economic policy over
the last 35 years has
produced the greatest
economic inequality in
America since the
dawn of the Great
The American Spark
U.S. Income Inequality Worst Since 1920s, Say Economists
By Cliff Montgomery - Jan. 31st, 2011
Conservative economic policy over the last 35 years has produced the greatest economic inequality in
America since the dawn of the Great Depression, according to a study released by top economists.
Economists Thomas Piketty and Emmanuel Saez used detailed micro-files from the Internal Revenue
Service as the basis for their report.
Piketty and Saez's study was released in August 2009. A short, easy-to-understand summary based on their
findings--which The American Spark prints below--was released in Sept. 2009 by the Center on Budget and
Policy Priorities (CBPP), a major policy think-tank.
It hardly needs to be said, but Piketty and Saez's findings are just as valid today.
"Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S.
households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928,
according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.
"During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of
households grew more than ten times faster than the income of the bottom 90 percent of households.
"The last economic expansion began in November 2001 and ended in December 2007, according to the
National Bureau of Economic Research, which means the Piketty-Saez data essentially cover that expansion.
"The last time such a large share of the income gain during an expansion went to the top 1 percent of
households — and such a small share went to the bottom 90 percent of households — was in the 1920s. [A
reminder: the 1920s was the era which brought on the Great Depression.]
"Piketty and Saez’s unique data series on income inequality, based on IRS files, is particularly valuable
because it provides detailed information on income gains at the top of the income scale and extends back to
"The new data show:
- 2007 marked the fifth straight year in which income gains at the top outpaced those among the rest of
the population. From 2002 to 2007, the average inflation-adjusted income of the top 1 percent of
households rose 62 percent, compared to 4 percent for the bottom 90 percent of households.
- The share of the nation’s income flowing to the top 1 percent of households increased sharply, from 16.9
percent in 2002 to 23.5 percent in 2007 — a larger share than at any point since 1928. In 2000, at the
peak of the 1990s boom, the top 1 percent received 21.5 percent of total income.
- Income gains have been even more pronounced among those at the very top of the income scale. The
incomes of the top one-tenth of 1 percent (0.1 percent) of U.S. households have grown more rapidly
than the incomes of the top 1 percent of households as a whole, rising by 94 percent — or $3.5 million
per household — since 2002.
"The share of the nation’s income flowing to the top one-tenth of 1 percent of households increased from 7.3
percent of the total income in the nation in 2002 to 12.3 percent in 2007. This is the highest level in the Piketty-
Saez data going back to 1913, surpassing even the previous peak in 1928.
"The uneven distribution of economic gains in recent years continues a longer-term trend that began in the late
"In the three decades following World War II (1946-1976), robust economic gains were shared widely, with the
incomes of the bottom 90 percent actually increasing more rapidly in percentage terms, on average, than the
incomes of the top 1 percent.
"But in the three decades since 1976, the incomes of the bottom 90 percent of households have risen only
slightly, on average, while the incomes of the top 1 percent have soared.
"With the latest IRS data, we now have a complete picture of income concentration during the recent
economic expansion, which ended in December 2007, although we do not yet have data on the recession’s
effects on income concentration. [...]
"Whether the highest income households will once more capture a highly disproportionate share of income
gains as the economy begins to recover is uncertain, but Saez, along with Harvard economist Lawrence Katz,
points to previous recessions and notes that only major policy shifts like the New Deal have prevented income
concentration from 'bouncing back' after a decline.
"In the absence of significant policy changes, income concentration levels could well return to their previous
highs after the current recession ends and resume their 30-year climb."
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