The Torch Magazine,
The Journal and Magazine of the
International Association of Torch Clubs
For 88 Years
A Peer-Reviewed
Quality Controlled
Publication
ISSN Print 0040-9440
ISSN Online 2330-9261
Fall
2014
Volume 88, Issue 1
The Economics of
Inequality
by J. Michael Harrison
The
outstanding faults of the economic
society in which we live are its
failure to provide for full
employment and its arbitrary and
inequitable distribution of wealth
and incomes. – John Maynard
Keynes (1)
I was alarmed, late in 2010, when I
first saw in Robert Reich's book Aftershock
(2) a version of the graph showing the
top one per-cent's share of total U.S.
pre-tax income from 1913-2007,
prepared from an extensive database
compiled by economists Thomas Piketty
and Emmanuel Saez. (3) The top
one per-cent's share of total income
peaked in 1928 at 23.9%, a year before
the stock market crashed on October
29, 1929, ushering in the Great
Depression. Following WW II, it
gradually declined from 12% in 1946 to
a low of 8.9% in 1976, a period of a
growing middle class and widening
prosperity. Then, in 1980, the
trend abruptly reversed: The top
one per-cent's share grew sharply over
the next three decades, reaching 23.5%
in 2007, a year before America's
worst-ever stock market crash on
September 20, 2008 ushered in the
"Great Recession."
On its face, the new distributional
data showed that growing income
inequality and economic stagnation are
fundamentally related. The traditional
use of aggregate income (GDP) to
measure an economy's health hid the
effects of redistribution, causing
inequality growth to be ignored.
Without distributed income data, we
had been unaware that the bottom
ninety-nine per-cent's share of
the economy steadily contracted after
1980, and that the concentration of
income and wealth within the top 1%
led inevitably to both the 1929 market
crash, "Black Tuesday," and the Crash
of 2008.
As a regulatory economist concerned
about "reasonable returns" on
investment, my first reaction was that
the top 1% has simply made too much
money, freezing out the bottom
99%. This may seem obvious to
someone not trained in economics, but
it has not been obvious to most
economists. Unused to thinking about
the distribution of money, most
economists in the 80 years since
Keynes published his General
Theory have routinely treated
income and wealth distribution as if
it has no economic implications at
all. (4) After more than
two years of focused study, I find
these conclusions inescapable:
- Growing
inequality results when structural
features in an economy create
enormous instability and
substantially reduce growth;
- The
stagnation caused by unrestrained
inequality growth dwarfs all other
effects on growth;
- The
distribution of wealth and incomes
is, therefore, the fundamental
factor determining a market
economy's capacity for growth and
prosperity.
When I learned economics, in the early
1960s, students were taught that
Keynes had likely solved the
depression problem, but we are now
learning that he did not. Keynes
had expressly assumed that maintaining
full employment would suffice to solve
the "poverty" problem. His model
included the determinants of effective
demand and investment—the interest
rate, the propensity to consume, and
the "marginal efficiency" of (expected
return on) capital—but did not account
for any change in the concentration of
wealth and income, which he considered
"arbitrary."
One distinguished economist, however,
felt otherwise. Even when income
inequality was falling in the 1950s,
and hampered by an "extreme scarcity
of relevant data," Simon Kuznets
insightfully argued that distribution
is a key determinant of growth:
Without
better knowledge of the trends in
secular income structure and of the
factors that
determine them, our
understanding of the whole process
of economic growth is limited;
and any insight we may derive from
observing changes in countrywide
aggregates over time will be
defective if these changes are not
translated into movements of shares
of the various income groups. (5)
After the
mid-1960s, both Keynes's
demand-side emphasis and
Kuznets's insights on
distribution were basically
ignored by mainstream economics
until the Piketty/Saez national
income data
were compiled a few years ago. Thus,
we are only now confronting inequality
issues, with the U.S. economy in the
advanced stages of an inequality
crisis.
Instability
In his General Theory, Keynes
maintained that market economies are
inherently unstable, always tending to
drift toward decline and
unemployment. He argued that the
"classical theory," which he had
taught for many years, did not predict
the Great Depression because it merely
described an economy at full
employment. Classical theory
presumed that, following a downturn,
an economy would always return to full
employment "equilibrium" as savings
and investment equilibrated.
