Chapter 33 Distributing Income


I. Some Market Income Data Indicates Stagnant Median Income
II. Income Stagnation Began After the Second Oil Embargo  
III. Analyzing the Distribution of Income

IV. Causes of Income Inequality   
V. Defined Poverty
VI. Effectiveness of Government Programs   
VII. Income is Not a Good Measure of Well-being
VIII. U.S. Economic Normality 1945-2015 cause and economic effect of politics page 2 
IX. Additional Information
X. Are Americans Better Off Than They Were  a Decade os Two Ago
I. Some Market Income Data indicates Stagnant Median Income

Please      

A. Yes Middle Class Incomes Have Been Pretty Stagnant Since 1979

Data Collection Method is important.
Census Income Report has 5 reasons data bases on CPI is skewed low.

B. Other Analysis Reveals All Income Groups Doing Better

 

More Analysis  econintersect 8/30/12 and Middle Class: A Candle Burning at Both Ends
 

 
    C. Urban Institute Believes Upper Middle Class is the Big Winner

        From The Growing Size and Incomes of the Upper Middle Class 6/16    See   Why is Poverty So Controversial?

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

Is One Person Making
$57,734 Middle Class?

 

   

   D. High Income allows for wealth accumulation

The latter part of the 20th century brought a winner take all income distribution to Western economies. Wealth has always accumulated at the top but now in a Flat World local U.S. winners were now world winners. Movie stars like Adam Sandler would have success world-wide and accumulate wealth over $300,000,000.

    E. More Analysis
This was so much that some think the top .01% are getting too much. This group received so much income that they couldn't spend it so their wealth accumulated. The new century brought an Internet that allowed a speed-up in the transmission of our move to a winner take all society. This has caused a large increase in the income of the top 1/10 of 1%
See
 You Didn't Build It

 

 

See
Income Inequality in America     
Capitalism in the Twenty-First Century Book Review
Income,  Poverty, and Health Insurance Coverage In the United States: 2010 2011Census
World of Class Warfare The Poor's Free Ride-Is Over Fox looks at raising taxes on poor
Taxes, Transfers and USA vs., Eurozone
People's Budget of UK in 1911 started the redistribution process.
Americas income-who has it? 2012 Social Security data is comprehensive
Household income in the United States from Wikipedia
Middle Class Squeeze Continues from The Big Picture Blog. According to one 2006 study**, by Dirk Krueger of the University of Pennsylvania and Fabrizio Perri of New York University, consumption inequality as barely budged for several decades, despite a sharp upswing in income inequality.
What Liberals and Conservatives Fail to Understand About the Welfare State
April 26, 2009--The U-Turn  as printed in economics principles. com
The top 1/10 of one-percent not the top 1% are getting more and more of the wealth
future/work jobs careers is part of a series

The Week Debate On Inequality Video 1:42

 

II. Income Stagnation Began After the Second Oil Embargo 

US Economic Normality
1945-2015

page 2
Bailouts
Safety Net
 Profits vs. Labor
Wellbeing

New Normal #1 Rising Income
WW 2 generated savings, pent-up demand and few foreign few 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.  Use PDF for Color Printing.   
provided by
textbooksfree.org

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

       A. A Lorenz curve depicts income inequality by plotting the percentage
            of income (Y)  received by different percentages of the population.
            A 45-degree line represents perfect equality as 10% of the population
            receive10% of the income and 35% of the population receive 35%
            of the income, etc. Perfect inequality would be close to the x-axis as
            99% of the population receive no income.
q
       B. The Gini coefficient is a measure of the inequality of a distribution, a
            value of 0 expressing total equality and a value of 1 maximal inequality.
            It has found application in the study of inequalities in disciplines as
            diverse as The Gini coefficient is a measure of the inequality of a
            distribution, a value of 0 expressing total equality and a value of 1
            maximal inequality. It has found application in the study of inequalities
            in disciplines as diverse as economics, health scienceecology,
            chemistry and engineering . from Gini coefficient of Wikipedia
            1.  CIA World Factbook Gini rank order
            2. Gini in a Bottle: Facts on Income Inequality
            3. Transfers Payments and Taxes Decreases Inequality    CBO 2011
            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. The second depicted the United States, with wealth distributed very unequally among five groups (one of which gobbled up 85 percent—Norton and Ariely put it at 84 percent, but let’s not quibble). The third depicted Sweden, where the top quintile accounts for 35 percent of the nation’s wealth. Neither the Swedish pie chart nor the U.S. pie chart was identified by nation. Norton and Ariely were astonished that 47 percent of respondents—remember these were all Americans—chose the pie chart depicting Sweden. But surely most survey-takers, when presented with two extreme options and one that lies in the middle, will instinctively gravitate, like Goldilocks, toward the middle option. More surprising to me was that second place went to Utopia (43 percent). Only 10 percent voted for the pie chart depicting the country the respondents actually live in.” See Income Inequality and It's Costs

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

IV. Causes of Income Inequality
       A. Personal endowments differ (mental,
            physical, and 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.;   
 1. Recently, 2001-2202, (like 1991, and 1980)
            was not a great time to be graduating from
            college and seeking a job. 
        2 .The worst 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. Business Week, 2/26/07 p 44
    
 J. Taxes

     
K.Equality Denial  from Economist.com 
           takes a different view.
      L. Visit The L-Curve: A Graph of the US

                  
Income Distribution for an interesting of
           income distribution in the United States.
      M. Emmanuel Saez, economist, Berkley, 
           studies income distribution of many countries.
      N. Income Distribution by country
      
O. Inequality and economic policy is extensive.
   
  P.
Taxing the Rich One page of f Data

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: larrysummers.com/2015/02/23/the-future-of-jobs "...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

Inequality and parenting style

by on October 15, 2014 at 1:50 pm in Data Source, Economics | Permalink

- See more at: http://marginalrevolution.com/#sthash.c6acxtxd.dpuf

Inequality and parenting style

by on October 15, 2014 at 1:50 pm in Data Source, Economics | Permalink

- See morp:marginalrevolution.com/#sthash.c6acxtxd.dpuf

Inequality and parenting style

by on October 15, 2014 at 1:50 pm in Data Source, Economics | Permalink

- See more at: http://marginalrevolution.com/#sthash.c6acxtxd.dpuf

Inequality and Parenting Style

inequality and parenting style

Top Tax Rates Have Gone Downdcj graphic

Source:nationalmemo.com 5/31/23

Source

V. U.S. Government Defined Poverty and Created Safety Net

A. 1990 Poverty Threshold
     1. Originally set at three times a family's minimum food requirement
     2. $13,359 annually for a family of four
     3. $6,652 annually for a single person
B. By 2014 inflation had caused the Department of Health and
     Human Services to set higher thresholds. See Chart
C. The poverty rate was decreasing until the
     Great Recession
     1. 32.0% of the population lived in poverty in 1950.
     2. Just over 11% was the poverty rate through the early 1970's.
     3. 15.2% of population during 81-82 recession which is the
          most recent poverty rate peak.
      4. 14.2% of the population (35.7 million people) in 1991 lived in poverty.
      5. Between 1970 and 1990 the percentage of children living in poverty
          increased from 14.9% to 19.9% with the corresponding increases
          for white, black, and Hispanic children being 10.5% to 15.1%, 41.5%
          to 44.2%, and NA to 33.9% respectively.
D. The Great Recession has poverty on the increase but government
      programs have helped.
E. Poverty Thresholds are used to define Poverty Guidelines are use to
    determine eligibility for programs to help the poor
     See Trends in Poverty with an Anchored Supplemental Poverty Measure
F. Latest Data
   1.
Means Tested Welfare Programs from CBO is a must .
   2. Helping the Working Poor from Economic Progressive Institute

 

Poverty Thresholds Defines Poverty
for 2014 by Size of Family data source

Size of family unit

 Related children under 18 years

    None    One    Two   Three   Four
One person (unrelated individual).…..          
  Under 65 years....................……… 12,316        
  65 years and over.................……… 11,354        
           
Two people.........................………..          
  Householder under 65 years........... 15,853 16,317      
  Householder 65 years and over...…. 14,309 16,256      
           
Three people.......................……………………… 18,518 19,055 19,073    
Four people........................………………………. 24,418 24,817 24,008 24,091  
Five people........................……………………… 29,447 29,875 28,960 28,252 27,820
Six people.........................……………………….. 33,869 34,004 33,303 32,631 31,633
Seven people.......................…………………….. 38,971 39,214 38,375 37,791 36,701
Eight people.......................……………………… 43,586 43,970 43,179 42,485 41,501
Nine people or more................…………………… 52,430 52,685 51,984 51,396 50,430
Source:  U.S. Census Bureau.          

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."

nybooks.com/articles/archives/2015/apr/02/war-poverty-was-it-lost/

 

 

 

 

 

 

 

     F. Poverty Demographics

 

 

Year 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  

2000

31.1

     11.3 9.4 22.1 21.2

$17,050

$39,982

32%

$69,235

48%

 2008

           

$48,502

21%

$86,621

25%

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

 

 

 

 

 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 few good jobs and education won't help.

