The scary arithmetic of grand fortune is shrinking our household nest-eggs.
A little background. A while back I wrote about the process by which income in America concentrates at the top in Inequality’s Final Victims: The Affluent 9 Percent. In that post, I described what I called the “proportionate sharing pattern.” Although it’s not a precise formula, the distribution of income in America follows a general pattern where the share of the top 10% in our total income is roughly equal to the share of the top 1% in the income of the top 10%, which in turn is roughly equal to the share of the top .1% in the income of the top 1%, and so on. So, for example, if 50% of our national income is flowing to the top 10%, which happens to be close to today’s reality, then about 50% of that, or about 25%, will be flowing to the top 1%, and 50% of that, or about 12.5%, will be flowing to the top .1%.
As I described in that post, once we reach a 50% sharing pattern, the income share of the bottom 9% of the top 10%, which I referred to as the “affluent 9%”, no longer is increasing, and most of the increase in the income share of the top 1% is flowing to the top .1%.
Okay, that’s the clinical side of it. Here’s the real life side, which is far uglier:
As Thomas Edsall of the New York Times recently noted, household income for the bottom 20% of American households decreased in real dollars between 2000 and 2013 from $13,787 to $11,651. That’s about a 20% decrease in income for the poorest Americans.
That lost income translated into immeasurable misery for those unfortunate enough to be in that bottom 20%.
Did the lost income disappear entirely? No way. America’s national income actually increased during the 2000 to 2013 timeframe. So, rather than vanishing, the income moved from that bottom 20% to higher income Americans.
But which higher income Americans?
Not the rest of the bottom 90%. Their share of the pie has been decreasing. Not the next 9%. Their share of the pie is holding steady, but not increasing.
All that income that the bottom 20% relinquished moved to the top 1%, and at least half of it went to the top .1%.
Let’s round the numbers for sake of simplicity and say that $1,000 of the $2,000 in lost income of the households in the bottom 20% moved to the top .1%.
There are approximately 200 households in the bottom 20% for every one household in the top .1%. That means the income gain in the top .1% at the expense of the bottom 20% was about $200,000 per household.
And remember, even before the gain, the poorest households in that top .1% were enjoying seven-figure incomes.
Essentially, between 2000 and 2013, the top .1% ate the incomes of the bottom 20%. All that increased misery at the bottom was translated into increased opulence at the tippy top.
As far as that bottom 20% goes, there’s not much left to eat.
But the top .1% still is hungry.
So they’ve moved on to those perched just above that bottom 20%, otherwise known as the middle class.
Bob Lord, an Institute for Policy Studies associate fellow, practices law in Phoenix.