Keynes recognized, however, that
market economies are inefficient, and
that capital investment and job
creation depend on expectations of future
demand and expected future
returns on investment.
This was a matter "of the most
fundamental theoretical significance
and of overwhelming practical
importance," he argued, for a decline
in consumption leads to less, not
more, investment and employment:
A
decreased readiness to spend will be
looked on in quite a different light
if, instead of being regarded as a
factor which will, cet. par.,
increase investment, it is seen as a
factor which will, cet. par.,
diminish employment. (6)
To Keynes, this was the source of
market economy instability. He
maintained that declining employment
could be corrected by central
government stimulation of consumer
demand and investment via fiscal
policy (borrowing and spending) or
monetary policy (lowering interest
rates). As James Tobin put it in 1997,
Keynes's "demand-side" theory
explained why "our market capitalist
economy, left to itself, without
government intervention," does not
"systematically return, reasonably
swiftly, to a full employment state
whenever displaced from it." (7)
However, this mild instability is
minor compared to the stagnation
associated with continually growing
inequality. In his groundbreaking book
The Price of Inequality (July
2012), Joseph Stiglitz put it this
way:
[W]hen
money is concentrated at the top of
society, the average American's
spending is limited. […] Moving
money from the bottom to the top
lowers consumption because
higher-income individuals consume a
smaller proportion of their income
than do lower-income individuals.
(8)
Growing inequality itself
reduces aggregate consumption because
the "propensity to consume" of those
with growing incomes at the top is
much lower than that of those with
declining incomes at the bottom.
An unstable cycle of reduced growth
and higher inequality is created, as
lower investment and employment
further increase inequality, which
further reduces demand, investment and
employment.
The Reign of
Ideology
Mainstream economics has ignored even
the basic Keynesian instability of
market economies (which presumes fixed
distribution), reverting to a
neo-classical "normality"
assumption. In 2009, Mason
Gaffney (a "Georgist," that is, a
supporter of the perspectives of Henry
George) pointed out, "Most economists
believe that a market economy is a
self-correcting system," (9) and James
Galbraith recently concurred:
The
deepest belief of the modern
economist is that the economy is a
self-stabilizing system. This means
that, even if nothing is done,
normal rates of employment and
production will someday return.
Practically all modern economists
believe this, often without thinking
much about it. (10)
This misconception fosters the popular
myth that capitalism provides a level
playing field, with equal opportunity
for all in Milton Friedman's "free
market." (11) After publication
of Friedman's Capitalism and Freedom
in 1962, related myths have
increasingly dominated economic
discourse in America, including:
- the
"trickle-down" notion that
reducing taxes on top incomes,
instead of lowering government
revenues, actually increases
them;
- the
converse "Laffer Curve" (12)
proposition that raising
taxes on top incomes reduces
government revenues; and
- the
currently popular "austerity" idea
that cutting government spending
promotes growth.
All of these ideas are false and have
been disproved. (13) Their fatal
problem is that the trillions of
dollars needed for the imagined growth
are unavailable. Fewer people can
succeed, or even survive, as the
finite money supply is
increasingly sequestered at the
top.
False ideology obstructs our ability
to see the nature and severity of the
inequality problem. Apologists for
wealth have denied that there is any
material inequality problem at
all. For example, the Cato
Institute and Friedman protégé Ben
Bernanke argue that income inequality
is nothing more than the availability
of higher incomes to people with
college or graduate degrees.
(14) This perspective overlooks
the substantial effects of inequality
growth, including the very low median
real incomes of college graduates
($51,000 for men and $40,000 for women
in 2009), the recent descent of the
lowest-paid college graduates into
poverty, (15) and the 10%
decline of the median income since
2007. It also ignores the astonishing
growth of top incomes. The multiplier
by which corporate CEO compensation
exceeds a typical worker's income has
increased from 42 in 1980 to 343 in
2010, and hedge fund managers
routinely make over $1 billion per
year. (16)
The Thirty-year
Record of U.S. Inequality Growth
These statistics on the rising income
gap, remarkable though they are, only
begin to suggest the true enormity of
the U.S. inequality
problem.
Today, the U.S. has the highest level
of income inequality among wealthy
nations, and the highest level of
associated health and social problems,
(17) both by wide margins.
