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Middle Class Squeeze

Gobble Up Poor, Feast on Middle Class

Blogging Our Great Divide
July 09, 2015

by Bob Lord

 

What do wealthy Americans do after they’ve finished eating the poor? They start on the middle class, of course. So goes the ugly process of wealth and income redistribution in America.

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.

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