I showed in a previous post that the rate of change is very unequal across groups. Things have been very, very good for the Top 1% in this country; for everyone else, less so. This new figure illustrates that point in a new way.
I calculated the total amount of after-tax income accrued by each category per year. The US economy has grown immensely since 1979, even when adjusted for inflation. Every single group earned more income in 2005 than in 1979, and in general people on average earn more than they did the year before. I have eight categories:
- Lowest Quintile - 1-20 percentile; earn on average $15,300 = 20% of the population
- Second Quintile - 21-40 percentile; earn on average $33,700 = 20% of the population
- Middle Quintile - 41-60 percentile; earn on average $50,200 = 20% of the population
- Fourth Quintile - 61-80 percentile; earn on average $70,300 = 20% of the population
- Top 20% - 10% - 81-90 percentile; earn on average $96,127 = 10% of the population
- Top 10% - 5% - 91-95 percentile; earn on average $125,426 = 5% of the population
- Top 5% - 1% - 96-99 percentile; earn on average $200,533 = 4% of the population
- Top 1% - 100 percentile; earn on average $1,071,500 = 1% of the population
This figure shows the total after-tax income earned by each category since 1979:
I've bolded the line for the Top 1% because that category shows the most interesting pattern. In 1979, the Top 1% earned just a little bit more than the bottom 20%. Remember, the Top 1% is only 1% of the population, whereas the lowest quintile is 20%. In reality, the top 1% earned more than 20 times the average income of the lowest quintile in 1979. But here I am treating all the categories the same, ignoring the fact that the various categories actually represent differing numbers of people.
Anyway, in 1979 the Top 1% earned only 282 billion dollars, and only ranked seventh out of the eight categories. Since then, their total income growth has skyrocketed. They are now in second place, earning over 1.2 trillion dollars. The Top 1% now earns more than the bottom 40% combined (1.1 trillion).
Something else to note. The middle quintile, which could be considered at least a proxy for the middle class and representing 20% of the population, earned 2.2 times more than the Top 1% in 1979. In 2005, the middle quintile earned less as a group than the Top 1%.
Ironically, though it looks like the Top 1% is on it's way to take over the Fourth Quintile for the top spot given the category's exponential growth, I don't expect that to be the case, at least for 2007. The credit crisis will lead to massive losses on Wall St (it already has), and given that huge portion of the Top 1% are in finance (they're not all Google billionaires) I expect that we will see a significant crash in their income for 2007 and probably 2008. The current fiscal crisis is bigger than anything we have seen for a long, long time, and the fallout for the Top 1% will be significant.
Of course, that doesn't mean peaches and cream for the rest of us either. A recession hurts everyone, and 2008 will be no different.