The richest Americans' share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, and underlining the divergence of economic fortunes blamed for fueling anxiety among American workers.
The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service. That is up sharply from 19% in 2004, and surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks.
• Widening Gap: The wealthiest Americans' share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, and highlighting the divergence of economic fortunes blamed for fueling anxiety among American workers.
• Behind the Numbers: Scholars attribute rising inequality to several factors, including technological change that favors those with more skills, and globalization and advances in communications that enlarge the rewards available to "superstar" performers whether in business, sports or entertainment.
• Political Fallout: The data pose a potential challenge for President Bush and the Republican presidential field. They have sought to play up the strength of the economy and low unemployment, and the role of Mr. Bush's tax cuts in both. Democrats may use the data to exploit middle-class angst about stagnant wages.
The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000.
So -- why is this information important? Why in the world should we even care about this information?
Ask Marie Antoinette. I seem to recall her losing her head over economic issues. (But, she did make a great dessert, didn't she)
Seriously, here's a simple economic fact: the wider the prosperity the better the economy is. Think about this intuitively. Suppose you're in an economy with 100 people. 5 people are dong well and the other 95 people are doing fair or poorly. What are the chances of an economic expansion lasting for any period of time?
Now, let's increase the size of the prosperity. Suppose 50-60 people are doing well. The chances of that economy expanding are much better because there are more people who can buy and sell stuff. In other words -- this really isn't rocket science.
There is also the issue of political stability. Ever wonder how someone like Castro or Chavez could come into power? I was watching Fox news sometime over the last 6 months and the round table was discussing Latin Americas turn to the left politically. The commentators all had the basic opinion that Latin America had tried this before and it didn't work. If they wanted to try it again, so be it. But absent from the discussion was a question of why it had happened. No one addresses the fact that Latin America had high amounts of income inequality and that might have something to do with the rise of socialistic/communistic politics.
One of the ways to measure income inequality is the Gini Index. From Wikipedia:
The Gini coefficient is a measure of statistical dispersion most prominently used as a measure of inequality of income distribution or inequality of wealth distribution. It is defined as a ratio with values between 0 and 1: the numerator is the area between the Lorenz curve of the distribution and the uniform distribution line; the denominator is the area under the uniform distribution line. Thus, a low Gini coefficient indicates more equal income or wealth distribution, while a high Gini coefficient indicates more unequal distribution. 0 corresponds to perfect equality (e.g. everyone has the same income) and 1 corresponds to perfect inequality (e.g. one person has all the income, while everyone else has zero income). The Gini coefficient requires that no one have a negative net income or wealth.
According to the CIA's World Fact Book, the US hada GINI index of 45 in 2004. When you look at this chart from the CIA's World Fact Book you'll notice that most European countries have a lower GINI index.
In addition, other problems emerge from income inequality.
New Census data show that in 2006, both the number and the percentage of Americans who are uninsured hit their highest levels since 1999, the first year for which comparable data are available, with 2.2 million more Americans — and 600,000 more children — joining the ranks of the uninsured in 2006.
The new Census figures also show that while the overall poverty rate declined slightly (from 12.6 percent to 12.3 percent) between 2005 and 2006, the decline was largely concentrated among the elderly. The poverty rates for children and for working age adults remained statistically unchanged as compared to 2005, and well above their levels in 2001, when the last recession hit bottom
Similarly, while median income rose modestly (by 0.7 percent, or $356) for households in general, this merely brought median income back to where it stood in the 2001 recession year. In addition, median income for working-age households — those headed by someone under 65 — remained more than $1,300 below where it stood when the recession hit bottom.
Center executive director Robert Greenstein noted that, "Five years into an economic recovery, the country has yet to make progress in reducing poverty, raising the typical working-age family’s income, or stemming the rise in the ranks of the uninsured, compared even to where we were in the last recession. The new figures on median income and poverty are the latest evidence that the economic growth of the past few years has been very uneven, with the gains being concentrated among those who already are the most well off. Too many middle- and low-income families are not sharing in the gains."
The bottom line is pretty straightforward. The rich ARE getting richer.