Income Inequality and the Death of Trickledown

On September 12, 2012, the Census issued its report on Income, Poverty, and Healthcare Coverage in the United States: 2011. While the full report has some nice charts, one that was conspicuously missing was on income inequality. The data for such a chart was in the tables, and so I was able to construct the chart above from them. Mean household (not individual) income for each quintile (20%) is expressed in real (inflation-adjusted) dollars.

One feature that jumps out at you are how relatively flat mean income has been for the bottom 80% over the last 45 years and how much it has grown for the top 20%, from an already high baseline. I thought this merited some further investigation.

If you look at the far left, in 1967, the income difference between the quintiles of the bottom 80% was remarkably similar, less than $17,000 between each group ($16,679 between the 1st (lowest quintile) and 2nd; $15,572 between the 2nd and 3rd; and $16,631 between the 3rd and 4th). But even in 1967, we see significant income disparity ($46,619) between the 4th and 5th (top) quintile. The top 20% have an income difference nearly 3 times as great as the other quintiles.

In the succeeding decades, difference between the 4 lower quintiles showed some moderate spreading. For 2011, they are $17,965 from 1st to 2nd; $20,638 from 2nd to 3rd; $30,238 from 3rd to 4th; and $97,940 from 4th to highest 5th). What we see in this is a movement of the top 20% from around 3 times the initial 1967 spreads between quintiles (~$17,000) to something over 5 times them ($97,940).

What is interesting is that the mean income of the top 20% increased $73,100 from 1967 to 2011. About $20,000 of this increase occurred during the Reagan years, but what often gets overlooked is that about $43,000 of it happened during the Clinton years….

The lowest 40% are essentially unchanged, actually slightly worse, than their 45 year average. The middle 20% is also not much changed, but slightly better than its average.

The fourth quintile is doing modestly better, about a $6,000 increase.
The highest 20% is doing about $31,000 better than its average.

You can see this effect in the chart where dramatic rises in the income of the top 20% are reflected in smaller and smaller rises as we go down from one quintile to the next until we arrive at the bottom 20% where there is almost no change at all.

If you think about it, this chart completely refutes trickledown economics….

Source: Income Inequality and the Death of Trickledown @ http://www.nakedcapitalism.com/2012/09/income-inequality-and-the-death-of-trickledown.html