Wealth Inequality Is the Highest Since World War II
Gross domestic product is a useful metric of a nation’s economic success, but what you’d also like to know is who reaps the benefit when it grows — the rich, the poor, the middle class or everyone. During the pandemic, for example, we know that government benefits helped the poor, while stimulative monetary policy pushed up stock prices and benefited the rich in particular. What was the net result?
Three economists at the University of California, Berkeley — the postdoctoral researcher Thomas Blanchet and the professors Emmanuel Saez and Gabriel Zucman — have created an online tool to answer that question quickly and thoroughly. The tool, which calculates how economic growth is distributed across income and wealth groups, is called Realtime Inequality. It’s valuable for two reasons: It gives fresh insight into what has happened to various strata of the U.S. population during the pandemic; and it’s effectively a prototype for a measure that could someday be officially calculated and published by the federal government.
Using the tool’s drop-down menus, you can choose the time period, the unit (household or individual adult), the strata and the definition of income or wealth that you want to graph. Here’s a graph I made using data from Realtime Inequality. I zeroed in on two extremes of the population by income: the bottom half and the top 0.01 percent (that’s one person in 10,000). I plotted inflation-adjusted disposable income, which takes out taxes and adds in cash transfers such as the child and earned-income tax credits as well as “quasi-cash transfers” such as food stamps.
One thing that stands out in the graph are the enormous fluctuations that the bottom half experienced. In March 2021, for example, when the government sent out the third round of pandemic assistance checks, the bottom half’s inflation-adjusted monthly disposable income rose 70 percent from its February level.
Although that income spike didn’t last, the bottom half of the population by income did recover far faster from the brief pandemic recession of 2020 than it did from the recession of 2007 to 2009. Going by pretax income, the Berkeley team found that all income groups had fully recovered from the pandemic recession within 11 months, while for the bottom half, it took 11 years and 10 months to recover from the previous recession.
As the chart shows, the top 1 percent of the top 1 percent saw its disposable income fall in early 2020 because business profits, its main source of income, briefly collapsed. But don’t feel bad for those people. If you look at a bigger group of rich people — the top 0.1 percent — and if you measure wealth rather than income, their share of the nation’s wealth rose by 1.3 percentage points, to 19.1 percent, from the end of 2019 to the end of 2021, the Berkeley economists calculate. “Wealth concentration at the end of 2021,” they write, “was at its highest level in the post-World War II era.”
The reason the government doesn’t publish these numbers is that they’re tricky to calculate. In principle, every dollar of G.D.P. represents income to someone. But there are measurement gaps. The Current Population Survey run by the Census Bureau and the Bureau of Labor Statistics captures less than half of national income, leaving out such things as fringe benefits and business profits.
The Berkeley researchers have solved this challenge by combining the Current Population Survey with tax data and other sources, including the Quarterly Census of Employment and Wages. Their system parcels out the entire estimated G.D.P. to various subsets of the population, taking into account overall growth, job shifts and the performance of the financial markets. The numbers will be updated monthly.
Part of the process can be automated, but not all. For example, the Berkeley economists originally assumed that all of the $800 billion Paycheck Protection Program, one of the government’s pandemic relief efforts, went to workers. But the economists revised that figure based on new research by a team led by David Autor, an economist at the Massachusetts Institute of Technology, showing that a majority of the funds ended up benefiting business owners and their shareholders and creditors.
Saez and Zucman are left-leaning economists who favor a tax on wealth, but Zucman said the Realtime Inequality meter isn’t ideological. He said it was well received in an online presentation that the authors made on Jan. 14 to Dennis Fixler, the chief economist of the Bureau of Economic Analysis; Heather Boushey, a member of the Council of Economic Advisers; and Danny Yagan, the chief economist of the Office of Management and Budget, who collaborated with Saez and Zucman on research before taking leave from Berkeley.
A spokeswoman for the Bureau of Economic Analysis declined to comment on the Realtime Inequality meter but pointed me to a December working paper by Fixler and others showing that the agency is working on providing a similar measure. “The primary obstacles to producing such estimates are the lack of available quarterly microdata and inability to follow households over time,” the paper says. The other agencies did not respond to requests for comment.
In an interview on Tuesday about the Realtime Inequality meter, Zucman said, “I think it’s going to be a paradigm change in how people analyze the economy.” He added: “Before, we talked only about growth because there was no data about inequality. I think this tool is going to change the conversation. I’m not saying it’s the final word. It’s the first step. It’s a prototype.”
Economics is the least socioeconomically diverse of the major doctorate-granting fields of study by key measures, according to research by Robert Schultz of the University of Michigan and Anna Stansbury of the Sloan School of Management at the Massachusetts Institute of Technology. Among U.S.-born recipients of Ph.D.s between 2010 and 2018, just 14 percent had no parent with a bachelor’s degree or higher, and 65 percent had at least one parent with a graduate degree.
By both measures, economics was less diverse than any other major field, including engineering and mathematics. The top-ranked programs are even less diverse, they found. The researchers limited their study to U.S.-born Ph.D.s (who are about 30 percent of the total in economics) because parental education has different implications for socioeconomic status in other countries.
Quote of the day
“Farm workers are not agricultural implements; they are not beasts of burden to be used and discarded.”
— Cesar Chavez, in an address to the Commonwealth Club of California in 1984
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