The bottom 99% share of the economy
has contracted substantially over the
last three decades: from 1976 to 2007,
14.6% (23.5%-8.9%) of total GDP moved
from the bottom 99% to the top
1%. Total GDP in 2007 was $13.8
trillion, so the bottom 99% was
getting $2.0 trillion less
per year than if this income was
distributed as it had been in 1976 – a
one-fifth loss of its income share,
averaging $18,300 per bottom 99%
household in 2007, before the
Crash of 2008.
This necessarily reflected an extreme
reduction of overall growth. From 1979
to 2007, while the real household
income of the top 1% grew by 224% and
that of the top 0.1% by 390%, real
income of the bottom 90% grew by only
5%. (18) Meanwhile, total per
capita income grew 90% over the
first of two comparable 30-year
periods (1946-1976) but only 64% over
the following 30 years (1976-2006) ,
(19) a one-third reduction in
aggregate growth.
The lower
growth itself was heavily concentrated
at the top: (20)
|
1947
to 1979
|
1979
to 2010
|
Lowest
fifth
|
2.5%
|
-0.4%
|
2nd
fifth
|
2.2%
|
0.1%
|
Middle fifth
|
2.4%
|
0.6%
|
4th fifth
|
2.4%
|
0.6%
|
Top 5th
|
2.2%
|
1.2%
|
This impact on
aggregate growth is stunning. Income
growth has been highly concentrated
in the Top 5th quintile. This
contraction has been so severe, in
fact, that after 2009 all growth
ceased except within the top
1%. Saez reports (21) the following
allocation of new income between the
top 1% and the bottom 99% over
various time periods:
Period
|
Top
1%
|
Bottom
99%
|
1923-1929
|
70%
|
30%
|
1960-1969
|
11%
|
89%
|
1992-2000
|
43%
|
57%
|
2002-2007
|
65%
|
35%
|
2010
|
93%
|
7%
|
2009-2011
|
121%
|
-21%
|
The top 1%'s
share of new income was 43% during
Clinton years, and almost as much
growth went to the top 1% during the
GW Bush years as during the 1923-1929
run-up to the Great Depression.
What has taken place since the Crash
of 2008, however, seems unprecedented:
That 121% of all growth in 2009-2011
went to the top 1% means that the
point in the income distribution above
which all growth is taking place was
high up within in the top 1%. (22)
This should not
surprise us: There has been enormous
redistribution within the top
1%. From the top 10% to the top
1%, and then higher up within the top
1%, the income share increases
exponentially:
Income Group
|
2007
income share
|
2008
threshold income
|
Top 10%
|
50%
|
$109,062
|
Top 1%
|
23%
|
$368,238
|
Top 0.1%
|
12%
|
$1,695,136
|
Top 0.01%
|
6%
|
$9,141,190
|
Even in the
2000-2006 period, when the bottom 99%
was still getting about one-third of
new growth, the average income of the
top 0.01% increased 22.2%, while the
rest of the top 1% grew less than
7.5%. (23) Today, income
concentration within the top 0.01%
accelerates as most of the rest of the
economy loses ground.
The serious impacts of the one-fifth
reduction of the bottom 99% economy
include higher unemployment, reduced
mobility, reduced job creation, lower
median income and growing poverty,
increasing levels of household and
student debt, mortgage foreclosures,
declining infrastructure, reduced
public education and government
services, and the decline and failure
of cities, towns and small businesses.
Great
Depression II
A "depression" is
an abnormally severe downturn lasting
more than a few months. Since the
1970s, recessions have steadily become
deeper and longer-lasting. (24)
The latest downturn, which began in
September of 2008, is by far the worst
since WW II. (25)
Employment bottomed out in January
2008, two years into the Great
Recession, with a 6.4% job loss from
peak. Even if the economy continued to
add 200,000 new jobs per month,
employment would not return to its
pre-recession peak until February
2016, ix and a half years after the
Great Recession began; and 100,000
more new jobs monthly would still
be needed to meet workforce
growth. (26)
While we have not yet seen the almost
18% employment experienced in the
Great Depression, (27) U.S.
unemployment reached 10% in 2010, and
the median income fell by 10% during
2010 and 2011. (28) The
Great Depression lasted only ten
years, but given the continuing cycle
of decline and inequality growth, the
current depression will necessarily
deepen, and might well last much
longer.
The Causes
of Rising U.S. Inequality
Here's why: the driving force behind
depressions is the existence of
structural changes permitting
concentration of wealth and
incomes. As Mason Gaffney put
it:
The
only remedies most economists
learned in the past century to
correct disequilibrium were monetary
(cutting interest rates to stimulate
investment) and fiscal (running a
government deficit to inject money
into the economy directly). Those
types of policies deal only with
symptoms. (29)
Most of the public discussion so far has
focused on labor's declining share of
income, which the 2013 Economic Report
of the President has attributed to
"changes in technology, increasing
globalization, changes in market
structure, and the declining negotiating
power of labor." (30)
Although labor share suppression is
important, it is a relatively minor
factor. Capital suppression within the
lower 99% is a much bigger factor.
From 1979 to 2007 the concentration of
corporate and small business income
(the tendency, that is, for more of it
to go to fewer individuals), which was
higher to begin with, grew far more
than the concentration of labor
income. (31) Thus, the top
one per-cent's share of capital
(corporate) income rose dramatically,
and its share of small business income
grew from less than 20% to more than
45%. The most concentrated
income by far is capital gains, 75% of
which went to the top 1% by
2007. It is no coincidence that,
while the bottom ninety-nine
per-cent's income share steadily
declines, many corporations report
all-time record profits in 2013 and
the stock market posts all-time
highs.
Economic
Rent and Market Power
The 30-year decline in growth and
prosperity was the direct, systemic
result of two Reagan Administration
initiatives:
- deregulation
of business and finance, allowing
corporations to increase their
profits and the wealthiest
Americans to increase their
incomes; and
- reduced
taxes on top household incomes and
corporate earnings, which allowed
the wealthiest Americans to keep a
greater share of their higher
incomes and accumulate greater
wealth. No set of policies
could have been better designed to
maximize inequality and minimize
overall growth and
prosperity.
Very wealthy people seem to be making
way too much money, but how can we
define "too much"? The answer
lies in the concept of "economic
rent." Economic rent consists of
payments for which no new value is
created, including all unearned income
and excess profits. The unearned
income of hedge fund managers is an
excellent example. (32) As
Stiglitz explains:
[M]uch of the inequality in our
economy was the result of rent
seeking. In their simplest form,
rents are just redistributions from
the rest of us to the rent seekers.
[…] What is striking is the
prevalence of limited competition
and rent seeking in so many key
sectors of the economy.
(33)
The American economist Henry George,
two depressions and 133 years ago
(1879), was the first to associate inequality
with economic rent. "Current
political economy cannot explain why
poverty persists in the midst of
increasing wealth," (34) he
argued, and economic rent provided the
missing explanation. "Georgists" are
now in the forefront of the small
cadre of economists focusing on
inequality issues. (35)
Georgist and Keynesian theory
intersect at "the cost of capital," a
fundamental concept in my field of
utility rate regulation. In the
U.S., rates charged by electric
utilities and other regulated
corporations providing essential
monopoly services have been set to
allow sufficient earnings to attract
capital—i.e., to earn their "cost of
capital." This cost is
equivalent to the "marginal efficiency
of capital" Keynes identified as the
underlying cost, for an entire
economy, of full employment and
growth.
When unregulated firms make profits
exceeding their market cost of
capital, this "excess profit" is a
form of economic rent—and that is a
good functional definition of "too
much money." Since 1980, excess
corporate profits have been enabled by
lax anti-trust law enforcement,
relaxed industry and financial
transaction regulation, control of
government contracting, and a new
corporate culture that values
financial gain over employment and
tangible growth. This is why we
have been reading and hearing so much
about Wall Street excesses, about the
consequences of the repeal of the
Glass-Steagall Act in 1999, (36)
and about the consolidation of market
power in a small number of
mega-corporations like Exxon Mobil,
General Electric, Koch Industries,
Monsanto, Time-Warner, and Walmart.
