Inequality and the Rich

Since 1970 income inequality has been rising across the developed countries of the world. In the United States, income inequality declined for a century until 1970.  Since roughly 1968-1973 inequality in the United States has risen dramatically. The rise has been so enormous that everyone is now aware of it — not that anyone is doing anything about it.

The first countries outside the United States to experience rising inequality were those with the closest cultural ties to the US: first Canada and the UK (1970s), then Australia, Ireland, and New Zealand (1980s).  Rising inequality did not become a major social policy issue in the non-English-speaking rich countries of the world until the late 1990s and early 2000s.

The World Top Incomes Database contains annual observations of income inequality for most developed countries based on tax returns data. The United States is include in this database.

According to data from the World Top Incomes Database, the proportion of all personal income going to the top 0.5% of tax households reached its historical minimum of 5.07% in the United States in 1973, down from more than 8% in the 1940s.  After 1973 the proportion rose dramatically.  It reached a peak of 14.32% in 2007 and is still hovering over 13%.

The 0.5% top income share followed a similar trajectory in the United Kingdom, falling from 9%-10% in the 1940s to a low of 3.6% in 1978.  Since then it has risen in tandem with the US rate, lagging about 5-10 years behind the US curve.  Today the 0.5% share in the United Kingdom is between 10% and 12%, not as high as in the United States but roughly equal to the US share in the early 2000s.

The top 0.5% income share started rising in other English-speaking countries according to their cultural closeness to the United States: after 1971 in the US, after 1978 in Canada and the UK, after 1981 in Australia, after 1986 in New Zealand, and after 1987 in Ireland

Inequality didn’t start rising in Japan until after 1996, while in northern and western European countries inequality didn’t hit until the the 2000s.

[pullquote]Obviously, rich and powerful people in every country have enormous incentives to promote policies that result in rising inequality.[/pullquote]

By definition, rising inequality is a shift in economic rewards from poor to rich, and almost by definition it represents a shift in economic power from poor to rich.  Obviously, rich and powerful people in every country have enormous incentives to promote policies that result in rising inequality.

It is not credible to suggest (as most economists do) that rising inequality is entirely due to larger economic forces without so much as a hand in the right direction from those who stand to benefit most from the trend.  Rich and powerful people would be extraordinarily irrational indeed if they did not promote rising inequality.

We can’t begin to address — and reverse — the problem of rising inequality until we face up to the fact that many people actually like inequality.  The top 0.5% of Americans are about 1.5 million people.  And by definition they’re the 1.5 million richest and most powerful people in the country.

Rich and powerful people in other countries want to see ever greater inequality too.  Who can blame them?  We can only blame ourselves for letting them have it.  In a democracy, economic policy should be made by the people, for the people.  When we learn that lesson, we’ll finally be able to work toward a more equal society.