Chapter 33 Distributing Income

I. Median Income Stagnation

II. What Happened?

III. Analyzing the Distribution of Income

IV. Causes of Income Inequality

V. Poverty Defined, Creating a Safety Net

VI. Bush 2 Tried To Help

VII. Politics of Poverty Programs

VIII. Market Income Poor Measure of Well-being.

IX. How Income Inequality Affects Growth

X. Are Americans Better Off than 2 Decade Ago

XI. Additional Information

1-Page Quick Review-Chapter 33

Return to Quick Economics Notes   1/20/24

Which do You Believe?
Please Use to Educate and Share 1/17/24

Lecture Notes

I. Median Income Stagnation
      A. Defining Classes
      B. Analysis
      C. Why Top Has More Wealth
      D. Determinates of Human Wellbeing Since WW2
      E. Top Getting too much?
See Career Handbook
Wage Stagnation


 The Numbers

1. Defining Middle Class Income

2. Defining Class Range Median

3. More Earned Higher Incomes,
Fewer Earned Lower Incomes

Political Economy


5 Myths About Inequality
 18 min video

What you should know about Poverty and Socialism

Fake News Warning 7 Reveals a More Serious Real Problem

See Why Poverty is Controversial

In the US, Everyone Gets More
In the World, Everyone Wants More



See Direct Education toward a student's Special Intelligence


Analysis: Income Inequality is exaggerated by Media and Politicians.
 It is based on Market Income which is Not the Most Appropriate Measure.
Important stuff includes:
1) Wellbeing must replace market income as the success measure.
2) Actions of the very wealthy should be analyzed.
3) Affect of large groups working in concert affect tax code reconsidered.
4) Size and redundancy of our Safety Net should be made more efficient.
5) Our Democratic Federalist Capitalistic Republic is in charge.

1) Well-Being is Most Important
A) Political Stability has allowed productivity to increase which is a key to increased
individual wellbeing especially child and young people.
Think how the public safety net has increased since the 1930's.
 Who wants to give up SS and Medicare?
Why do some always want to cut the other guys government benefits.
economic distress in Russia, Europe, and even Japan and Germany.

B) Scientific achievements have continuously added to citizen well-being.
Think public health, smart phones, streaming audio-video
, Gillette Stadium ... See Health Problems Solved

C) Personal compensation which includes market income, fringe benefits and
government transfers have increased though not so much lately.
Russia, China, and Europe's really slow recovery from the Great secession. 

D) Nurture thorough better parenting has increased continuously,
if not always rapidly and with genetics Nature is next.

Do We Need to Know For All Income Classes
Who Gets What from Our Safety Net?  Source

From Upper Middle Class Growing 6/16  
 See  Why is Poverty So Controversial?

Editor's Note:
Data Collection Method is important.  
See Are Wage Stagnate

   4. Everyone is moving up

  5. Elderly Do Better

6. Poor Live Better Since 1989

Federal Government Helps Much


US Spends Lots

But, Middle Feels Left Out



II. What Happened?

Income Stagnation After Oil Embargo  

Before Stagnation: New Normal #1 Rising Income
WW 2 generated savings, pent-up demand and few
foreign competitors generated 25 years of high profits
higher wages and cooperative unions.




Oil Embargos and Competition Began early 1970's Wage Stagnation Japan's competitive manufacturing sector increased competition which caused stagnate Rust Belt wages and employment plus it put pressure on profit. Japan manufacturers got lucky when gas efficient small green cars required a change in the U.S. manufacturing process. Detroit  responded by protecting profits with less product quality improving capital investment. Unions leaders protect their positions and current worker wages by accepting a two-tier wage system.

It minimized new worker wages. 
Feeling political pressure Japan
built many modern U.S. plants.

 US Economic Normality 1945-2015
American Income Inequality Perfectly Explained (Mark Blyth Interview)
American Capitalism after the Volcker Shock


US Country Wealth Distribution Similar
Though SS is Excluded

US Income Inequality is Getting Larger

But US Median Income High



III. Analyzing the Distribution of Income with Lorenz Curves and Gini Index


But Everyone is getting more!
But some are getting more than others
and the perception is that
those at the bottom are getting too little.
We need a national investigation
to see exactly how the poor live and why.

1.  CIA World Facebook Gini rank order
            2. Gini in a Bottle: Facts on Income Inequality
            3. Transfers and Taxes Decreases Inequality
            4. U.S, Really Fail three GINI Test
            5. Aging and Wealth Inequality in a neoclassical growth model
                is a mathematical look by the FED.
  economics, health scienceecology,  chemistry and engineering.from Gini coefficient of Wikipedia
          1.  CIA World Facebook Gini rank order
          2. Gini in a Bottle: Facts on Income Inequality
          3. Transfers Payments and Taxes Decreases Inequality 
          4. U.S, Really Fail three GINI Test
          5. Aging and Wealth Inequality in a neoclassical
               growth model is a mathematics look by the FED.   

C. American thoughts on Income Inequality from Wall Street Journal's  Real Time Economics Blog

Timothy Noah points to a study that shows Americans underestimate income inequality. “The richest 1 percent account for 35 percent of the nation’s net worth; subtract housing, and their share rises to 43 percent. The richest 20 percent (or “top quintile”) account for 85 percent; subtract housing and their share rises to 93 percent. But when Norton and Ariely surveyed a group whose incomes, voting patterns, and geographic distribution approximated that of U.S. population, the respondents guessed that the top quintile accounted for only 59 percent of the nation’s wealth… Norton and Ariely also asked respondents what they thought the ideal distribution of wealth should be, and found, again, little difference among income groups, or between Bush voters and Kerry voters. Most favored a wealth distribution resembling that in … Sweden! But when you examine Norton and Ariely’s method, that particular finding gets a little shaky. They showed respondents three unlabeled pie charts. One depicted utopian equality, with wealth distributed equally among five groups.




IV. Causes of Income Inequality
      A. Personal endowments differ (mental, physical, personal abilities)
      B. Human capital investments differ (education and training)
      C. Job characteristics cause people to accept differing amounts of
           compensation (white vs. blue collar, job prestige, job risk)
      D. Wealth generates income
      E. Market power (unions, associations such as AMA, ABA, and AARP)
      F. Discrimination
      G. Willingness to assume risk
      H. Recently, 2001-2202, (like 1991, and 1980) was not a great time
           to be graduating from college and seeking a job. A worse time
           was 1929 -1938. My dad graduated from Tufts College in 1933.
           He got his first real job in 1937 and because of WWII, he didn't
           get his first new car until 1947
       I. Power CEOs have the power and no one can stop them.

Left axis is link between fathers' and sons' earnings.
Bottom axis is Income inequality (Gini Coefficient).
Gini coefficient - Wikipedia


Income Inequality and It's Costs and Taxing The Top 1Percent
Income Inequality Analysis and Cures
Public Policy Affects Income Inequality
Income Inequality Exposed


Political Economy

Solving the Problem

Prelude: Huston we have a problem
Economic Growth is in a new slower stage and adjustments will be needed. Larry Summers on growth. "The way they compute the consumer price indices all prices were set to be an index of 100 in 1983. Consider two goods today: a television set, and a year at a University or I could use a day in a hospital. The consumer price index for the latter two categories is in the neighborhood of 600. The consumer price index for the former category is 6. There has been a 100-fold change in the relative price of TV sets and the provision of basic education and health care services. - See more at: larry "...the idea that you can just have better training and then there are all these jobs, all these places where there are shortages and we just need the trained people is fundamentally an evasion." "The core problem is that there aren't enough jobs. If you help some people, you could help them get the jobs, but then someone else won't get the jobs.
Lawrence Summers

Editor's Note: Income inequality results when there is a surplus, more than needed to sustain life. People compete for this surplus. The more the surplus the bigger the fight. Some get much more than others. Sometimes talent and effort win, sometime power wins. The fighting began with the first surplus. I think it was an extra apple. The real question is not who gets the one surplus apple. It is how many apples do we have, does that number increase over time. how do we maximize the increase in apples, and do those losing the battle get more and more apples. Apples going to the top few is not that important.   


Lecture Notes



See data source
Evaluating President Johnson’s War on Poverty
 A Conservative View

Should You Believe This Chart Or

46.2 Million People in Poverty for 2010  Robert Oak on Tue, 09/13/2011 - 14:13
" The Census released a comprehensive report on poverty, income and health insurance coverage in the United States for 2010. There were 46.18 million people living in poverty, in the United States. The Census population for 2010 was 305,688,000. This means that 15.1% of people in the United States are below the poverty thresholds, or one in 6.6 people.

Or This Chart

This chart "...provides a first approximation of how correcting the 2013 poverty rate for noncash food and housing benefits, refundable tax credits, and upward bias in the CPI-U would change the 2013 poverty rate. With these corrections the official poverty rate falls from 14.5 to 4.8 percent, making the 2013 rate roughly a quarter of the 1964 rate (19.0 percent). If we were to lower the poverty threshold for cohabiting couples to match that for married couples the 2013 poverty rate would have fallen even more."


Child Income Tax Credit is one of many tools to help children


Basic Poverty Data

Millions of Poor People Percent White Black Hispanic Family of Four Poverty Income Median Couples 
Family Income
Wife Not in the Labor Force, Current Dollars
% increase Wife In 

% increase

1959 39.5 22.4% 18.1% 55.1% NA $2,973      
1970 25.4 12.6 9.9 33.5 NA $3,968 $9,304      
1980 29.3 13.0 10.2 32.5 25.7 $8,414 $18,972 100%    
1990 33.6 13.5 10.7 31.9 28. $13,359 $30,265 60% $46,777  



     11.3 9.4 22.1 21.2












Note: The ratio of nonwhite to white median family income while improving some in the 1960's,  is back to approximately the .55 level it was in the early 1950's. 1992 and 2003 Statistical Abstract of the United States and 2001 Census Bureau Data Update from Institute for Research on Poverty: "In 2001 the number of poor and the poverty rate both rose as economic difficulties moved into recession, and the rate has continued to rise; in 2003, 35.8 million people were poor by the official measure of poverty. In 2004, the number rose to 37 million people (12.7 percent of the population)."

Table 699 of the 
2011 Statistical Abstract of the United States




Source has more information

What You Should Know About Poverty     Cost Effective Poverty Investing


      Poverty Editorials
      1. Means Tested Welfare Programs
      2. Helping the Working Poor, EPI
      3. Presidential Issue Poverty
      4. Why is Poverty Controversial?

5. Everyone is on Welfare
6. Resurgence Of Universal Basic Income


    Basic Minimum Income
      1. Why Not a Negative Income Tax
      2. Against-negative- income-tax
      3. Social Mobility is Low Everywhere  

Because households can be one person and families can have two workers,
this households declined much more than the family stagnation.

From America’s Discouraging Income Story 




Editor's Note:

Because the US median income so high and because the official poverty rate in the U.S. excludes non-cash transfers like Food Stamps and School Lunch Help I'm not to sure this is a good analysis. The Real Problem is there are few good jobs and education won't help.
Solving the Lack of Good Jobs  

World Changed and Good Jobs Disappeared

Why is Poverty Controversial?

Basic Minimum Income

Why Not a Negative Income Tax

Against-negative- income-tax-jim-manz

Social Mobility is Low Everywhere and Always will be 2/14  

Because households can be one person and families can have two workers,  this households declined much more than the family stagnation.

