After some discussion in the comments on Part 2 of what has turned into a brief series, I thought it would be a good idea to post the concluding paragraphs of the underlying paper by Emmanuel Saez (winner of the John Bates Clark Medal, periodically awarded to an outstanding young economist).
Here are his conclusions (my emphasis added):
“Interestingly, the income composition pattern at the very top has
changed considerably over the century. The share of wage and salary income
has increased sharply from the 1920s to the present, and especially since the
1970s. Therefore, a significant fraction of the surge in top incomes since 1970
is due to an explosion of top wages and salaries. Indeed, estimates based
purely on wages and salaries show that the share of total wages and salaries
earned by the top 1 percent wage income earners has jumped from 5.1
percent in 1970 to 12.4 percent in 2007.
(Footnote: this dramatic increase in top wage incomes has not been mitigated by an increase in mobility at the top of the wage distribution.As Wojciech Kopczuk, myself, and JaeSong have shown in a separate paper,the probability of staying in the top 1 percent wage income group from one year to the next has remained remarkably stable since the 1970s.)
Evidence based on the wealth distribution is consistent with those
facts. Estimates of wealth concentration, measured by the share of total
wealth accruing to top 1 percent wealth holders, constructed by Wojciech
Kopczuk and myself from estate tax returns for the 1916-2000 period in the
United States show a precipitous decline in the first part of the century with
only fairly modest increases in recent decades. The evidence suggests that
top incomes earners today are not “rentiers” deriving their incomes from past
wealth but rather are “working rich,” highly paid employees or new
entrepreneurs who have not yet accumulated fortunes comparable to those
accumulated during the Gilded Age. Such a pattern might not last for very
long. The drastic cuts of the federal tax on large estates could certainly
accelerate the path toward the reconstitution of the great wealth concentration
that existed in the U.S. economy before the Great Depression.
The labor market has been creating much more inequality over the
last thirty years, with the very top earners capturing a large fraction of
macroeconomic productivity gains.
A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II – such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality. We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.“
By the way, the latest column by Paul Krugman (winner of the Nobel Prize in economics and one of the most astute op-ed columnists writing today) is called “Rich Man’s Recovery”:
“Whatever is causing the growing concentration of income at the top, the effect of that concentration is to undermine all the values that define America. Year by year, we’re diverging from our ideals. Inherited privilege is crowding out equality of opportunity; the power of money is crowding out effective democracy.
So what can be done? For the moment, the kind of transformation that took place under the New Deal — a transformation that created a middle-class society, not just through government programs, but by greatly increasing workers’ bargaining power — seems politically out of reach. But that doesn’t mean we should give up on smaller steps, initiatives that do at least a bit to level the playing field.”
This isn’t a war in the usual sense, but the fact remains that the people in this country who have the most money are using their high incomes and wealth to manipulate the political system and other levers of power in order to increase their advantages still more. It’s not a shooting war, but it’s an assault on America as a prosperous and democratic nation.
Professor Saez’s relatively short paper:
Professor Krugman’s most recent column: