Friday, July 14, 2006

Income growth in 2004 and exponential gaps

DeLong channels Krugman, now hidden from us by the NYT's paywall:
Brad DeLong's Semi-Daily Journal: Krugman - The Further Derangement of the U.S. Income Distribution

... Here's what happened in 2004. The U.S. economy grew 4.2 percent, a very good number. Yet last August the Census Bureau reported that real median family income -- the purchasing power of the typical family -- actually fell.

... in 2004 the real income of the richest 1 percent of Americans surged by almost 12.5 percent. Meanwhile, the average real income of the bottom 99 percent of the population rose only 1.5 percent. In other words, a relative handful of people received most of the benefits of growth.... Even people at the 95th percentile of the income distribution -- that is, people richer than 19 out of 20 Americans -- gained only modestly. The big increases went only to people who were already in the economic stratosphere.... [T]he real earnings of the typical college graduate actually fell in 2004.
Real earnings are after inflation. So the vast majority of US productivity gains in 2004 went to the wealthiest 1%. Everyone else fought over the scraps, with college grads actually losing ground (hmmm, outsourcing influence? It's hard to outsource plumbing, easy to outsource accounting).

The top 1% is departing from the bottom 99% at an exponential rate -- ascending to a neo-medieval world of relative power.

The curious thing about this is that Americans don't seem to care. I've heard the usual explanations of this (everyone thinks they might get rich too) and I find them hard to believe. On the other hand, I've realized in my old age that I'm not much like other people [1] and I can't really model their thinking ...

[1] The fact that this came to me rather late in life says something about my perceptual limitations ...

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