complicated than that: http://en.wikipedia.org/wiki/Labor_productivity http://en.wikipedia.org/wiki/Labor_productivity
- nhaehnle 15y ago
  Salary does not factor into the computation. The pure definition is GDP / Hours worked, though as with all statistics, there may be proxy variables and other subtleties involved.
ry0ohki 15y ago
My guess as to what happened in the late 70s... the microprocessor, and computers becoming part of the workforce.
radagaisus 15y ago
I haven't seen it featured in a lot of US news agencies, but the economical situation is Israel might be insightful in comparison with the US. For the last couple of months Israelis are protesting about the economical situation around the country. The focus of those protests is the neo liberalist and capitalist direction the country took. You can search for #j14 on twitter. The protest demands among other things social justice, free education from the age of 3 months and free housing. Last week 400,000 protested around the country. That's about 7% of the population. Oh, and today S&P just upgraded Israel credit status to A+.
- wanorris 15y ago
  You know A+ is way below the credit rating the US was downgraded to (AA+), right?
Gormo 15y ago
Every time I see this kind of chart, I always wonder why the aggregate income distribution of a population is a metric that anyone ought to be concerned about. What does one person's income have to do with anyone else's - why would you aggregate everyone's separate incomes into a single figure in the first place? And if someone's particular income is insufficient to meet their needs, how do the aggregate population data help rectify that problem?
- Vivtek 15y ago
  It's a pretty good indicator about the real impact of poverty in that society. If a lot of the wealth is concentrated, the people in the middle and bottom are very squeezed in terms of what society actually offers them (generally), whereas if the wealth is more evenly distributed, society tends to make sure everybody's getting along well, with health care and schools and what-not. Of course, you can definitely throw the baby out with the bathwater on that one. If there's completely even income distribution, the only motivation you have to do any work is just because you like to work - and most people don't like to work much. And then people compensate with non-income power imbalance, usually, so things are still not equitable.
  - Gormo 15y ago
    > If a lot of the wealth is concentrated, the people in the middle and bottom are very squeezed in terms of what society actually offers them (generally) I'm not sure I understand the connection though. I don't see how one party having a large amount of wealth, however defined, necessarily precludes any other party from having any amount of wealth. > whereas if the wealth is more evenly distributed, society tends to make sure everybody's getting along well, with health care and schools and what-not. But the underlying underlying in statements like this is that wealth originates in the aggregation, and individuals subsequently claim a portion of it, which seems counter-intuitive and false. Particular people build things like schools and hospitals in particular places, generating wealth for the specific people involved. 'Society' doesn't ensure that people have these goods; people create these goods for themselves, and generate society in the process.
- cbs 15y ago
pg 15y ago
Technological progress should cause increasing economic inequality, because the bottom end of the scale is firmly anchored at zero (someone taking a vacation), while technology gives the top end ever more powerful levers. So the interesting question is not why economic inequality is increasing, but why for a few decades in the mid twentieth century the trend was reversed. There are probably several factors at work here, but as someone who was around and paying attention at the end of that period, I think the key to the answer is the large corporation. The period of flattening coincides with the heyday of the large corporation. Large corporations tend to decrease economic inequality. You can't measure individual productivity well within large organizations, and even if you could, it would strain the fabric of the organization to reward people that way. They also hide a lot of inequality by giving elite employees benefits that don't show up in their salaries (http://paulgraham.com/ladder.html http://paulgraham.com/ladder.html). What happened at the end of the 1970s was that the most ambitious people started to lose interest in working their way up the corporate ladder. They wanted to get paid upfront. That was why the term "yuppie" was born then. Before 1980 it was rare to find young professionals with lots of money. In the old days, they were all still paying their dues at that age. I remember the transition quite clearly. When I was a little kid, in the early 70s, the most impressive thing you could do was to work for a large corporation. It was the era of conglomerates in shiny office towers. By 1980 we were starting to see a glimpse of the world we now live in, where the ambitious people are all free agents.
- wanorris 15y ago
  Don't you think that the top tax bracket being slashed from over 70% to well below 50% had something to do with it as well?
  - pg 15y ago
    Less than people think. Back when taxes were so high, the rich were really good at tax avoidance. So the rate doesn't tell you the whole story. As one of the people whose opinion about working for a large company changed during the 1970s, I know I didn't consciously think about tax rates. (It's possible they affected me unconsciously though, via the examples of people who'd cleared more after tax due to lower rates.)
scarmig 15y ago
The first graph is the most interesting. Productivity has increased substantially while wages have remained relatively stagnant. More of the surplus value of labor has been accumulating to capital. This means that people who get their income primarily from labor have lost a great deal of power vis a vis those whose income comes disproportionately from ownership of capital. Questions and some guesses: 1) Why is this? If labor can extract less value, that would suggest that it has less bargaining power. That is, labor is more fungible. This fits in with what we experience as developers: one of the great emphases that (successful) companies place is on making developers replaceable and their labor roughly equivalent, through an increased emphasis on frameworks and general languages. It also makes sense for less professionalized labor. Heavy industry requires skills to operate effectively and runs the risk of shutdowns at centralized production facilities, while services and light industry are much easier workplaces to dominate workers. 2)How do the unemployed and underemployed fit in? This is complicated, as women have entered to workforce to make two-income households, while zero-marginal product men have left it as they cannot be employed profitably. 3) Was the threat of communism an enabling force for the middle and working classes in the "good times" leading up to the 80s when it finally started to crack and fall? Before the ruling class in the United States had to optimize the economy to be as effective as possible against the threat of Communism. This meant sacrificing some of its own well-being to buy off the rest of our consent for the ability to play a major role in geopolitics ( this buy off taking the form of concessions to unions, more forceful labor market interventions, healthcare, investments in public education). 4) Could the increasing inequality somehow be a statistical artifact? Smaller countries tend to be more egalitarian than richer ones. Most individual countries in the EU and states in the USA have a lower Gini coefficient than the EU or USA as a whole. Could a similar mechanism cause a larger and more sophisticated economy to feel pressures to become more unequal? Its tricky to simply blame it on USA policies, as most Western countries have also become significantly less egalitarian than they were in 1970. Which isn't to say that US policies didn't cause it in the USA; it's just that those policies didn't appear in a vacuum, and you've got to identify the forces that caused it around the world.
- Hyena 15y ago
  The main problem statistically is how we account income. Generally the employer-paid health insurance and other benefits are not included, even though these can often vastly increase total compensation. Scott Winship did a good job following this but tends to shade into triumphalism.
boredguy8 15y ago
Funny, I was just in a discussion with some folks on this very issue, so enjoy the citation bomb. In short: total compensation isn't outstripping productivity by a substantial degree. First, start with "The relative stickiness of wages and prices" by David E. Spencer. http://findarticles.com/p/articles/mi_hb5814/is_n1_v36/ai_n28704427/ http://findarticles.com/p/articles/mi_hb5814/is_n1_v36/ai_n2... It provides important background to the discussion of whether wages or prices 'stick' more, and provides an overview of the debate through '98. Next, we turn to Martin Feldstein's paper, "Did wages reflect growth in productivity", 2008. http://www.nber.org/papers/w13953 http://www.nber.org/papers/w13953 He highlights two common errors with studies that find wages rose substantially slower than productivity. First, he explains that such studies focus on wages rather than total compensation. Without comparing productivity to total compensation, such studies are dangerously flawed. Second, such studies tend to poorly select the deflator when comparing productivity & compensation. Basically, the price index that's used to determine compensation is different than the price index used to calculate productivity. For an even more recent discussion of the same problem, but within the context of Russia's economy, read "Productivity and Cost of Labor: How Statistical Illusions Are Born" by R. Kapeliushnikov, May '10 http://mesharpe.metapress.com/index/BW00W218X2143504.pdf http://mesharpe.metapress.com/index/BW00W218X2143504.pdf. He explains: It seems that many of them are unaware of the difference between the producer real wage and the consumer real wage. The former is estimated by deflating the nominal wage using the producer price index (PPI) or the GDP deflator; the latter, by deflating the nominal wage using the consumer price index (CPI). One reflects the change in the price of labor from the perspective of firms; the other, the change in the pur- chasing power of wages from the perspective of employees. Therefore, if we want to answer the question of how expensive or cheap labor is for firms, we should use the producer real wage, not the consumer real wage. Hopefully this helps in evaluating the claims made by the EPI (the source of the data used by the NYT). I'm not familiar with any direct responses to their latest data, but Feldstein reaches a different conclusion over much of the same time period: While there's some lag in total compensation, it's not dramatically different than the rise in productivity.
- illumin8 15y ago
  The attached graph clearly shows the difference between wages and total compensation.
mkramlich 15y ago
One bite-sized takeaway: own a company, don't be an employee.
shithead 15y ago
""" Another thing to consider in terms of whether the rich “deserve” their money, or whether those rewards belong to the society that bestows them is the consolidation of labor. Consider Oprah Winfrey. She s probably only marginally better than the next best candidate for talk show queen. Yet she has amassed 100′s of millions while the next bes candidate for her job has no such job at alll. So we have two people, one tha is maybe 5% better at being a talk show queen, her income is 100 million, and another, 5% worse, and her income is some middle class wage like 50,000. Because of consolidation, the society only needs one Oprah Winfrey. We are paying 100 million to the role, not the woman. That’s the key point. She herself is worth 50,000 plus 5%, and the role of talk show queen, which could have been filled almost as well by many, many other people, is worth all the rest of the money. That role belongs to society, not to Oprahe Winfrey. You see the same thing with CEOs, bankers, and others where consoliated and mass production allows only a few highly productive roles. The wealth associated with those roles, which is to say the consolidate dower, belongs to society not to the individual lucky enough to get to fill the role. This is why tax rates of 91% on the few that occupy the most consolidate roles was thoroughly appropriate and part of an economic approach that led to America’s greatest period of growth and general prosperity. High taxes on those who wield societies greatest powers on behalf of society are normative. The power, the influence they wield belongs to the society that allows and enables it, not to the individual who fills the role. """ [ comment by 'Sharn cedar' on 'DEAR RICH FOLKS: Get Ready For A (Tax) Revolution In Which Your Money Will Be Taken Away', http://www.businessinsider.com/tax-increases-are-coming-2011-7 http://www.businessinsider.com/tax-increases-are-coming-2011... - sic, a few typos uncorrected ]
- solutionyogi 15y ago
  Wow. Obviously, if you are not Oprah, you would want to think that she is only 5% better than the next best candidate. I am sure others disagree. What if you apply this to other fields e.g. Steve Jobs is only 5% better than next CEO? Does it make sense? I think this is a nonsense approach to decide how to tax someone.
  - shithead 15y ago
    Wow. An unfamiliar thought. Masterfully repealed, though. Not very logically, but hey, so what. All is well.
kevinpet 15y ago
"debt exceeded income in 2001" I read until I find a fundamental error like comparing two values with different units. Only if it doesn't make any fundamental errors do I consider whether it's valid or makes any subtle errors.
- ianferrel 15y ago
  Aren't debt and income both denominated in $? What's the other unit?
  - kevinpet 15y ago
    One is in dollars, the other in dollars per time unit.
    - ianferrel 15y ago
      Ok, yes, that's true. But they're often compared directly. For countries, Debt-to-GDP ratio is a common statistic used to indicate the health of that country's economy/fiscal policy.
michaelochurch 15y ago
Short story of American inequality: The economic growth since 1978 was, for the most part, produced by the efforts of 10% of the population. It's true. I'm a leftist and I must admit that. That's not to say that the other 90% aren't working hard and don't deserve to share in the gains-- they obviously do-- but those gains are coming from a small percentage of people. Many, many people work hard and deserve to have good lives for their contributions, but only a small percentage (about 10%) have the vision and creativity to push increases in productivity; most are adders, few are multipliers. (Many politicians are dividers, but that's another story.) The gains since 1978 have also gone to about 10% of the population. Maybe less than 10%. Income gains are often offset by increased prices in the Unholy Trinity (housing, healthcare, education costs). Quality-of-life is also going down in most of the country, and where it is increasing, housing prices are absurd even now. Even people whose incomes appear to be growing may be back-sliding. 10% is generous, but let's go with that. These 10%'s are not the same people. (Sorry Randists). There's an intersection, but it's only about 2-3%, or 20-30% of each. The first set are the creators of wealth; the second set are capturing it. Startup entrepreneurs are in the first set (and if lucky, can enter the second). Well-connected rich kids who get staffed in private equity firms at 24 and get to draw fees from economic activity regardless of success or failure (because they'll get promoted anyway) are in the second set. Speaking as a member of first set, and merely on the outer fringe of the second, I'll just say this: no, the economic inequality in the U.S. is not desirable. Hard-line egalitarianism is ridiculous and impractical, but inequality has gone too far. We know this. The only reason the absurdity is tolerated is that 10-30% of the American population has insane social and religious views that impel them toward degenerate politics. Anyone who has traveled within Latin American societies at all can see where we're heading, and it's not pretty: massive economic inequality, desperate rural poverty, and intractably corrupt, plutocratic governments. I'll admit that what bothers me most about American equality is what drives the inequality. If it were reflective of differences in intelligence, the correlation (slight, but positive) between intelligence and empathy would be enough to impel this smart-and-rich elite to give back to the rest. At least, I hope that is the case. But that's not what we have. Increasingly, the inequality comes from inherited social connections (social capital, mostly implicitly generational) and, as it increases, the decision-making elite becomes more insular. That's what most elites become (generational social networks, not meritocracies) and that is how societies rot.
leot 15y ago
There's an assumption here that being richer just lets you buy more stuff and services. Wealth, however, is power. While Bill Gates may be no more capable than me at driving faster on the 101, I definitely can't pay a lobbying firm 10 million dollars a year to make sure government policy serves my interests, or secretly pay to have lies told in support of my cause by dozens of seemingly credible people. Some proportion of people are going to be unethical, and there are > 400 billionaires in the U.S. The conveniently ignored problem with rising wealth inequality is the power imbalances it creates, and the strong reinforcing feedback loops it enables. [edited to fix typo]
philiphodgen 15y ago
I'm sorry, but there seems to be an omitted first step in the entire comment thread of critiques -- from all comments coming from all political angles: examining the underlying data. The NYT graphic tells a terribly compelling story that supports a particular political point of view. That tickles my bullshit sensor, and tells me it is time to question the underlying data and assumptions. Frankly, this graphic makes me hear the sound of ideological axes grinding. That makes me want to question assumptions, data gathering, and data analysis. This is all thanks to Prof. Eyrich and his Stats and Econometrics classes way back when. (w00t Claremont McKenna College.) I am not saying the graphic is wrong or it is right in the conclusions it suggests. I just find it telling that the discussion thread jumps straight to an Itchy and Scratchy Show level of discourse, without questioning the underlying data. Where is HN's passion for analytic rigor? Or does A/B testing and statistical analysis apply to websites but not economics?
- william42 15y ago
  It's kind of hard to A/B test an economy.
  - darrenkopp 15y ago
    We're pretty good at it now. A=Republicans, B=Democrats. We switch every couple of election cycles and see how it goes.
    - marshray 15y ago
      It's interesting how the low point on the graph is 1976, but they put the categorical divide at 1980.
- jberryman 15y ago
  > I am not saying the graphic is wrong or it is right in the conclusions it suggests. I just find it telling that the discussion thread jumps straight to an Itchy and Scratchy Show level of discourse, without questioning the underlying data. So then tell us what's wrong with the data. I assume most people didn't question the data because income inequality since the eighties is rather well documented. That you would call the data into question without providing any justification suggests you have some ideologies of your own.
Spyro7 15y ago
Since this is Hacker News, and there are a lot of really smart, numbers-oriented people here, I just thought I'd provide a link to a dataset that looks at income distributions within the US from 1913 to 2008: http://www.econ.berkeley.edu/~saez/ http://www.econ.berkeley.edu/~saez/ Under "Income and Wealth Inequality" on that page, click the link titled "(Longer updated version published in A.B. Atkinson and T. Piketty eds., Oxford University Press, 2007)". It is an excel file that contains a metric ton of tables, charts, and figures. If you have a few moments and want a deeper understanding of the issue, that excel file is the best place to go. (Edit: I just wanted to note one thing. My favorite graph from the excel file is figure 1B, where you can see that we are basically returning to where we were prior to World War II. It makes you wonder what was so different about the post-war period that resulted in this shift. Personally, I wonder if the sudden subsidization of education for returning veterans had anything to do with it, but I have no data on this right now, so...) As far as my own thoughts on the issue go, I agree with pg. For a boring, academic take on it, there is a wonderfully dry 1980s paper by Rosen outlining the superstar theory: http://www.ppge.ufrgs.br/giacomo/arquivos/ecop72/rosen-1981.pdf http://www.ppge.ufrgs.br/giacomo/arquivos/ecop72/rosen-1981.... Basically, thanks to technology and globalization the rewards to individuals that have the highest levels of abilities have been magnified. Their "reach" has increased relative to those below them, and their rewards have increased in line with this. While interest in this seems to be popping up all over the place due to the current economic catastrophe in progress, the idea that communications infrastructure improvements lead to income inequality is an old one. Here is Alfred Marshall (founder of neoclassical economics) in 1890 (revision from 1920): http://www.econlib.org/library/Marshall/marP54.html#VI.XII.42 http://www.econlib.org/library/Marshall/marP54.html#VI.XII.4... As for myself, I have no idea about whether this is a good thing or a bad thing (or whether anything could/should be done about the growing inequality). However, it is happening now, on a grand scale, so I think that it is important for everyone to have some context on the issue.
