Please keep in mind: Princeton Economics Proffesor Paul Krugman is far from unbiased in his opnions of the current economy of the US.
His assesments are routinely challenged and demonstrated false by Donald Luskin, also an economist.
We could debate ad infinitum which of these gents are correct (if indeed either are); just wanted to pose an alternate view, that’s all.
When you start a thread, it’s helpful to other readers if you provide a link to the column under consideration. Yes, it’s on the front page now, but in a week’s time, it will be lost in the Archives and require searching time etc. So, providing the link helps keep us all on the same page, and save time.
Ahhh, I’ve always wante to say that 
Are we living in a new “Gilded Age” of income inequality?
You are of course correct…
As lame an excuse as it is, I did copy the URL before I clicked POST; but was distracted and neglected to paste it. :smack:
There are other factors that Krugman and others often ignore.
For one, During the Gilded Age, even through the 1920s, the impact of all governemnt agencies on the total US economy was minimal compared to today. In the US, federal, state and local taxes often do take more than 50% of income of the well-off. The IRS shows that the top 1 % of wage earners, making about 17% of all income, pay nearly 34% of all federal income taxes.
Two, income and worth are two different things. You may recall a couple of Brooklyn professors who together never made more than about $100,000 a year, but had invested in Berkshire Hathaway in the 1950s and left an estate of over $900 MILLION! They never even made it to the Forbes 400, becuase no one ever knew about them until they died. The point is that looking at IRS info may be meaningless because it only convers income and not worth, and I know of more than a few people who have “low” income but have very high worth, and visa versa.
The third point I’d like to make is that some surveys look at the “thousand richest” or “Top 1% or 5% of income earners” and assume that it is a static group of people. While it is true that some people are always making gobs of money, some of the people on the list hit it big one year, and 5 years later are stock boys at Piggly Wiggly. Does the name MC Hammer mean anything to you? He may be an extreme example, but he is certainly not alone; just look at a list of the top athletes and entertainers from 20 years ago and today. And these are many of the top earners that Krugman et al. use in their equations.
When you look at the various types of socieital economic models (hunter-gatherer, pastoral, agricultural, etc.) progress tends to create more inequalities. Hunter-gatherer socieities tend to have more equality (according to the theory) than industrial socieites. Problem is, hunter-gatherer socieities are also subject to more disease, starvation, infant mortality, etc.
Income inequality may be one thing, but does it matter when everyone can get 3 square meals a day? We live in a country where obesity among the poor is a growing problem. It may not be perfect, but the present system is keeping people from starving to death.
I have the impression that income is much more evenly distributed than wealth; I wish Cecil had made the distinction. Comment anyone?
I agree that looking at wealth in absolute terms rather than relative terms is sensible, but I still think there are two reasons that it does matter.
People think it matters. They look at wealth in relative terms and compare their wealth to those around them, not to hunter-gatherers in the valleys of New Guinea or to their ancestors 10,000 years ago. Social dissatisfaction with inequitable distribution of wealth can be a major problem even if wealth in absolute terms is very high.
Rational allocation of resources. It may reach a point where we have to ask ourselves: Are people compensated by the economy in a manner commensurate with the value they add to the economy? Does a person who makes $200,000 a year trading in stocks really provide more value than a person who helps build the car, or harvest the crops, or determine the insurance rates which give those stocks their value - and yet earns $30,000 a year? It’s a question I freely admit that I don’t know the answer to, but I think we would be remiss if we believed it’s not a question we should bother to investigate.
I dunno how much I’d swallow Luskin as a Krugman fact-checker. Number one, his ties to the National Review shed a rather poor light on his own “lack of bias”. And frankly, the guy’s a bit of a screwball. He threatened blogger Atrios of Eschaton with a lawsuit (defamation of character, I believe) because of stuff that was said on the website’s comments section. As soon as Atrios said, “Okay, let’s go to court,” Luskin backed down.
But what lost him for me was a piece he wrote on actually attending one of Krugman’s speeches and book signings. A word of disclosure: I’m fairly liberal and a fan of Krugman’s NYT columns. That being said, I do think it’s important to get as much differing opinions as possible and that there are those who keep the punditry as honest (well, as honest as possible, anyway).
In any event, Luskin wrote that he went to the book signing and saw, and I’m quoting here, “the face of evil” when he met Krugman face to face. During the actual signing of the book, Luskin says Krugman “pretended” not to know who he (Luskin) was until it “dawned” on him and Krugman “showed fear”. Umm, yeah. In any event, that lost me on the cat.
And vodyanoi, to answer your question with another question, is the system working as well as it could when we have almost 50 million people without proper access to health care? Or when we have a shortage of the flu vaccine when we’re in the middle of what’s supposed to be one of the worst epidemics in history? We’re not in near as dire straits as the Gilded Age, as Cecil wrote - despite the change in climate, both socially and economically - but it ain’t smooth sailing 'cause we got a lot of fat people, either.
Great article, Cece.
Alas, I’m afraid that little Eddie has let you down again: Piketty and Saez have updated their dataset through 2000. A 3.4MB Excel spreadsheet is available here.
To reflect the Guilded Age, I’ll present intra-war and pre-war data (problematic, but it is difficult to estimate shares for the 1890s). For comparison, I’ll also show the era of stable income shares (1953-1983), Cecil’s date (1998) and (ahem) the latest data (2000). Descriptions of income groups are mine.
Top 1% Top 1/1000 Top 1/10000
Income Share (fig3) Income Share (fig21) Income Share (fig4)
(Upper Income) (The Super-Rich) (The Plutocrats)
($278,000+ in 2000) ($1,135,000+ in 2000) ($5,350,000+ in 2000)
1913-1916 18.1% 9.1% 3.6%
1920-1929 17.0% 6.6% 2.3%
---
1953-1983 8.3% 2.2% 0.6%
1998 15.3% 6.2% 2.4%
2000 16.9% 7.4% 3.1%
Ok, first of all, Cecil used data for the top 1/1000 of the population, probably because he wanted to make international comparisons. Fair enough.