From America’s Discouraging Income Story



Well-being and the Welfare State

Here is a discussion of "wellbeing" and the "welfare state".   Source

The phrase ‘welfare state’ is pejorative to many Americans, but it would be less so if they had a better understanding of what it implies to the rest of the world. In the abstract, a welfare state means a society that has created a system of protecting people against the insecurities of everyday life by socializing risk and reward. This implies not only the staples of social protection – guaranteed access to healthcare, unemployment insurance, and pensions – but benefits unknown in the United States, such as state-mandated sick days (in Germany, six weeks at full pay, and then up to 78 weeks at 70 per cent) and guaranteed vacation days (four weeks at full pay in Germany). More surprising perhaps are ‘family allowances’, or grants paid to all families with children, regardless of income – every German family receives 184 Euros (or around $205) per month, per child. Minimum guaranteed earnings are also much higher in countries approaching the welfare state ideal – Denmark’s effective minimum wage is about $20 per hour. It is this sense of shared risk and shared prosperity that prompted the late Swedish Prime Minister Olof Palme to observe that: ‘With all its faults, the welfare state remains the most humane and civilized system ever created.’

VI. Bush 2 
Tried To Help

Economist Magazine, April 4, 2009 page 11

The recovery of the stock market after 9/11 and the most recent housing boom has household wealth up 40%.


The Decade Ended Poorly

The Poor Were Left Out

figure 1-6


Wealthy Were Not

VII. Politics of Poverty Programs

Data Collected Over Recent Years



Poor Live Longer but Not as long as wealthy

Social Security and Medicare Helped Elderly
Who Have Constantly Improved


In Times of Trouble Our Mixed Economy Works
But the politics is never easy.
Would Another Stimulus Package Help?
New Stimulus passed 12/20.



 A Big Problem-Middle Age Workers Pay


Food Stamps and Incentives to Work

Georgia Number of People Enrolled in SNAP Benefits (Food Stamps), January 1981 through March 2017

See Georgia's Huge Food Stamps Drop




In Great Britain, Attitudes toward welfare vary by generation. 6/1/13

Income Redistribution by taxation video 
 Emmanuel Saez  

The World Top Income Database

War on Poverty at Fiftieth Anniversary is extensive 1/14

Understanding Poverty in America believes
 that America's poor are not that poor.


Social Security Payouts in Major Industrial Countries
Editors Note: Countries at top are dropping fast.

Taxing the Rich 1p
Historical Trends in Income Inequality
Kludgeocracy in America

Population Dependency by, Country
Millions of Americans Lifted Out of Poverty
Welfare-to-Work Flexibility Increased Upward Mobility

Lecture Notes

VIII. Market Income Does Not Measure of Well-being.
A. Many goods, especially since the digital revolution,
           provide more satisfaction than their cost indicates.
           Income is thus  understated.

          Much of the value provided by a smart phone was not
          available 25 years ago and those that were each cost
          thousand's of dollars. Movies that do not need
          developing that will send anywhere in the world didn't exist.
        B. Government makes our lives better in ways not measured
             by market income. Curing childhood disease and limiting
             pollution are just two economist's unmeasured item
        C. Successful government fosters peace allowing the
             elimination of a peacetime draft.
        D. Interesting Opinions
            1. Conservative Is "Income Stagnation" a Myth?
            2. Liberal View Sad Story of Wages in Americans
            3. The Daily Show on Class Warfare
       E. Child Safety is Not Measured but it increase of
           well-being is immeasurable.
          1. Physical abuse dropped 55% from 1992-2011
               while sexual abuse dropped 64%.
          2. Abduction by strangers dropped 52% from 1997 -2012. 
       F. Social Progress Index ranks large industrialized
           nations as good but below smaller rural more
           northern nations.

X. Income Inequality Affects Growth
     A. At some point, Business
         1. Takes Too Much
         2. Growth Slows
         3. Politics becomes unstable

   B. Would a  Wealth Tax slow growth?
 Conservatives Say Yes
         Liberals don't ask the question.


Political Economy


 Additional Information
     1. Income - Home for census bureau data and reports.