akeefer 15y ago
There's one question, regardless of if you believe this is "fair" or not, around whether structural inequality at this level is harmful to society regardless of fairness. I tend to believe it is, based on historical precedent of what happens in highly unequal societies (it tends to not be good), but that's a separate question from the one about fairness. To analyze whether this is "fair" or not, I think the best perspective there is Rawls's framework, which is the maxi-min idea. To summarize, the idea is that inequality is okay to the extent that it improves the minimum position. For example, if you start out with some totalitarian society where everyone makes $25k, it's okay for someone to start making $200k so long as it doesn't mean that someone else now makes less than $25k. Economically, that comes out as something like: it's okay for the top end of the wage spectrum to increase because they're producing more value and capturing that value for themselves. It's not okay for them to increase because they're capturing value that other people are creating instead. If someone making $500k starts making $1MM because they're producing $500k more in value, that's acceptable. If they do that and they're only producing $300k more in value, and the other $200k increase is coming from other people's productivity increases, then that's not "fair" and shouldn't be acceptable. So, which one is it? Does anyone have a compelling argument? In the financial sector, for example, I think it's pretty easy to argue that it's the latter: people who privatize gains and socialize losses are enriching themselves far out of proportion to the value they create. When it comes to startups and new businesses, it often works the other way, in that the person starting the business, even if they become hugely wealthy, does so by creating even more value than they capture. I'm not sure it's obvious if what's been going on for the last 40 years is one way or another.
Hyena 15y ago
First, it doesn't control for increasing health costs. Employer-provided health plans have seen large amounts of cost growth and this depresses wages, for which they substitute. This is better than the raw story. Second, much of the top quintile gains have come out of the financial sector. You can see this in evidence by looking at the huge volatility in income through boom/bust cycles. This is bad. Third, we're in a lopsided labor period where lots of low-end labor is available but labor capital production is actually quite low. This puts upward pressure on the price of higher value labor capital but downward pressure on raw labor capital. This won't continue as it's a byproduct of peculiar historic issues (namely communism, etc.). Fourth, the information technology revolution has so far failed, I suspect for generational reasons. We've automated lots of low-end clerical jobs at large firms but that's pretty much where IT stalled. In technology companies themselves, this doesn't appear to be an issue and technology seems to increase employment. It also tends to encourage additional technical fluency, which is then rewarded. But outside of technology itself, this pattern doesn't seem to hold. I suspect culture play a role here.
Florin_Andrei 15y ago
It's hard to ignore the thought that the inflexion point and the beginning of the Reagan era coincide. I try to push the thought away, but it keeps coming back.
sparkycollier 15y ago
The more relevant question in this global age is: what are the global stats? How many people were lifted out of poverty during these "bad" decades on a global scale? Country specific stats just don't mean as much as they used to.
vishaldpatel 15y ago
I have a simple theory, which is well.. simple: - Most people look for paid work when they need the money. This puts them in a position where they are unable to negotiate a market wage. This adds tremendous downward pressure on wages and keeps the middle-class down.
mckoss 15y ago
If you can invest capital to increase productivity, demand for labor goes down, and wages will be kept down. The only way to increase wages is then to proportionately increase demand for goods and services so that, despite the productivity gains, there is an increasing demand for labor. We are also seeing automation (capital) and (cheap) overseas labor substituted for domestic labor beginning in the 80s. Consumer demand did not keep pace, so wages stagnated.
yason 15y ago
So, looking at the charts it seems that since productivity went up, more people should be enjoying more spare time and less work. And to an extent, this has indeed happened despite our resistance: it's just that in our society we call it unemployment and in fact punish people for it, both socially and bureaucratically.
meric 15y ago
Until 1975, labor was the most scarce resource. Post-1975, technology was the most scarce resource. A bridge needs a thousand people to build but the idea of a personal computer only takes one genius to bring into fruition.
jeffdavis 15y ago
When looking at quintiles through time, remember that you aren't tracking people through time. That's because people move through the quintiles over time (how much, I don't know, but the groups are not static). In other words, it could show simply a greater variance in income within individual lifetimes rather than a greater variance in income between people. For instance, if people spend more time at school, but their incomes a few years after graduation are much higher, that would appear as a quintile disparity because they spent years in the bottom quintile (college and just after graduation), and then jumped into one of the top quintiles. Similarly, as skills become more important, then (whether you go to college or not), you'll spend more time at low pay before your skill level matures, and then your income will rise rapidly. Also, income is not wealth. Upper-middle class and rich people often spend a lot of time in the bottom quintile (unless they are so rich that they have a lot of passive income). I'm not saying there isn't a problem. I don't have the data. But that particular measure is quite deceptive in my opinion.
eurohacker 15y ago
the top has had the biggest improvement compared to other groups during the great depression in the 1930-s and during the current recession thats an indictment of Fed which has probably intentionally caused all of the crisis in the usa in the 20th century , to benefit Fed-s owners - few commercial banks ..
beefman 15y ago
I assume "productivity" is something like real GDP/capita but it would be nice if the graph had units. The productivity/compensation line conveniently starts in 1947 and makes the post-'70s era look unusual. In fact, the baby boom era was unusual -- with the possible exception of the first industrial revolution in Britain (1700s), it is without precedent in history. Two underlying factors are responsible: 1. the destruction of all other industrial nations in WWII (and consequent international demand for the dollar), and 2. cheap energy. In 1947 the US had the world's only intact industrial infrastructure. This created tremendous overseas demand for our goods and our currency. As reconstruction abroad rapidly succeeded, the demand for the latter began to outstrip demand for the former, and we were all too happy to supply Eurodollars to meet it. By 1972, foreign claims on US gold reserves were totally unsustainable and Nixon unilaterally ended the Bretton Woods agreement. Lightning struck twice on our shores with a sustained period of unbelievably cheap petroleum, which also ended in the 1970s. Recent work in thermoeconomics suggests that technology improvements are deflationary unless society can increase its gross energy consumption. Today's ICs are thousands of times faster than those of 1980, but they do not cost more. This is an efficiency improvement - a deflationary effect. (This deflation is largely missed by typical macroeconomic measures, which don't handle "hedonic" change well. The classic demo is to let people spend inflation-adjusted dollars in a catalog from 1980, and one from 2011. Nobody buys much from the older catalog.) Building tract homes by the millions, on the other hand, requires increased gross energy consumption and is therefore monetized and reflected in measures like real GDP/capita. A similar issue exists around funding for "R&D". You can only fund the R. Since 1980, there's been an outright explosion in the number of scholarly publications disclosing promising breakthroughs, but breakthroughs can't penetrate society without energy. They sit on the page. Today, we are a people harboring postwar expectations in a world of global competition and expensive energy. President Obama's recent speech was, like many he's given before, a populist appeal for a protectionist return to postwar conditions, when a high school diploma and a pulse could confer property ownership. Such measures cannot succeed.* One of the most important roles of government in industrial society is to subsidize the production of energy. For the past 40 years, our government has sat idle (or even enacted counterproductive policies) while the real cost (EROI) of our energy sources has skyrocketed. A common claim in connection with such graphs is that changes around 1980 are due to tax policy. I personally favor progressive taxation (and models suggest it can help with income inequality) but to suggest that tax policy is solely responsible for changes seen since 1970 is ignorant at best. And such claims are seldom accompanied by notice that all income quintiles (and all races) have marginally higher real income today than at any time in the past (effects of the great recession aside)... a moderately reassuring fact that would be left out only by someone attempting to tell a story. Psychologists know that income inequality has real, negative effects, so we should try to address it. But we mustn't do anything that would disturb the modest Pareto growth we have. * Greenspun's comments on Obama's speech are also excellent: http://blogs.law.harvard.edu/philg/2011/09/08/obamas-speech/ http://blogs.law.harvard.edu/philg/2011/09/08/obamas-speech/

