11 Jul The Left’s Dubious History of Income Inequality
In February 2009, President Barack Obama issued his first budget, a budget that resulted in a federal deficit of $1.3 trillion. The title of the budget, “A New Era of Responsibility,” had partners in rhetorical exorbitance in its subheadings: “Inheriting a Legacy of Misplaced Priorities,” “Ignoring Our Long-term Challenges,” and “Failure to Invest in Our Future.”
Another of the subheadings tipped off a grass-roots political phenomenon that would flower in 2011 and continues to develop in the election year of 2012. This subheading was titled, “Growing Imbalance: Accumulating Wealth and Closing Doors to the Middle Class.” The section that followed laid out an argument now familiar to many:
“For the better part of three decades, a disproportionate share of the Nation’s wealth has been accumulated by the very wealthy. [Yet] instead of using the tax code to lessen these increasing wage disparities, changes in the tax code over the past eight years exacerbated them. … By 2004, the wealthiest 10 percent of households held 70 percent of total wealth, and the combined net worth of the top 1 percent of families was larger than that of the bottom 9 percent. In fact, the top 1 percent took home more than 22 percent of total national income, up from 10 percent in 1980.”
This section of the budget went on to cite research by economists Thomas Piketty and Emmanuel Saez of a few years earlier as the basis of these calculations. It was Piketty and Saez who had first developed the concept of the “top 1%.” Prior to their research, the convention was to measure income shares in “quintiles,” which corresponded to the top 20%.
This econometric esoterica was thus fated not only to make an impact in the scholarly journals. It would find its way into an ideologically informed and rhetorically bloated inaugural presidential budget, and in 2011 it became the motif of an astonishing display of political activism: the “Occupy Wall Street/Main Street” movement of 2011. “We are the 99%,” the slogan of the movement, was a homage to the Piketty-Saez research that the first presidential budget had put in lights two years before.
The feedback loop reached its culmination in Obama’s State of the Union address of January 2012, an address which effectively kicked off the President’s reelection campaign. As the address proclaimed, “No challenge is more urgent. No debate is more important. We can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot.” The means to do this, as the president outlined, was to ensure tax increases on those earning more than $250,000 per year, and a guarantee that the effective tax rate of those making $1 million per year was at least 30%.
The self-referentiality of the whole process was distinctive. Piketty and Saez identified an income phenomenon within the top 1%. The Obama budget picked up the research and laid emphasis upon it. The Occupy Wall Street movement took the research conclusion as their slogan, and as that movement made its mark, the President reintroduced the theme as the crux of his re-election mission.
The critical question at the center of it all is as follows: are Piketty and Saez correct? If they are not, or if they are being misinterpreted, a house of cards involving America’s political and economic fortune tellers stands to tumble down.