(37)
Taxation and
Wealth Transfers
Reduced taxation of the wealthy and
corporations (the second feature of
"Reaganomics") greatly magnified the
damage. Wealth was already
highly concentrated in the 1970s, (38)
but high tax progressivity had allowed
normal growth and a stable income
distribution after WW II. The top
marginal income tax rate (MTR) was 91%
from 1950-1963, when it was reduced to
70% for most of the 1965-1980 period.
It was reduced after 1980 to 50%, then
28%, raised to 40% by Clinton, then
reduced to 35% in the Bush tax cuts,
where it remained until 2012.
The top capital gains rate, under 30%
since WW II, was reduced to 20% with
the initial Reagan tax cuts, increased
again for a few years before being
reduced again to 20% then 15% in
2002-2003.
Piketty and Saez show a high
correlation between increases in top
1% income shares and reductions in the
MTR and capital gains tax rates.
The U.S., which had a top 1% income
share slightly above average among 19
OECD countries in 1975-9, became the
OECD country with the lowest MTR and
(by far) the highest top 1% income
share in 2004-8. (39) A
recent Thomas Hungerford study also
shows a high correlation between the
top U.S. tax rate reductions and the
increasing top 0.1% share of income.
(40)
The rapid growth of income inequality
has resulted in an extraordinary
increase in wealth concentration. The
top 1% of wealth holders increased
their domestically reported net worth
(assets minus liabilities) by about
$16 trillion (in 2005 dollars) from
1980 to 2012, (41) and
wealthy Americans hold an additional
$5-8 trillion of unreported income in
overseas accounts. (42) In
current dollars, therefore, I estimate
that the top 1% has increased its
wealth by a virtually unimaginable
$22-25 trillion. That amounts to about
$69-$79 thousand per capita, for all
318 million
Americans.
The National Debt
The tax reductions for the wealthy
were not matched by decreased
government spending, so the
Reagan-Bush administration ran up a
huge level of national debt. The debt,
which now stands at well over $16
trillion (43), has financed about
two-thirds of the top 1%'s wealth
increase, the balance of which (an
estimated $5-8 trillion) has
transferred up from the bottom 99%.
This implies annual wealth transfers
to the top 1% of more than $300
billion.
In the 1930s, there was a "great
debate" between Keynesians and the
"Austrian School" led by Fredrich
Hayek about whether government fiscal
policy (deficit spending) and monetary
policy (interest rate manipulation)
could effectively stimulate investment
and demand (44) The
Austrians argued that increasing the
money supply through deficit spending
would likely lead to inflation,
cancelling out real growth. The
Keynesians thought government spending
could stimulate investment and growth,
but lacked the Austrians' faith that
monetary policy would be
sufficient. Neither side,
however, was aware of the hugely
depressing effect of wealth and income
redistribution. More than $16 trillion
of deficit spending by the U.S.
government over three decades has
produced neither Keynesian stimulation
nor an Austrian inflationary spiral.
Both potential outcomes have been
squelched by the suppression of income
growth caused by rising inequality.
Conclusion
As Stiglitz put it in a January 2012
interview: "Inequality stifles,
restrains and holds back our growth."
(45) The distribution of wealth
and incomes, long ignored by
mainstream economics, is by far the
most significant factor underlying the
instability of market economies.
Extreme income and wealth
concentration is the underlying cause
of depression. Accordingly, central
government's most important
responsibility is to maintain stable
and reasonable levels of income and
wealth distribution.
This cannot be accomplished by fiscal
or monetary policy, nor can the
regulatory and social changes that
unleashed the current runaway
inequality spiral in the U.S. be
rapidly reversed. A quick return
to the highly progressive taxation
that controlled inequality growth
before the Reagan presidency has now
become essential to our survival.
Works Cited
(1) John Maynard Keynes, The
General Theory of Employment,
Interest, and Money, 1935, New
York and London, Harvest/Harcourt, Inc.,
1953, 1964 ed., 1991 printing, p. 372.
(2) Robert B. Reich, Aftershock: The
Next Economy and America's Future,
New York, Alfred A. Knopf (2010).
(3) "How Progressive is the U.S. Federal
Tax System? A Historical and
International Perspective," by Thomas
Piketty and Emmanuel Saez, Journal
of Economic Perspectives 21:1
(Winter 2007) 3-24; "Optimal Taxation of
Top Labor Incomes: A Tale of Three
Elasticities," by Piketty, Saez, and
Stephanie Stantcheva, DP No. 8675 (CEPR,
November, 2011).