321 points by watmough 15y ago

Is anyone able to explain this chart for me? When they say that the 'Top Fifth' are all of the people in the labor force making over USD112541, does that mean that 20% of American workers make more than that? That's pretty astounding to me, if it is indeed the case. At a labor force size of about 154 million people, that means that over 30 million people are making over USD112541. I know that a good number of people are making WELL over USD112541 actually, though I thought it was just because of my neighborhood and social group. To see the aggregate numbers is staggering. Where is the money coming from to pay that many people that much? I have some inkling that this is what leverage and debt do for an economy, but ... wow. Any econ profs, or grad students around to explain ho this is possible?

rayiner 15y ago
These are household income quantiles, not personal income quantiles. It's not stated on the chart, but that lines up better with: http://en.wikipedia.org/wiki/Household_income_in_the_United_States http://en.wikipedia.org/wiki/Household_income_in_the_United_...
- pinko 15y ago
  Yes -- many families have shifted from single to dual-earner in order to maintain the same standard of living, so the household income charts really understate the decline in individual wages over this period.
  - klbarry 15y ago
    That is not true. They vastly overstate the decline in wages, due to the rise of more single person households. See: http://www.google.com/publicdata/explore?ds=a7jenngfc4um7_&ctype=l&strail=false&nselm=h&met_y=personal_income_per_capita&hl=en&dl=en#ctype=l&strail=false&nselm=h&met_y=personal_income_per_capita&scale_y=lin&ind_y=false&rdim=region&ifdim=region&tdim=true&hl=en&dl=en http://www.google.com/publicdata/explore?ds=a7jenngfc4um7_&#... Individual wages have risen steadily since 1910, with no gaps. The household income chart is a misleading chart.
    - iaskwhy 15y ago
      Does this take into account inflation? It could be that they are actually decreasing with inflation. I don't think it's like that but I'm just curious.
      - klbarry 15y ago
        Either way, it shows the growth as steady, since inflation has not been particularly high in the last 20 years.
    - cperciva 15y ago
      Note: That graph is personal income per capita, not personal income per worker or per hour worked.
      - klbarry 15y ago
        Also see: http://visualizingeconomics.com/2007/11/04/has-middle-americas-wages-stagnated/ http://visualizingeconomics.com/2007/11/04/has-middle-americ.... Incredibly stable since 1960.
    - william42 15y ago
      http://www.google.com/publicdata/explore?ds=a7jenngfc4um7_&ctype=l&strail=false&nselm=h&met_y=personal_income_per_capita&scale_y=log&ind_y=false&rdim=region&ifdim=region&tdim=true&tstart=-1272139200000&tend=1284004800000&hl=en&dl=en&uniSize=0.035&iconSize=0.5&icfg http://www.google.com/publicdata/explore?ds=a7jenngfc4um7_&#... This is a log-scale graph, which is what you want in order to compare rates of increase. You can see sort of an inflection point around the early 80s, but I'm not sure if it's significant.
    - woobar 15y ago
      This chart has nothing to do with individual wages. This is a sum of all incomes from all possible sources devided by population.
    - dogwelder 15y ago
      That chart shows per capita income without adjusting for inflation. It's not very useful for drawing conclusions about real income. And per capita is a simple average, while looking at medians or quintiles gives you a clearer picture. Per capita, a roomful of middle class workers all become billionaires if Bill Gates walks in.
- mistermann 15y ago
  Furthermore, running $1 trillion deficits helps. $1 trillion / 153 million workforce = ~$6500 / worker = $13,000 per household It's not too hard to imagine that somehow this money tends to flow moreso towards people in the upper quintile (straight wage-earners would miss out, whereas the investing class has many avenues to receive it), so it wouldn't surprise me at all that 1 household could end up with their "share" plus that of 2 others, so: $13,000 * 3 = $39,000 household income based on govt deficit spending $112,541 - $39,000 = $73,500 household, /2 = 36,500 per person in "real", non-deficit enhanced earnings required to make the top quintile. Made up entirely, but I don't think it is an unrealistic scenario at all. The enormous deficits we are now running can go a long way in hiding the truth for a very long time. Meanwhile, the debt grows and grows, and the interest on that debt gets larger every year. I just don't see how debt is inconsequential, but the vast majority of people seem to act as if it is (at least those who are even aware of it).

victorbstan 15y ago

So the working class has been taken to the slaughterhouse? My billion dollar question: What happened at the end of the 70's / beginning of the 80's?

lukesandberg 15y ago
in short ronald reagan tax breaks and labor market deregulation: paul krugman has essentially a whole book on why this occurred (http://www.amazon.com/Conscience-Liberal-Paul-Krugman/dp/0393060691 http://www.amazon.com/Conscience-Liberal-Paul-Krugman/dp/039...) It is an amazing book that really changed my view of labor unions. i would recommend it to anyone. heres an example from his blog: http://krugman.blogs.nytimes.com/2011/07/30/more-about-the-reagan-non-miracle/ http://krugman.blogs.nytimes.com/2011/07/30/more-about-the-r... he has a lot of stuff on his blog discussing tax policies and their effect on things like income growth.
- deleted 15y ago
  [deleted]
silvio 15y ago
The easy conjecture is to point to a combination of trickle down economic policies and the rise of cheap digital replacements, but I don't have a good analysis to back this up.
dmm 15y ago
End of the postwar boom? Following WWII the US dollar became the world's reserve currency, this created a situation of constant demand for USD. The raised the value of the US dollar and made resources cheap for the US. (It's also allowed us to abuse the currency quite a bit. This will not last.) Demographic changes which had been happening for years continued: in 1945 16% of the total labor force worked in agriculture, by 1970 only 4% did (it's <2% now). People were moving from rural areas to cities and getting jobs in industry, changes which brought immediate changes to income and living standards. In the 70s and 80s huge amounts of industry moved out of the country, first to Mexico and then to Asia, seeking cheaper labor. The rest of the world starting catching up with us, they were moving from agriculture to industry too. This made the more expensive labor of the US less competitive. The US economy shifted to something we couldn't use Chinese labor for: building houses(and weapons) for each other. The postwar period was really an exceptional time. Lots of things happened really. I don't think you can really attribute the changes that came at the of the 70s to a single event or policy.

daniel_solano 15y ago

The primary problem with this type of comparison is that it completely ignores economic mobility. Someone simply isn't born into a given income bracket and stays there for life. Most people's earning potential goes up over time. Speaking for myself, I think I've been in all five quintiles.