     2. Millions live in extreme poverty here is how they get by

     3. Fight Poverty in the U.S. from save the children

     4. The Bell Curve and Social Stability: Shrink Wrapped Blog, 
       A Psychoanalyst Attempts to Understand Our World

     5. The Capitalism They Hate  by  Anthony de Jasay
        A. Part I The Inequality Machine
        B. Part II Indecent Earnings

     6. Coming Collapse of Middle Class - E. Warren UC Berkeley

     7. Americas-class-system-across-life-cycle has lots of data. 3/25/14

     8. Income Inequality: A Question With No Easy Answer

9. Second opinion of economic well-being of America's middle class.
      Burkhauser, Jeff Larrimore, and Kosali I. Simon, Nat. Tax Journal
      This should be compared to the very poor "analysis" discussed
      yesterday (Manhattan Institute:
       The Myth of Increasing Income Inequality by Diana Furchtgott-Roth).
      In this case a careful analysis reveals that such things as changes in
      tax codes, in-kind benefits (such as employer-provided health
      insurance) and inclusion of household make-up show less of an income
      disadvantage for the middle class over the last 30 years than simply
      looking at pre-tax tax unit analysis. But there still is a degradation,
      not just as much. from econintersection

      See Income Inequality Analysis and Cures
           Election Issues 2016
           Inequality and Economic Policy
           Conversation with Mark Blyth: Economics and Social Justice



X. Are Americans Better Off than they were a Decade or Two-Ago B. Bernanke

Table 1 confirms the conventional view that, broadly measured, American living standards are comparable to those of the richest Western European nations but much higher than living standards in emerging-market economies. For example, this calculation puts economic welfare in the United Kingdom at 97 percent of U.S. levels, but estimates Mexican well-being at 22 percent. Interestingly, this comparison shows Western European countries (like the U.K., France, and Italy) as considerably closer to the U.S., in terms of economic welfare, than differences in per capita income or consumption would suggest, reflecting the fact that Western European countries do relatively well on the other criteria considered (leisure, life expectancy, inequality). For emerging and developing economies, however, differences in income or consumption per person generally understate the advantage of the United States, according to this measure, largely due to the greater levels of inequality and lower life expectancies in those countries.


Table 2 shows that economic welfare improved at quite a rapid pace over the two decades before the crisis (1995-2007), at more than 3 percent per year, notably faster than the growth rate of per capita GDP, at about 2 percent.[8] As shown by the four rightmost columns of Table 2 and, graphically, in Figure 1, the gains in welfare were driven primarily by increases in per capita consumption and by improvements in life expectancy, which rose by 2.3 years over the period, from 75.8 to 78.1 years. Rising consumption inequality subtracted between 0.1 and 0.2 percentage points from the annualized growth rate in welfare during the pre-crisis period, and changes in leisure/work hours per person (which were stable) made only a very small contribution.


Cato Institute's 2018 Agrees


Reassessing the Facts Inequality, Poverty, and Redistribution

Income Adjusted for Governments

Bottom quintile earnings share rose from  2.2% to 12.9%
Second quintile share rose from 7% 13.9%
quintile middle-income quintile rose from 12.6% to only 15.4%
Fourth quintile’s share fell from 20.5% to 18.6%
Top quintile share fell from 57.7% to 39.3%

Top to bottom multiple dropped from 26 times to three times

In addition work effort increased moving up the income ladder as more family members worked and more worked two jobs. Calculations

  Author's editorial! from when he started this project.

 A September 3, 1992 Wall Street Journal editorial by Robert Rector, a policy analyst 
for the Heritage Foundation in Washington, D.C.,
       reported the following concerning 1990 government spending on poverty:

       "Out of a total of $184 billion in welfare spending..." 
"...Census counted only $32.5 billion as income."