But to really measure the rise of the plutocracy in this country, you have to look at those making more money than the remaining 9999/10000 of the country, as shown in the last column above. The share of income taken in by this group each year (3.1%) is well above intra-war levels and close to the 3.6% earned in 1913-1916.
More to the point, it’s a lot closer to Guilded levels than it is to the 0.6% figure earned during the 1953-1983 era.
Of course, what we really need to look at is after-tax income. But that’s grist for another post.
Netting out taxes is tricky, but let’s try anyway.
I will assume that all taxpayers paid equal shares of their income to the Federal Government during the Gilded Age. Future adjustments could take into account the fact that the rich’s tax burden was probably lower than the middle class’s, as a share of their respective incomes. (I understand that excise taxes were the leading form of federal tax collection.)
I will use tax data from 1900 and will (problematically) ignore state and local taxes.
Total Federal budget receipts in 1900 were $567,241,000; nominal GDP was $18.6 billion. So the Feds taxed 3.0% of the economy in 1900.
The top 1% of all tax payers paid 32.7% of their income in Federal taxes in 2001, before the bulk of Bush’s tax cuts were phased in. (In comparison, the median quintile paid 16.7%.) I’ll take the top 1% figure and apply it to the Plutocratic group from above.
Estimated
Top 1/10000 Top 1/10000 after-tax
Income Share (fig4) Income as share of
(The Plutocrats) total after-tax income
($5,350,000+ in 2000)
(Pre-tax)
1913-1916 3.6% "3.6%" (by assuming flat tax structure)
2000 3.1% "2.7%"
The 2.7% figure was calculated by taking the estimated after-tax income of the Plutocrats, 3.1%*(1-.327) and dividing it by the estimated after-tax income in the entire economy (1-.223), applying 2001 data.
I’d say that “2.7%” is much closer to “Gilded Age” (3.6%) than it is to the 1953-1983 period (less than 0.6%, given greater progressivity). Heck, it’s about equal to the shares of 1913 and 1914 (2.8% and 2.7%, respectively).
The 2001 figure is also above the “Teapot dome era” share of the 1920s (2.3%).
Note that the progressivity of the US tax system in 2001, before the bulk of the GWB tax cuts, had only a small (but not trivial) effect on the income share swallowed by the Plutocrats.
Feel free to suggest further refinements. A lot of assumptions went into my calculations and their robustness is open to challenge.
Implicit in comparisons like this is the assumption that any similarity is bad thing, presumably because it means that a bunch of rich fatcats are somehow spoiling it for the rest of us. While I agree that the guilded age’s concentration of power was unhealthy, I don’t see how the existence of a group of really rich people necessarily harms the rest of us. A far better question than “how many people are really rich” is “how many people are really poor”? And unless one subscribes to the old lump-of-labor fallacy that there is a finite amount of work (and by implication, income) to go around, the presence of rich people doesn’t automatically make others poorer.
In fact, even if we accept income as a proxy for quality of life (a poor assumption - anecdotally, rich people don’t seem any happier than the rest of us schlubs), the lowest common denominator is not income per se but purchasing power per time worked. And on that measure all studies agree: we’ve all gotten a whole lot richer, in the sense that it takes us fewer minutes of work to earn things now than it did in 1900.
transient is right–that the issue isnt how many billionaires there are, and how guilded a life they live. The important issue is how many Walmart employees there are, and can they afford to live. In 1910, many people in the poorer class only owned one dress or suit, and one pair of shoes. So we are vastly richer today, if you count how much stuff we own. But that’s not the real question, either. The moral issue is whether the poorer class of today can afford to buy the basics which allow them to live in dignity. And unfortunately, we are reaching a point where having a full-time job no long offers that dignity. Running the checkout at a chain store 40 hours a week is a respectable form of work. But it doesnt pay enough to cover rent, put food on the table and buy school supplies for a family.
I work at a checkout 40 hours a week and have no trouble paying my rent, putting food on the table or buying school supplies for my kids. I admit that I would love a job that made it easier to do but if you budget your money, working for Wal-Mart is a decent way to make a living.
Remember that most of the Federal income before the income tax came from customs duties (which tended to be progressive, as most imports were luxury goods) and excise taxes (somewhat more neutral), most of which have vanished or been considerably reduced since WWII.
Damn, I wish chumpsky was still posting here. His Marxist rhetoric would turn this into a real donnybrook.
Kennedy: “Most imports were luxury goods”.
Cite?*
Assuming that’s not the case, a custom duty would act as a form of consumption tax, which would fall disproportionately on lower incomes.
Still, since the Feds only spent about 3% of National Income before WWI, this probably didn’t matter too much.
*<< In 1900, 38.6% of import duties were on manufactured goods, 18.3% on semi-manufactured goods, and 6.1% were on agricultural products. That totals to 63%. Too bad my source (Hughes & Cain 1994) didn’t tell us about the other 37%.>>
Does anybody out there know who originally observed that, if you ask a question of N economists, you’ll get N+1 different answers?
That also reminds me that there are three kinds of economists: those who can count, and those who can’t.
And if you take all the economists in Washington and lined them up end-to-end, they’d still all point in different directions.
Alternatively, if you took all the economists in Washington and lined them up end-to-end, you still wouldn’t reach a conclusion.
I’m suprised Cecil didn’t use data from this study in his article. 
Well, it was Truman who said he wanted a one-armed economist, so they could never say, “On the other hand…”