bendotc 15y ago
The US doesn't do terribly well in terms of economic mobility compared to other developed nations, either: http://www.npr.org/templates/story/story.php?storyId=4662456 http://www.npr.org/templates/story/story.php?storyId=4662456 It's hard to move out of the bottom quintile when the bottom quintile is generally doing so poorly, though of course it's possible, in some cases, to still do so.
rayiner 15y ago
Yup. The chart ignores changes in demographics. Compare the US population pyramid in 1950: http://tfw.cachefly.net/snm/images/nm/pyramids/us-1950.png http://tfw.cachefly.net/snm/images/nm/pyramids/us-1950.png To the US population pyramid in 2005: http://tfw.cachefly.net/snm/images/nm/pyramids/us-2005.png http://tfw.cachefly.net/snm/images/nm/pyramids/us-2005.png Look at just how many more people are in the 40-55 demographic (peak earning years).
forinti 15y ago
I'm not convinced. You have to look at each person's context, because your family's values will take you a long way (or hold you back). And the US seems to have lower mobility than other rich nations: http://voices.washingtonpost.com/ezra-klein/2010/08/research_desk_investigates_how.html http://voices.washingtonpost.com/ezra-klein/2010/08/research...
- ellyagg 15y ago
  Every time this study or one like it is trotted out, it drives me nuts. What a society should be looking for is freedom of mobility, not arbitrary mobility. According to an article on NPR that was linked but then deleted here a minute ago, 80% of Americans think that one can still pull oneself up by their bootstraps. In the article, the subtext was that this mobility study proved that Americans were morons and don't realize how stuck they are. What hogwash. If we think about what Americans and immigrants are actually seeing that makes them feel so hopeful, it's the opportunity of mobility through one's own efforts. What opportunity of mobility does not imply is the greatest statistical father-son mobility. That would only be the case if each person born were randomly allotted IQ or EQ or whatever your favored intellectual attribute is for being more likely to succeed. But that's not how genetics work. Not only that, but each person would have to be born into families with precisely the same quality of upbringing. But neither is that the case. In fact, on average, successful parents have successful habits that they pass on to their children. The upshot is, the method of this study is absurd. The correlation between your dad's income and your income does not represent freedom of mobility, it's just a lot easier to measure. One can easily imagine societies arranged with more arbitrary success paths that lead to greater father-son mobility than a meritocratic society organized by families of natural born children. No money needs to be involved for the preceding to be case. Now, I actually favor an even greater level of meritocracy. I would be interested in something like a 90% death tax, to be put in a pool and distributed proportionally to children upon a certain birthday. I can see all sorts of problems with the naive version of that idea, but something in that spirit would be fantastic. Let's get rid of family money dynasties.

rgrieselhuber 15y ago

What happened in the late 70s?

rayiner 15y ago
Reagan (1981-1989).
- bendotc 15y ago
  To be fair, Carter's reign wasn't exactly an economic wonder-time, and I don't think Reagan was influencing the economy that much as governor. I do think there's a political dimension to the change, but laying the blame at Reagan's feet exclusively seems like simple political point-scoring. Edit: it's funny seeing this comment getting down-modded. I think I'm significantly more liberal than most people here, but it looks like people are upset that I called out empty partisanship? I fail to see anything particularly inflammatory about what I wrote.
  - rayiner 15y ago
    The article gives two ranges: 1947-1979, 1980-Present. Reagan's presidency (1981-1989), and the political changes it brought, coincided with the beginning of the second range.
    - bendotc 15y ago
      Right, again, I think there's a political dimension to this, but I don't think Reagan created the problems two years before he got into office. My gut tells me economic repercussions like this probably lag their causes by several years, and looking at the graph, there's reason to think the problem started even earlier in the seventies. In short, saying Reagan had a big part in this is a claim I would support, but saying it's all Reagan's fault is clearly untrue, barring time travel.
- johngalt 15y ago
  So by extension the current economic downturn is entirely Obama's fault then? Also, take a close look at the graph. Looks like things had stagnated in the early 70s, but the graph does it's best to hide that. Now off we go to partisan bickering about who was in control of congress blah blah... it's all BS. It's silly for presidents to talk about the economy at all. It's just another way for politicians to take credit for something they aren't responsible for. Do you think Jobs and Woz started Apple because of Carter's economic policy? Do you think Microsoft succeeded because of Reagan? Of course some companies rise and fall along with the political tides. I suspect that a close examination of these will show you bribes and favoritism. Companies that depend on a favorible political climate probably aren't adding to the economy at all.

AlexC04 15y ago

I don't know if I saw this on HackerNews or Reddit, but this one has a graph that goes well with the link in the parent post. Left behind in America: Who's to blame for the wealth divide? http://www.cbsnews.com/8301-503544_162-20102289-503544.html http://www.cbsnews.com/8301-503544_162-20102289-503544.html

cperciva 15y ago
The 'what people want' on that page shows that people are confused between wealth and income; nothing more. The simple fact of saving money for retirement creates more wealth concentration than that.

adamjernst 15y ago

This analysis also ignores actual purchasing power (non-core inflation). Wages may have stagnated, but purchasing power for non-core goods has soared. Free trade is a powerful cause of both wage stagnation and purchasing power. Sure, eliminate free trade and the working class will see wages go up; but they'll spend those wages on $4000 plasma TVs and $50,000 economy cars.

akeck 15y ago
Do the limits in the chart (both parents working and household debt maxed) and your observation mean that increases in consumer demand in the near-to-medium term can only come from increases in purchasing power?
forensic 15y ago
People making your argument always mention TVs, they never mention rent, land, food, education, childcare, or healthcare. 1. Rent 2. Land 3. Food 4. Education 5. Childcare 6. Healthcare You know, the stuff that actually matters. I'll give up my $400 LCD TV to be able to afford having my spouse stay home. No problem. I'll give up my Hyundai to be able to get a degree on the cheap like they did back in the 60s. I'll give up 100% of my silicon-based technology if in exchange I can afford to own some land. Easy choice. If I have to become a silicone-smashing luddite to return to 1960s level wealth, fine. I don't love computers THAT much.
- Vivtek 15y ago
  I'll give up 100% of my silicon-based technology if in exchange I can afford to own some land. Easy choice. You can't possibly be serious. Why aren't you already in Nebraska, then? There's plenty of land in the United States, most of it dirt cheap (being dirt). If you're not already from the country, you probably don't know why we all left the country. (Myself included.)
  - forensic 15y ago
    I'm not talking about any crappy dirt pile anywhere, I'm talking about owning my own place to live in a community where there are jobs and 1960s technology. I could move to Nebraska but it is unlikely I could find a job that would afford me a residence. This isn't about social norms, this is about whether the computer revolution has been worth it for the great majority of Americans. A lot of Americans would kill right now for a job in steel or coal. And in 1960s America you didn't even need a high school diploma to own a house.

johnnyg 15y ago

How is productivity measured? GDP / (Hours Worked * Salary) = Productivity?

bendotc 15y ago
It's a bit more complicated than that: http://en.wikipedia.org/wiki/Labor_productivity http://en.wikipedia.org/wiki/Labor_productivity
nhaehnle 15y ago
Salary does not factor into the computation. The pure definition is GDP / Hours worked, though as with all statistics, there may be proxy variables and other subtleties involved.

ry0ohki 15y ago

My guess as to what happened in the late 70s... the microprocessor, and computers becoming part of the workforce.

radagaisus 15y ago

I haven't seen it featured in a lot of US news agencies, but the economical situation is Israel might be insightful in comparison with the US. For the last couple of months Israelis are protesting about the economical situation around the country. The focus of those protests is the neo liberalist and capitalist direction the country took. You can search for #j14 on twitter. The protest demands among other things social justice, free education from the age of 3 months and free housing. Last week 400,000 protested around the country. That's about 7% of the population. Oh, and today S&P just upgraded Israel credit status to A+.

wanorris 15y ago
You know A+ is way below the credit rating the US was downgraded to (AA+), right?

Gormo 15y ago

Every time I see this kind of chart, I always wonder why the aggregate income distribution of a population is a metric that anyone ought to be concerned about. What does one person's income have to do with anyone else's - why would you aggregate everyone's separate incomes into a single figure in the first place? And if someone's particular income is insufficient to meet their needs, how do the aggregate population data help rectify that problem?