     This means that the actual income of those living in poverty is substantially understated. 
It is difficult to lower the number of people living on poverty income
 if much of the money given them does not count as income! 

Editors Note: In 2015 people still see the poverty percent and assume x percent 
are starving when most are receiving food stamps, subsidized lunches ...
Approximate per capita understatement would be calculated as follows:

Administrative costs must be subtracted therefore not all of the $4,328.57
per person was not given in direct aid.

Editor's Note: It has been 25 years since this analysis and still in 2017 most people do not realize
that the U.S. Government publish poverty rate is before noncash transfers like SNAP (food stamps).
One Columnist used the rate during the Great Recession to report 50 million mostly children were starving.  "Stupid is as stupid does."





2. Liberal say Rich now too rich

The US power index. The power index, developed by Bichler and Nitzan,
is the ratio of the S&P 500 price to the average US wage. It measures the
extent of  capitalist power relative to workers.
[Sources and methods]






B. Growth is Still On the Up Path. Is a Turn Coming?

This FRED graph shows the evolution of two sources of income in our national economy: the compensation of employees through wages and other salary compensation, and the compensation of capital through profits. Both series are adjusted for inflation and both start at the level of 100 in 1954, which is the first year that’s considered “post-war” for economic purposes. (NOTE: The economic impact of the Korean War has essentially vanished.) Eyeballing the data leads to two major conclusions. First, corporate profits move a lot, especially in response to general business activity. Profits tend to tank during recessions (noted with gray bars), which is understandable. After all, it’s well understood that investing in a business is a risky undertaking that deserves and often acquires compensation. Employee income is much more stable, but still suffers during recessions. Second, the trends of the two series tend to track each other over several decades, reflecting the general growth of the economy. The past decade and a half seems to be different, though. Never have corporate profits outgrown employee compensation so clearly and for so long. Is it because there’s been a particularly risky climate for investment, or is something else afoot?

How this graph was created: From the release table about national income by type of income, check the two series and click on “Add to Graph.


” From the “Edit Graph” panel, add a series by searching for and selecting “GDP deflator,” apply formula a/b, and finally set the index value of 100 to 1954-05. Repeat for the second line.


Suggested by Christian Zimmermann.

View on FRED, series used in this post: CPROFITGDPDEFWASCUR
The US power index. The power index, developed by Bichler and Nitzan, is the ratio of the S&P 500 price to the average US wage. It measures the extent of  capitalist power relative to workers. [Sources and methods]


 U.S. Census Bureau  


See Why Income Stagnation is Fake News





Mean Income is Higher

seekingalpha 4/23/13


Is $100,000 Middle Class? October 30, 2017 6:30am by 




 Winter 2018 edition 


ceo worker pay ratio America first study





Income of the 10%, 1%, and .1%

Percentile Threshold 10.00% 1.00% 0.10%*
Individual Income $108,033 $300,800 $1,099,999
Household Income $170,432 $430,600 $1,135,421
Female Workers $88,005 $212,799 $800,000
Male Workers $128,100 $387,853 $1,099,999

*Note that IPUMS-CPS microdata is top-coded and pruned for privacy reasons,



U.S. Safety Net Bigger Than You Think, Who Are They Helping?

But here’s your trouble: When you combine the distribution of federal benefits and tax expenditures, you find that $32,000 goes to the top 20% versus $24,000 a year to the bottom 20%. And a big reason for that is that wealthier Americans get a lopsided benefit from tax breaks. More than half of the combined benefits of the 10 largest tax expenditures go to that top fifth of households, with 17% going to households in the top 1%.

3. Why Not a Negative Income Tax

4. Against-negative- income-tax-jim-manz

5. Social Mobility is Low Everywhere and Always will be 2/14  

Because households can be one person and families can have two workers,
 this households declined much more than the family stagnation.

From America’s Discouraging Income Story
Is One Person Making $57,734 Middle Class?

Are Their Upper Middle Class Limits of $100,000 to $349,000 Too High? Too Low?



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