Bob Cropf

Good weekend

In economics, miscellaneous, statistics on January 30, 2009 at 10:29 AM

A little later today, Joshua will be uploading the question for the short essay assignment. I am looking for a paper that is between 700-1,000 words in length, double-spaced, and APA format. The due date is February 11. You can hand it in before class by emailing it to me or you can give it to me in class.

I came across this interesting article on income inequality. The article basically documents the redistribution that has been occurring since the 1970s, which has seen income flow increasingly to wealthy Americans. The authors note that “Excluding capital gains, the richest one percent claimed 17.4 percent of all pre-tax income in 2005, more than double what that figure was in the 1970s. (It bottomed out at 7.8 percent in 1973.) This is the greatest concentration of income since 1936, when the richest one percent received 17.6 percent of total income.”

The article, which is found on inequality.org (a project of Demos and the Institute for Policy Studies) is chock full of graphs and tables that underscore the massive transfer of wealth from middle-income and lower Americans to the well-to-do. There is also an excellent section at the end that takes the reader to the original sources for the data.

We will be discussing income inequity in some detail in a couple of weeks. This article will serve as a good backdrop for that discussion. One thing to keep in mind as you are thinking about income inequality is “How much of this transfer of wealth is a result of public policy?” “If much of the redistribution is the consequence of public policy, how much of it was supported by the voting public?

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  1. These are striking data on income inequality. A commentary some time ago by Robert Reich suggested that the middle class has adjusted to declining income first by the necessity of two incomes, then by credit card debt, and finally by accessing home equity.

  2. To the point of what affect policy has had on the distribution of wealth: I read (somewhere) that 401(k) contributions are not included in the calculations of personal savings. On the one hand, particularly in light have the last 6mo., this makes sense, the definition of savings requires that there is little to no risk and obviously there is a fair amount of risk with 401(k)s. However, the tax structure is set up to really encourage putting whatever income you can into 401(k) and IRAs (most don’t run up against that cap), otherwise you paying taxes on it, are under-“saving” for retirement, and often passing up “free money” with matches and such. In the era of pensions, would that have gone into savings? How much additional money that would have gone into savings thirty years ago is not going for personal consumption but into things like mutual funds that are not “savings” but “investment”.

  3. Those are great questions/comments. Perhaps a Public Finance paper would be a great way to research the problem?

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