Vivtek 15y ago
It's a pretty good indicator about the real impact of poverty in that society. If a lot of the wealth is concentrated, the people in the middle and bottom are very squeezed in terms of what society actually offers them (generally), whereas if the wealth is more evenly distributed, society tends to make sure everybody's getting along well, with health care and schools and what-not. Of course, you can definitely throw the baby out with the bathwater on that one. If there's completely even income distribution, the only motivation you have to do any work is just because you like to work - and most people don't like to work much. And then people compensate with non-income power imbalance, usually, so things are still not equitable.
- Gormo 15y ago
  > If a lot of the wealth is concentrated, the people in the middle and bottom are very squeezed in terms of what society actually offers them (generally) I'm not sure I understand the connection though. I don't see how one party having a large amount of wealth, however defined, necessarily precludes any other party from having any amount of wealth. > whereas if the wealth is more evenly distributed, society tends to make sure everybody's getting along well, with health care and schools and what-not. But the underlying underlying in statements like this is that wealth originates in the aggregation, and individuals subsequently claim a portion of it, which seems counter-intuitive and false. Particular people build things like schools and hospitals in particular places, generating wealth for the specific people involved. 'Society' doesn't ensure that people have these goods; people create these goods for themselves, and generate society in the process.
cbs 15y ago

pg 15y ago

Technological progress should cause increasing economic inequality, because the bottom end of the scale is firmly anchored at zero (someone taking a vacation), while technology gives the top end ever more powerful levers. So the interesting question is not why economic inequality is increasing, but why for a few decades in the mid twentieth century the trend was reversed. There are probably several factors at work here, but as someone who was around and paying attention at the end of that period, I think the key to the answer is the large corporation. The period of flattening coincides with the heyday of the large corporation. Large corporations tend to decrease economic inequality. You can't measure individual productivity well within large organizations, and even if you could, it would strain the fabric of the organization to reward people that way. They also hide a lot of inequality by giving elite employees benefits that don't show up in their salaries (http://paulgraham.com/ladder.html http://paulgraham.com/ladder.html). What happened at the end of the 1970s was that the most ambitious people started to lose interest in working their way up the corporate ladder. They wanted to get paid upfront. That was why the term "yuppie" was born then. Before 1980 it was rare to find young professionals with lots of money. In the old days, they were all still paying their dues at that age. I remember the transition quite clearly. When I was a little kid, in the early 70s, the most impressive thing you could do was to work for a large corporation. It was the era of conglomerates in shiny office towers. By 1980 we were starting to see a glimpse of the world we now live in, where the ambitious people are all free agents.

wanorris 15y ago
Don't you think that the top tax bracket being slashed from over 70% to well below 50% had something to do with it as well?
- pg 15y ago
  Less than people think. Back when taxes were so high, the rich were really good at tax avoidance. So the rate doesn't tell you the whole story. As one of the people whose opinion about working for a large company changed during the 1970s, I know I didn't consciously think about tax rates. (It's possible they affected me unconsciously though, via the examples of people who'd cleared more after tax due to lower rates.)

scarmig 15y ago

The first graph is the most interesting. Productivity has increased substantially while wages have remained relatively stagnant. More of the surplus value of labor has been accumulating to capital. This means that people who get their income primarily from labor have lost a great deal of power vis a vis those whose income comes disproportionately from ownership of capital. Questions and some guesses: 1) Why is this? If labor can extract less value, that would suggest that it has less bargaining power. That is, labor is more fungible. This fits in with what we experience as developers: one of the great emphases that (successful) companies place is on making developers replaceable and their labor roughly equivalent, through an increased emphasis on frameworks and general languages. It also makes sense for less professionalized labor. Heavy industry requires skills to operate effectively and runs the risk of shutdowns at centralized production facilities, while services and light industry are much easier workplaces to dominate workers. 2)How do the unemployed and underemployed fit in? This is complicated, as women have entered to workforce to make two-income households, while zero-marginal product men have left it as they cannot be employed profitably. 3) Was the threat of communism an enabling force for the middle and working classes in the "good times" leading up to the 80s when it finally started to crack and fall? Before the ruling class in the United States had to optimize the economy to be as effective as possible against the threat of Communism. This meant sacrificing some of its own well-being to buy off the rest of our consent for the ability to play a major role in geopolitics ( this buy off taking the form of concessions to unions, more forceful labor market interventions, healthcare, investments in public education). 4) Could the increasing inequality somehow be a statistical artifact? Smaller countries tend to be more egalitarian than richer ones. Most individual countries in the EU and states in the USA have a lower Gini coefficient than the EU or USA as a whole. Could a similar mechanism cause a larger and more sophisticated economy to feel pressures to become more unequal? Its tricky to simply blame it on USA policies, as most Western countries have also become significantly less egalitarian than they were in 1970. Which isn't to say that US policies didn't cause it in the USA; it's just that those policies didn't appear in a vacuum, and you've got to identify the forces that caused it around the world.

Hyena 15y ago
The main problem statistically is how we account income. Generally the employer-paid health insurance and other benefits are not included, even though these can often vastly increase total compensation. Scott Winship did a good job following this but tends to shade into triumphalism.

boredguy8 15y ago

Funny, I was just in a discussion with some folks on this very issue, so enjoy the citation bomb. In short: total compensation isn't outstripping productivity by a substantial degree. First, start with "The relative stickiness of wages and prices" by David E. Spencer. http://findarticles.com/p/articles/mi_hb5814/is_n1_v36/ai_n28704427/ http://findarticles.com/p/articles/mi_hb5814/is_n1_v36/ai_n2... It provides important background to the discussion of whether wages or prices 'stick' more, and provides an overview of the debate through '98. Next, we turn to Martin Feldstein's paper, "Did wages reflect growth in productivity", 2008. http://www.nber.org/papers/w13953 http://www.nber.org/papers/w13953 He highlights two common errors with studies that find wages rose substantially slower than productivity. First, he explains that such studies focus on wages rather than total compensation. Without comparing productivity to total compensation, such studies are dangerously flawed. Second, such studies tend to poorly select the deflator when comparing productivity & compensation. Basically, the price index that's used to determine compensation is different than the price index used to calculate productivity. For an even more recent discussion of the same problem, but within the context of Russia's economy, read "Productivity and Cost of Labor: How Statistical Illusions Are Born" by R. Kapeliushnikov, May '10 http://mesharpe.metapress.com/index/BW00W218X2143504.pdf http://mesharpe.metapress.com/index/BW00W218X2143504.pdf. He explains: It seems that many of them are unaware of the difference between the producer real wage and the consumer real wage. The former is estimated by deflating the nominal wage using the producer price index (PPI) or the GDP deflator; the latter, by deflating the nominal wage using the consumer price index (CPI). One reflects the change in the price of labor from the perspective of firms; the other, the change in the pur- chasing power of wages from the perspective of employees. Therefore, if we want to answer the question of how expensive or cheap labor is for firms, we should use the producer real wage, not the consumer real wage. Hopefully this helps in evaluating the claims made by the EPI (the source of the data used by the NYT). I'm not familiar with any direct responses to their latest data, but Feldstein reaches a different conclusion over much of the same time period: While there's some lag in total compensation, it's not dramatically different than the rise in productivity.

illumin8 15y ago
The attached graph clearly shows the difference between wages and total compensation.

mkramlich 15y ago

One bite-sized takeaway: own a company, don't be an employee.