(4) Analyses of the Crash of
2008 have routinely ignored
distribution. See, e.g., "Explaining the
Housing Bubble," by Adam J. Levitin
& Susan M. Wachter, The
Georgetown Law Journal 100:1177
(2012).
(5) "Economic Growth and Income
Inequality," by Simon Kuznets, The
American Economic Review 45:1
(March, 1955) 27.
(6) The General Theory, Ch. 14.
"cet. Par." means "all else equal."
(7) Cowles Foundation Paper 947
(1997)
(8) Joseph E. Stiglitz, The Price of
Inequality: How Today's Divided
Society Endangers Our Future,
Norton, Kindle Edition (2012), pp.
84-85.
(9) Mason Gaffney, After the Crash:
Designing a Depression-Free Economy,
Walden, Ma., Wiley-Blackwell (2009), p.
56.
(10) "The Third Crisis in Economics,"
Presidential Address, Association for
Evolutionary Economics (January 5,
2013)6.
(11) Milton Friedman, Capitalism and
Freedom, The University of Chicago
Press (1962).
(12) See Laffer, Moore, and
Tanous, The End of Prosperity: How
Higher Taxes Will Doom the Economy –
If We Let It Happen, Ch. 2, "How a
Cocktail Napkin Changed the World – the
Laffer Curve," Threshold Editions
(2008). This book ironically was
published only a few months before the
Crash of 2008.
(13) "Trickle-down" is disproved
by the failure of the Bush tax cuts to
eliminate the national debt as predicted
by the Heritage Foundation (Report,
April 27, 2001) and by Paul Ryan's
reliance on an impossible projection of
$45 trillion income growth through 2050.
(House Budget Committee Fiscal 2012
Budget Resolution, "Path to Prosperity,"
March 20, 2012.) The "Laffer Curve" is
refuted by Piketty, Saez, and
Stantcheva's finding (2011, supra),
that income tax revenues are maximized
at top rates in the 63%-83% range. Paul
Krugman's New York Times column
extensively documents the disproof of
the "austerity"
doctrine.
(14) Thankfully, it was removed from the
2013 ERP.
(15) Sources: The National Center
for Education Statistics and the U.S.
Bureau of the Census. The barebones
poverty threshold for a household of 8
in 2009 was $35,300.
(16) Jennifer Liberto, CNN Money , April
20, 2011; Paul Krugman, End This
Depression Now!, New York &
London, W.W. Norton & Co., 2012, p.
82; See also, fn. 32.
(17) Richard Wilkinson and Kate Pickett,
The Spirit Level: Why Greater
Equality Makes Societies Stronger,
New York, Bloomsbury Press (2010).
(18) "Snapshot: Incomes rising
fastest at the top," by Arin Karimian,
Economic Policy Institute (October 20,
2011).
(19) "Income Concentration at
highest level since 1928, New Analysis
Shows", by Chye-Ching Huang and Chad
Stone, Center on Budget and Policy
Priorities (CBPP, rev. October 22,
2008); Piketty & Saez, BEA, and
Census data, adjusted for inflation;
See also "A Guide to Statistics on
Historical Trends in Income Inequality,"
by Chad Stone, Danilo Trisi, and Arloc
Sherman, CBPP (rev. October 23,
2012).
(20) "Family Income Growth in two eras,"
Economic Policy Institute (updated,
October 5, 2012); "A Shrinking Middle
Class Means a Shrinking Economy," by
Alan Krueger, Obama CEA Chairman, Reuters,
January 13,
2012.
(21) "Striking it Richer: The Evolution
of Top Incomes in the United States," by
Emmanuel Saez, (January, 2013).
(22) In September, 2013, Saez reported
that 95% of all growth in 2009-2012
accrued to the top 1%. – Ed.
(23) Seeking Alpha, using PIketty/ Saez
data.
(24) "The Recession of 2007-2009,"
Bureau of Labor Statistics (BLS)
Spotlight on Statistics (February,
2012), p. 8.
(25) "Sluggish Growth and Payroll
Employment," by Bill McBride, the
Calculated Risk blog (11/7/2011).