 

jobsSectorSource

  Well-being and the Welfare State
  • (but really are not).  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 socialising 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 civilised system ever created.’

 

From Yahoo News

 

 

 

VI. Effectiveness of Government Poverty Programs
 

Market Income Plus Transfer Payments
and Minus Federal Taxes

Quintile         1st 2nd 3rd 4th 5th
1979        7,707          19,131        26,596        35,708

    78,520 

1989        7,392        19,324        28,663        40,254   104,318
1999        8,709        22,344        32,688        46,157   139,325
2007        9,290        24,374        35,985        51,379 166,871
 Change        1,584          5,243          9,390

       15,672

      88,351

% Change   21%

27% 35% 44%

113%

 

 

Social Security and Medicare Helped 
Elderly Have Constantly Improved

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source:
Transfers payments and taxes decreases inequality CBO 2011
1979-2011 after-tax income for top 1 grew at 3.5%,bottom 20% by 1.2%

Poverty Inc questions the economic efficiency of poverty management 1.06 video
See
Historical Trends in Income Inequality and Kludgeocracy in America

Note: Most poverty programs have a finite qualifying amount. A family receiving substantial aid that is not counted as income may just qualify for aid while another family may earn just above the qualifying amount and receive no aid.

Young and Old Receive Benefits
 Middle Age Workers Pay

 

 

 

 

seekingalpha 4/23/13

Income Redistribution by taxation video
     by
  Emmanuel Saez  

saeztaxratevsincomedistribution

and The World Top Income Database

 

 Social Security Payouts in Major Industrial Countries Editors Note: Countries at top are dropping fast. data source social-security-cheap-compared-europe

Country Share of
 Replacement Income
for Average Workers
Age for Full Benefits Tax rate to finance pensions Share of GDP Analysis
Greece 96% 65 20% 11.9  Most generous benefits
Italy 65 men, 51 women 66,62 32.7 14.1 Paying as they go?
France 49 65 16.7 12.5 Chasing Greece for first place
Germany 42 67 19.9 20.7 About the same as US
U.S. 39 66 12.4 4.2 Don't cost much so can afford very expensive military and health care.
UK 32 68 General Fund 5.4 Is reason that pensions must compete with other programs for funds?

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

     C. War on Poverty at Fiftieth Anniversary is extensive 1/14

     D. Understanding Poverty in America states that America's poor are not that poor.

 

VII. Income is Not an Appropriate  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 doesn't need developing that will send results
           anywhere in the world didn't exist.
       B. Government makes our lives better in ways not measured by
            individual income. Curing childhood disease and limiting pollution
            are just two.
       C. Successful government fosters peace allowing the elimination of a
            peacetime draft.
D. Interesting Opinions
      1. Conservative T. Sowell - Is "Income Stagnation" an Economic Myth?
      2. Liberal View The Sad But True 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. NYTMag.com
     1.  Physical abuse dropped 55% from 1992-2011 while sexual abuse
          dropped 64%.
     2.  Abduction by strangers dropped 52% fro 1997 -2012. 
F. Social Progress Index ranks large industrialized nations as good but
    below smaller rural more northern nations.

See Income Inequality Analysis and Cures
     Election Issues 2016
       Inequality and Economic Policy

IX. Additional Information
     
  1. Income - Home for census bureau data and reports.
      2. Millions-of-americans-live-in-extreme-poverty-heres-how-they-get-by
      3. Fight Poverty in the U.S. from save the children
   4. The Bell Curve and Social Stability: from 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 Graduate Council 1/31/08
     7. Americas-class-system-across-life-cycle has lots of data. 3/25/14
    8. Income Inequality: A Question With No Easy Answer
    9. A second opinion of economic well-being of America's middle class
Burkhauser, Jeff Larrimore, and Kosali I. Simon, National 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

Older people, married couples and black adults improved their income status more than other groups from 1971 to 2015

 

  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 given in direct aid.
G. Other Data
This Bureau of Labor Statistics and Census Bureau have interesting data. Over the last five years the percentage of young people are working has declined as has their real pay. This has happened even though they are investing more time and money  in education. Data from page 13 of the July 2, 2007 issue of Business WeekU.S. Census Bureau  

 

3. Why Not a Negative Income Tax   and
Against-negative- income-tax-jim-manz
4. 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

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

Economist Magazine, April 4, 2009 page 11

Wealth Gap Ratios

The Decade Ended Poorly

   
figure 1-6

US would look less unequal if the top 1/10 of 1%
were compared to the bottom 99.9%.


US would look less unequal if the top 1%
ere compared to the bottom 99%.

 

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.

table1

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.

table-2