shithead 15y ago

""" Another thing to consider in terms of whether the rich “deserve” their money, or whether those rewards belong to the society that bestows them is the consolidation of labor. Consider Oprah Winfrey. She s probably only marginally better than the next best candidate for talk show queen. Yet she has amassed 100′s of millions while the next bes candidate for her job has no such job at alll. So we have two people, one tha is maybe 5% better at being a talk show queen, her income is 100 million, and another, 5% worse, and her income is some middle class wage like 50,000. Because of consolidation, the society only needs one Oprah Winfrey. We are paying 100 million to the role, not the woman. That’s the key point. She herself is worth 50,000 plus 5%, and the role of talk show queen, which could have been filled almost as well by many, many other people, is worth all the rest of the money. That role belongs to society, not to Oprahe Winfrey. You see the same thing with CEOs, bankers, and others where consoliated and mass production allows only a few highly productive roles. The wealth associated with those roles, which is to say the consolidate dower, belongs to society not to the individual lucky enough to get to fill the role. This is why tax rates of 91% on the few that occupy the most consolidate roles was thoroughly appropriate and part of an economic approach that led to America’s greatest period of growth and general prosperity. High taxes on those who wield societies greatest powers on behalf of society are normative. The power, the influence they wield belongs to the society that allows and enables it, not to the individual who fills the role. """ [ comment by 'Sharn cedar' on 'DEAR RICH FOLKS: Get Ready For A (Tax) Revolution In Which Your Money Will Be Taken Away', http://www.businessinsider.com/tax-increases-are-coming-2011-7 http://www.businessinsider.com/tax-increases-are-coming-2011... - sic, a few typos uncorrected ]

solutionyogi 15y ago
Wow. Obviously, if you are not Oprah, you would want to think that she is only 5% better than the next best candidate. I am sure others disagree. What if you apply this to other fields e.g. Steve Jobs is only 5% better than next CEO? Does it make sense? I think this is a nonsense approach to decide how to tax someone.
- shithead 15y ago
  Wow. An unfamiliar thought. Masterfully repealed, though. Not very logically, but hey, so what. All is well.

kevinpet 15y ago

"debt exceeded income in 2001" I read until I find a fundamental error like comparing two values with different units. Only if it doesn't make any fundamental errors do I consider whether it's valid or makes any subtle errors.

ianferrel 15y ago
Aren't debt and income both denominated in $? What's the other unit?
- kevinpet 15y ago
  One is in dollars, the other in dollars per time unit.
  - ianferrel 15y ago
    Ok, yes, that's true. But they're often compared directly. For countries, Debt-to-GDP ratio is a common statistic used to indicate the health of that country's economy/fiscal policy.

michaelochurch 15y ago

Short story of American inequality: The economic growth since 1978 was, for the most part, produced by the efforts of 10% of the population. It's true. I'm a leftist and I must admit that. That's not to say that the other 90% aren't working hard and don't deserve to share in the gains-- they obviously do-- but those gains are coming from a small percentage of people. Many, many people work hard and deserve to have good lives for their contributions, but only a small percentage (about 10%) have the vision and creativity to push increases in productivity; most are adders, few are multipliers. (Many politicians are dividers, but that's another story.) The gains since 1978 have also gone to about 10% of the population. Maybe less than 10%. Income gains are often offset by increased prices in the Unholy Trinity (housing, healthcare, education costs). Quality-of-life is also going down in most of the country, and where it is increasing, housing prices are absurd even now. Even people whose incomes appear to be growing may be back-sliding. 10% is generous, but let's go with that. These 10%'s are not the same people. (Sorry Randists). There's an intersection, but it's only about 2-3%, or 20-30% of each. The first set are the creators of wealth; the second set are capturing it. Startup entrepreneurs are in the first set (and if lucky, can enter the second). Well-connected rich kids who get staffed in private equity firms at 24 and get to draw fees from economic activity regardless of success or failure (because they'll get promoted anyway) are in the second set. Speaking as a member of first set, and merely on the outer fringe of the second, I'll just say this: no, the economic inequality in the U.S. is not desirable. Hard-line egalitarianism is ridiculous and impractical, but inequality has gone too far. We know this. The only reason the absurdity is tolerated is that 10-30% of the American population has insane social and religious views that impel them toward degenerate politics. Anyone who has traveled within Latin American societies at all can see where we're heading, and it's not pretty: massive economic inequality, desperate rural poverty, and intractably corrupt, plutocratic governments. I'll admit that what bothers me most about American equality is what drives the inequality. If it were reflective of differences in intelligence, the correlation (slight, but positive) between intelligence and empathy would be enough to impel this smart-and-rich elite to give back to the rest. At least, I hope that is the case. But that's not what we have. Increasingly, the inequality comes from inherited social connections (social capital, mostly implicitly generational) and, as it increases, the decision-making elite becomes more insular. That's what most elites become (generational social networks, not meritocracies) and that is how societies rot.

leot 15y ago

There's an assumption here that being richer just lets you buy more stuff and services. Wealth, however, is power. While Bill Gates may be no more capable than me at driving faster on the 101, I definitely can't pay a lobbying firm 10 million dollars a year to make sure government policy serves my interests, or secretly pay to have lies told in support of my cause by dozens of seemingly credible people. Some proportion of people are going to be unethical, and there are > 400 billionaires in the U.S. The conveniently ignored problem with rising wealth inequality is the power imbalances it creates, and the strong reinforcing feedback loops it enables. [edited to fix typo]

philiphodgen 15y ago

I'm sorry, but there seems to be an omitted first step in the entire comment thread of critiques -- from all comments coming from all political angles: examining the underlying data. The NYT graphic tells a terribly compelling story that supports a particular political point of view. That tickles my bullshit sensor, and tells me it is time to question the underlying data and assumptions. Frankly, this graphic makes me hear the sound of ideological axes grinding. That makes me want to question assumptions, data gathering, and data analysis. This is all thanks to Prof. Eyrich and his Stats and Econometrics classes way back when. (w00t Claremont McKenna College.) I am not saying the graphic is wrong or it is right in the conclusions it suggests. I just find it telling that the discussion thread jumps straight to an Itchy and Scratchy Show level of discourse, without questioning the underlying data. Where is HN's passion for analytic rigor? Or does A/B testing and statistical analysis apply to websites but not economics?

william42 15y ago
It's kind of hard to A/B test an economy.
- darrenkopp 15y ago
  We're pretty good at it now. A=Republicans, B=Democrats. We switch every couple of election cycles and see how it goes.
  - marshray 15y ago
    It's interesting how the low point on the graph is 1976, but they put the categorical divide at 1980.
jberryman 15y ago
> I am not saying the graphic is wrong or it is right in the conclusions it suggests. I just find it telling that the discussion thread jumps straight to an Itchy and Scratchy Show level of discourse, without questioning the underlying data. So then tell us what's wrong with the data. I assume most people didn't question the data because income inequality since the eighties is rather well documented. That you would call the data into question without providing any justification suggests you have some ideologies of your own.

Spyro7 15y ago

Since this is Hacker News, and there are a lot of really smart, numbers-oriented people here, I just thought I'd provide a link to a dataset that looks at income distributions within the US from 1913 to 2008: http://www.econ.berkeley.edu/~saez/ http://www.econ.berkeley.edu/~saez/ Under "Income and Wealth Inequality" on that page, click the link titled "(Longer updated version published in A.B. Atkinson and T. Piketty eds., Oxford University Press, 2007)". It is an excel file that contains a metric ton of tables, charts, and figures. If you have a few moments and want a deeper understanding of the issue, that excel file is the best place to go. (Edit: I just wanted to note one thing. My favorite graph from the excel file is figure 1B, where you can see that we are basically returning to where we were prior to World War II. It makes you wonder what was so different about the post-war period that resulted in this shift. Personally, I wonder if the sudden subsidization of education for returning veterans had anything to do with it, but I have no data on this right now, so...) As far as my own thoughts on the issue go, I agree with pg. For a boring, academic take on it, there is a wonderfully dry 1980s paper by Rosen outlining the superstar theory: http://www.ppge.ufrgs.br/giacomo/arquivos/ecop72/rosen-1981.pdf http://www.ppge.ufrgs.br/giacomo/arquivos/ecop72/rosen-1981.... Basically, thanks to technology and globalization the rewards to individuals that have the highest levels of abilities have been magnified. Their "reach" has increased relative to those below them, and their rewards have increased in line with this. While interest in this seems to be popping up all over the place due to the current economic catastrophe in progress, the idea that communications infrastructure improvements lead to income inequality is an old one. Here is Alfred Marshall (founder of neoclassical economics) in 1890 (revision from 1920): http://www.econlib.org/library/Marshall/marP54.html#VI.XII.42 http://www.econlib.org/library/Marshall/marP54.html#VI.XII.4... As for myself, I have no idea about whether this is a good thing or a bad thing (or whether anything could/should be done about the growing inequality). However, it is happening now, on a grand scale, so I think that it is important for everyone to have some context on the issue.