(26) "Cumulative job losses for 2007
recession likely to be six times worse
than any since WW II," by Rob Levine,
The Cucking Stool (blog), (11/7/2011).
(27) "October Employment Report: 171,000
Jobs, 7.9% Unemployment Rate," Bill
McBride, Calculated Risk (11/2/2012).
(28) "Median Household Income Index
(HII) and Unemployment Rate by Month:
January 2000 to April 2012," Sentier
Research, LLC (data from the U.S. Census
Bureau and the U.S. Bureau of Labor
Statistics).
(29) Gaffney, supra (emphasis
added).
(30) 2013 ERP, p. 60.
(31) "Trends in the Distribution of
Household Income between 1979 and 2007,"
CBO (October, 2011).
(32) The 25 highest-paid hedge fund
managers in 2010 raked in $22 billion,
with the one at the top collecting $4.9
billion. "2010 Highest-Paid Hedge Fund
Managers," The Richest People,
April 11, 2011.
(33) The Price of Inequality, supra, pp.
95-96.
(34) Henry George, "Progress and
Poverty," San Francisco 1879, edited and
abridged by Bob Drake, the Robert
Schalkenbach Foundation, Fourth Edition,
New York 2006, p. 28.
(35) "How an anti-rentier agenda might
bring liberals, conservatives together,"
by Mike Conkzal, The Washingtron
Post (March 30, 2013).
(36) See, e.g., Nomi Prins, It Takes
a Pillage, John Wiley & Sons,
NJ (2009); Jacob S. Hacker and Paul
Pierson, Winner-Take-All Politics,
Simon & Schuster, NY (2010).
(37) Barry C. Lynn, Cornered: The New
Monopoly Capitalism and the Economics of
Destruction, Wiley & Sons, NJ
(2010).
(38) Wealth concentration, always higher
than income inequality, did not change
much between 1983 and 2004. The top 1%
held about 34% of total net worth and
42% of financial (non-home) wealth in
2004, about the same as in 1983; And in
both 1983 and 2007 the bottom 40% had
zero net worth, and the bottom 60% had
negligible wealth except for their
homes. "Recent Trends in Household
wealth in the United States," by Edward
N. Wolff, W.P. No. 502 (June
2007).
(39) Piketty, Saez, and Stantcheva, supra,
at 50-51.
(40)Congressional Research Service (CRS)
Study (November, 2012)
(41) Census Bureau net worth data, and
wealth concentration data from Edward
Wolff, various sources. (2005 is the
base year for federal price indexing.)
(42) Data from "The Price of Offshore
Revisited," Tax Justice Network,
July 2012.
(43) The national debt was under $17
trillion when this article was written,
but has nearly reached $18 trillion by
the end of FY 2014 - Ed.
(44) See Nicholas Wapshott, Keynes
Hayek: The Clash That Defined
Modern Economics, W.W. Norton, NY
(2012).
(45) "Inequality Is Holding Back the
Recovery," The New York Times
(January 20, 2013).
Author's Biography
Judge J.
Michael Harrison grew up in South
Dakota, and enrolled at Oberlin College
in 1966, graduating with honors in
Economics in 1966. He then enrolled in
the PhD program in economics at the
University of Michigan, but changed
course in 1967, entering the University
of Michigan Law School. He was on the
editorial board of the Journal of Law
Reform and a Clarence Campbell award
winner, receiving his J.D. degree in
1970.
He worked as an
attorney for IBM in Armonk , NY, and New
York City before joining the legal staff
of the New York Public Service
Commission, Albany, NY, in 1972. He
became an administrative law judge in
Albany in 1976, in which role he
conducted hearings in numerous
proceedings on utility rates, generic
proceedings on the costs of capital and
competition, the AT&T divestiture
and the Bell Atlantic/New York Telephone
merger cases, and the first major
interconnection agreement between
AT&T and Verizon in 1996.
After 1995, he
coordinated the Public Service
Commission's joint hearing program with
the New York State Department of
Environmental Conservation for the
certification of major power plants. He
retired in December, 2005.
The original
version of "The Economics of Inequality"
was delivered before the Albany Torch
Club on March 4, 2013. The version
published here has been revised to
reflect more recent developments.
©2014 by the International
Association of Torch Clubs
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