Income Inequality Worsened with the Recession

Although measuring income inequality is less precise than many economists would like, certain conclusions stand out:

1. The 2008 recession worsened U.S. income inequality. Today, the Census Bureau released 2008 household income data showing a decline in all income quintiles, but less of a decline the higher the income. This Associated Press article describes what the data show.

2. Boom times in the U.S. since 1980 worsened the income inequality. Burgeoning capital income and bonuses for top executives outpaced meager wage gains. As Heritage Foundation economists Ralph Rector and Rea Hederman noted in 2004, the Census household income measure does not include certain non-cash government transfer payments or reflect progressive income taxation or take work effort into account. Education is a big factor too. These are all good points, but they don’t make a large enough difference to alter this conclusion. The debate over income inequality took a harsher turn in this Cato Institute paper by Alan Reynolds. Gary Burtless of the Brookings Institution took Reynolds on in this paper. This Brookings Institution conference last summer delved further into the causes of increasing income inequality.

3. Although international comparisons are rougher still, we have reached about the same income inequality as Russia according to this Wikipeidia article. I would take these estimates as only broad indications, but it is interesting to consider that the lowest income inequality exists in Canada, Europe, Scandinavia, Japan, and Australia and that the worst exists in South America and parts of Africa.

About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

1 Comment on Income Inequality Worsened with the Recession

  1. While income for women has never quite caught up of that of men,it seems that older women are being hammered by this Recession that never seems to end.

    I admit what I may have actually seen here and experienced may have been biased from my perspective as an older woman & marginal member of the much-maligned Baby Boomers,a demographic nightmare hell on earth for workers when labor was overabundant & cheap. And changing technology constantly raised the bar with breakneck speed as I managed to keep up but never got the elusive steady job with the perks,benis and so forth.

    I have been going to the worksource center here in Austin,TX since 2000 when the first dot com bubble burst and have yet to regain my economic equilibrium. That’s nearly nine years without permanent job,film extra work here and a federal grant job there.

    Network, they say. It’s who you know, they say. But what if your friends, co-workers are mostly dead & gone and these days it is “everyone for themselves, devil take the hindmost?”

    I was trained at taxpayer expense to learn a trade which I may never get to use.I have cutting edge tech skills but with no place to use it…

    Austin,TX is home of a mega-university –at least three of them– plus the one in nearby San Marcos & a junior college with a famous,world class “nurse factory.”

    We have more young people also competing for jobs here.The ones I was in class with were rather despondent to find there is a life after graduation & all the propaganda about the values of this “education for its own sake” profits only the schools. It was hard to maintain a facade of encouragement since education had failed for me the first time to get those golden educational credentials that would open doors of opportunity.

    You don’t see many people my age on the streets around here.And if you do,they tend to be homeless hippie bums time forgot, frat boy alcoholics who morphed into the “wino” guys under the bridges where the party never ends.”No country for old men” indeed and no place at all for “old women.”

    I almost was rooked in by a for-profit,private school at about $70,000 in loans & grants owed.Thankfully, I was not fooled.

    Now as I sit IN A STATE OF ENFORCED JUNKED,UNWANTED STATUS here on SSI (ON MONEY THAT I EARNED,BTW!) & $58/mo in food stamps,any increase in mandatory auto insurance or rent(I do NOT get housing assistance) could put me out there with the hardcore homeless,I feel like I was smashed by thee Baby Boomer demographic bus. There just wasn’t room on the bus for everyone –no matter how gifted,talented,intelligent,hard-working you were.There was always someone better-connected,more intelligent,more beautiful…I had to fight like hell to get and keep any sort of job and yes, I had the “right” educational credentials…

    I have Medicaid (which ought to be kept and Medicare abolished.)

    I am too afraid to use this Medicaid as I do not want to become eligible for a death panel in which I lose my SSI, food stamps,etc. and be euthanized by the government.

    I saw my father lose three fortunes due to various market cycles and avoid the Market like the plague which is just as well as I never made enough disposable income too invest anyway. Difficult for financial sector types to believe or even begin to comprehend, but true, nonetheless. Forget pensions,health insurance, etc. we just didn’t have those here in the South.I was able to eke out a living & PAY INTO SOCIAL SECURITY! Which was a miracle in itself –so much physical labor, overtime,holidays,12 & 16 hr. days,I am rather tired by now.

    The economic gamesmanship, blood sport and speculation does have very real,human causalities and dire consequences.

    Now I see these bloated plutocrats most of whom have no real world job experience talking about confiscating & cutting Social Security and I think about all the people like me who are forced to depend on it for subsistence,I EARNED THIS MONEY.IT IS NOT WELFARE.I PAID IN UNDER MY OWN NAME!

    Why has it never occurred to anyone to stop the INSANE,WASTEFUL age/gender discrimination in hiring that is so prevalent and put us back to work? Not all of us are frail,sick,intellectually incapable. I would love to have the opportunity to use this excellent education taxpayers staked me for –plus, with my extensive life experience,versatility is a given,plus tact,solid work ethic and the thrill of the challenge of another day of making money for the company I work for!

    But I sit here. Never taken sick leave a day in my life. Continuing to submit resume after resume in the unfathomable black hole of e-mail and hearing dire tales of tent cities & cops slicing them up with their pocket knives making the poor people “move on.” Indeed, move on to where? And how difficult it will be to license my 20-year old car to no address if my rent is raised.

    How’s that hope & change working out for you?

    I want to hear how other people like me have coped with experiences like mine and were able to raise themselves from the ashes, the scrap heap!

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