We Are The 98%

Source: Decline of the Empire

I have little more than contempt for those who have ridiculed the “we are the 99%” slogan of the occupy protesters. Some of these apologists for the status quo are more despicable than others. Those who have a reservation in Dante’s inner circles of Hell tell us that only 13% of the 1% work on Wall Street (in finance). They thus feel entitled to conclude that the protests are misplaced and misinformed.

Others who may live out eternity in Dante’s upper circles say that the wealthiest Americans lost a lot of income after the meltdown, so the income equality “problem” is not as bad it was in 2007. Megan McArdle, whose blog Assymetrical Information is hosted on The Atlantic’s website, is one of those.

I’ll quote from Ms. McArdle’s The 1% Ain’t What It Used To Be.

Unsurprisingly, Occupy Wall Street have pushed income inequality to the center of the national conversation.  Also unsurprising, I think, is the unspoken assumption that income inequality has continued to get worse since the crisis.  After all, where are the bankers panhandling for change or standing in line at the food pantry?

But it would actually be quite surprising, if true.  The massive, decades-long data set assembled  by Piketty and Saez seems to show that income inequality falls during recessions, and particularly during prolonged crises. Crises destroy capital, and top incomes tend to be more tightly linked to capital than those of average workers.  If you work for a wire factory that goes bankrupt, you may well have a rough year or two before you find another job, and your income may never fully recover. But if you own that factory, it will be years before you have an income even close to what you enjoyed before–and it’s very possible that you’ll never get there at all.

Note that this is not an argument about who suffers more during a recession; it is self-evident that a worker who loses a third of their $20,000 annual paycheck is much worse off than an owner who loses two thirds of their $500,000 annual draw. But the measured gap between their incomes will still shrink dramatically.

I have no argument with any of this. It’s true that the income of the wealthiest falls during recessions and prolonged financial crises, and this last one was no exception. Ms McArdle has a data set which bears out that observation.

But as it happens, I was back at the University of Chicago this weekend for my tenth business school reunion. And while I was there, I ran into Professor Steven Kaplan, who has done a bit of research into what sorts of occupations contributed to rising income inequality. (Shockingly, finance played a large role.)  And he told me that my initial assumption seems to be correct: the incomes at the very top started falling in 2008.  The Piketty-Saez data, which currently run to 2008, show a little bit of it.  But Kaplan has calculated the incomes of the top 1% and the top 0.1% for 2009, and his results show that they continued to fall pretty steeply. (There’s nothing more recent than that because tax data take a while to be finalized).

Here’s the chart he sent me:

You can see that income inequality rose from 1981 to 2007, interrupted briefly by the crash of the stock market after the Tech Bubble deflated. You can also see that the latest crash has had a similar effect. Not since 1913, the first data point above and the year the Federal Reserve was born, has there been anything like the decades long trend we’ve experienced over the last 30 years.

And here is where Ms. McArdle goes completely off the rails.

There’s an obvious caveat: 2009 was a very bad year for finance, corporations, and lawyers, who drive a lot of the top income.  Probably 2010 and 2011 weren’t so bad, so these results may well rebound considerably when the data are in.  (They also may not; I just don’t know.)

On the very day Ms. McArdle—may I call you Megan?—wrote her post, David Cay Johnston reported in Reuters on the 2010 income data. Unsurprisingly, income inequality is rising again, just like it did a few years after the last bubble burst in early 2000. You didn’t have to be a rocket scientist to expect this outcome because nothing has changed in America. If you want the lurid details, see my post Working Americans Are Still Taking It Up The Wazoo. But Megan struggles on.

The larger question is “how much does it matter”? I doubt Occupy Wall Street will be assuaged by learning that the top 0.1% now only receive 8% of the income earned in the US, even if that number is the lowest it’s been since 2003.

But I think it does matter. If we think there’s a real problem, we need the best possible data so that we can understand its contours. Income inequality has been rising for so long that people have started to assume that it has just kept rising, even when the data show otherwise. We don’t to spend years focused on income inequality, only to learn that the financial crisis fixed it for us.

If we think there’s a real problem? Only to learn the financial crisis fixed it for us? In one clueless paragraph, Megan has managed to ignore several 30-year trends, including—

• the income (and wealth) inequality itself, which is tied to the continuing financialization of American society. Also see my recent post Trends In The Distribution of Income.
• the loss of good paying manufacturing jobs, the continuing offshoring of those jobs
• the downward pressure on American wages resulting from the global labor supply glut caused by various globalization policies

And so on. And then there is this, from the Daily Ticker’s story Believe It or Not Wall Street Doesn’t Dominate the Top 1%.

Meanwhile, no one is immune to the weak economy. The threshold to make it into the 1% club was over $424,00 in 2007. Today, it’s $343,927. That’s in large part due to the stock market crash. The number of bankers in the elite echelon might also shrink thanks to lousy earnings on Wall Street this year. Lots of bankers, traders and hedge fund managers will still take home big six figure paychecks, but for many it will likely be less than they earned the prior year. Bonuses on Wall Street may fall as much as 40% from a year ago, reports the Wall Street Journal.

Don’t expect any tears to be shed on their behalf. “Everyone is above average,” Michelle Leader of footnoted.com tells Daniel Gross in the accompanying interview, referring to the huge sums of money still made on Wall Street. The average salary financial services employee in 2009 was $311,000, according to New York’s Comptroller’s office. Meanwhile, Leder says, even if the rank and file may earn less this year she’s not expecting the top earners of CEO’s of the major banks to take a big hit.

Maybe the occupy protesters should change their slogan to “We Are The 98%” or perhaps “We Are The 97%” to satisfy people like Megan. Only an idiot extremely unintelligent member of our species would take a political slogan literally, unless of course they have another agenda altogether. Megan’s thinly veiled agenda is to defend the status quo.

She “accomplishes” her goal by suggesting that the financial crisis of 2008 might have “fixed” the income inequality problem, so we’ll just have to wait and see what happens, meaning Do Nothing. After all, we wouldn’t want to waste our time on the income inequality problem—if it is indeed a problem—only to find out it has gone away on its own.

Sometimes I wish there were a Heaven and a Hell. And although I would no doubt spend eternity feeling the fire, I would have plenty of company. Maybe even a seat right next to Megan!

Read more at Decline of the Empire