akeefer 15y ago

There's one question, regardless of if you believe this is "fair" or not, around whether structural inequality at this level is harmful to society regardless of fairness. I tend to believe it is, based on historical precedent of what happens in highly unequal societies (it tends to not be good), but that's a separate question from the one about fairness. To analyze whether this is "fair" or not, I think the best perspective there is Rawls's framework, which is the maxi-min idea. To summarize, the idea is that inequality is okay to the extent that it improves the minimum position. For example, if you start out with some totalitarian society where everyone makes $25k, it's okay for someone to start making $200k so long as it doesn't mean that someone else now makes less than $25k. Economically, that comes out as something like: it's okay for the top end of the wage spectrum to increase because they're producing more value and capturing that value for themselves. It's not okay for them to increase because they're capturing value that other people are creating instead. If someone making $500k starts making $1MM because they're producing $500k more in value, that's acceptable. If they do that and they're only producing $300k more in value, and the other $200k increase is coming from other people's productivity increases, then that's not "fair" and shouldn't be acceptable. So, which one is it? Does anyone have a compelling argument? In the financial sector, for example, I think it's pretty easy to argue that it's the latter: people who privatize gains and socialize losses are enriching themselves far out of proportion to the value they create. When it comes to startups and new businesses, it often works the other way, in that the person starting the business, even if they become hugely wealthy, does so by creating even more value than they capture. I'm not sure it's obvious if what's been going on for the last 40 years is one way or another.

Hyena 15y ago

First, it doesn't control for increasing health costs. Employer-provided health plans have seen large amounts of cost growth and this depresses wages, for which they substitute. This is better than the raw story. Second, much of the top quintile gains have come out of the financial sector. You can see this in evidence by looking at the huge volatility in income through boom/bust cycles. This is bad. Third, we're in a lopsided labor period where lots of low-end labor is available but labor capital production is actually quite low. This puts upward pressure on the price of higher value labor capital but downward pressure on raw labor capital. This won't continue as it's a byproduct of peculiar historic issues (namely communism, etc.). Fourth, the information technology revolution has so far failed, I suspect for generational reasons. We've automated lots of low-end clerical jobs at large firms but that's pretty much where IT stalled. In technology companies themselves, this doesn't appear to be an issue and technology seems to increase employment. It also tends to encourage additional technical fluency, which is then rewarded. But outside of technology itself, this pattern doesn't seem to hold. I suspect culture play a role here.

Florin_Andrei 15y ago

It's hard to ignore the thought that the inflexion point and the beginning of the Reagan era coincide. I try to push the thought away, but it keeps coming back.

sparkycollier 15y ago

The more relevant question in this global age is: what are the global stats? How many people were lifted out of poverty during these "bad" decades on a global scale? Country specific stats just don't mean as much as they used to.

vishaldpatel 15y ago

I have a simple theory, which is well.. simple: - Most people look for paid work when they need the money. This puts them in a position where they are unable to negotiate a market wage. This adds tremendous downward pressure on wages and keeps the middle-class down.

mckoss 15y ago

If you can invest capital to increase productivity, demand for labor goes down, and wages will be kept down. The only way to increase wages is then to proportionately increase demand for goods and services so that, despite the productivity gains, there is an increasing demand for labor. We are also seeing automation (capital) and (cheap) overseas labor substituted for domestic labor beginning in the 80s. Consumer demand did not keep pace, so wages stagnated.

yason 15y ago

So, looking at the charts it seems that since productivity went up, more people should be enjoying more spare time and less work. And to an extent, this has indeed happened despite our resistance: it's just that in our society we call it unemployment and in fact punish people for it, both socially and bureaucratically.

meric 15y ago

Until 1975, labor was the most scarce resource. Post-1975, technology was the most scarce resource. A bridge needs a thousand people to build but the idea of a personal computer only takes one genius to bring into fruition.

jeffdavis 15y ago

When looking at quintiles through time, remember that you aren't tracking people through time. That's because people move through the quintiles over time (how much, I don't know, but the groups are not static). In other words, it could show simply a greater variance in income within individual lifetimes rather than a greater variance in income between people. For instance, if people spend more time at school, but their incomes a few years after graduation are much higher, that would appear as a quintile disparity because they spent years in the bottom quintile (college and just after graduation), and then jumped into one of the top quintiles. Similarly, as skills become more important, then (whether you go to college or not), you'll spend more time at low pay before your skill level matures, and then your income will rise rapidly. Also, income is not wealth. Upper-middle class and rich people often spend a lot of time in the bottom quintile (unless they are so rich that they have a lot of passive income). I'm not saying there isn't a problem. I don't have the data. But that particular measure is quite deceptive in my opinion.

eurohacker 15y ago

the top has had the biggest improvement compared to other groups during the great depression in the 1930-s and during the current recession thats an indictment of Fed which has probably intentionally caused all of the crisis in the usa in the 20th century , to benefit Fed-s owners - few commercial banks ..

beefman 15y ago

I assume "productivity" is something like real GDP/capita but it would be nice if the graph had units. The productivity/compensation line conveniently starts in 1947 and makes the post-'70s era look unusual. In fact, the baby boom era was unusual -- with the possible exception of the first industrial revolution in Britain (1700s), it is without precedent in history. Two underlying factors are responsible: 1. the destruction of all other industrial nations in WWII (and consequent international demand for the dollar), and 2. cheap energy. In 1947 the US had the world's only intact industrial infrastructure. This created tremendous overseas demand for our goods and our currency. As reconstruction abroad rapidly succeeded, the demand for the latter began to outstrip demand for the former, and we were all too happy to supply Eurodollars to meet it. By 1972, foreign claims on US gold reserves were totally unsustainable and Nixon unilaterally ended the Bretton Woods agreement. Lightning struck twice on our shores with a sustained period of unbelievably cheap petroleum, which also ended in the 1970s. Recent work in thermoeconomics suggests that technology improvements are deflationary unless society can increase its gross energy consumption. Today's ICs are thousands of times faster than those of 1980, but they do not cost more. This is an efficiency improvement - a deflationary effect. (This deflation is largely missed by typical macroeconomic measures, which don't handle "hedonic" change well. The classic demo is to let people spend inflation-adjusted dollars in a catalog from 1980, and one from 2011. Nobody buys much from the older catalog.) Building tract homes by the millions, on the other hand, requires increased gross energy consumption and is therefore monetized and reflected in measures like real GDP/capita. A similar issue exists around funding for "R&D". You can only fund the R. Since 1980, there's been an outright explosion in the number of scholarly publications disclosing promising breakthroughs, but breakthroughs can't penetrate society without energy. They sit on the page. Today, we are a people harboring postwar expectations in a world of global competition and expensive energy. President Obama's recent speech was, like many he's given before, a populist appeal for a protectionist return to postwar conditions, when a high school diploma and a pulse could confer property ownership. Such measures cannot succeed.* One of the most important roles of government in industrial society is to subsidize the production of energy. For the past 40 years, our government has sat idle (or even enacted counterproductive policies) while the real cost (EROI) of our energy sources has skyrocketed. A common claim in connection with such graphs is that changes around 1980 are due to tax policy. I personally favor progressive taxation (and models suggest it can help with income inequality) but to suggest that tax policy is solely responsible for changes seen since 1970 is ignorant at best. And such claims are seldom accompanied by notice that all income quintiles (and all races) have marginally higher real income today than at any time in the past (effects of the great recession aside)... a moderately reassuring fact that would be left out only by someone attempting to tell a story. Psychologists know that income inequality has real, negative effects, so we should try to address it. But we mustn't do anything that would disturb the modest Pareto growth we have. * Greenspun's comments on Obama's speech are also excellent: http://blogs.law.harvard.edu/philg/2011/09/08/obamas-speech/ http://blogs.law.harvard.edu/philg/2011/09/08/obamas-speech/