Monday, April 11, 2016

Why the income inequality curve zigs and zags

Ever since I started studying income inequality (more generally economic inequality), I have been dogged by the now familiar income inequality U-curve. For example (from a piece in the New Yorker):

The U shape of the chart should by now be familiar. After rising in the Roaring Twenties, the income share of the one per cent fell sharply in the postwar period. Since the late nineteen-seventies, it has been climbing again, albeit in a somewhat zig-zag fashion. The top earners’ share of overall pre-tax income peaked at about twenty-four per cent in 2007, fell back during the Great Recession, and then recovered strongly. In 2012, it was about twenty-three per cent.

One feature of that curve that has concerned me is the "somewhat zig-zag fashion" present in the data during the run-up over the last 40 years. I would have predicted that the zigs happened during Republican administrations and that the zags happened during the Democratic administrations, but that is not the case. The downward micro trends, the zags, happened because of other events - like 911 and the housing bubble burst of 2007-2008. During the Clinton and Obama presidencies the upward zigs continued unabated!

So, Hillary supporters, forgive me for being more than a little sympathetic to those who see Hillary as being one of the financial and political elite. (Before you unload on me, remember that I will vote for Hillary if she is the nominee.) Bob Lord at Blog For Arizona makes that case. Read it for yourself. Check my conclusions against the graph that looks like this.



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