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Income Inequality and the Death of Trickledown

On September 12, 2012, the Census issued its report on Income, Poverty, and Healthcare Coverage in the United States: 2011. While the full report has some nice charts, one that was conspicuously missing was on income inequality. The data for such a chart was in the tables, and so I was able to construct the chart above from them. Mean household (not individual) income for each quintile (20%) is expressed in real (inflation-adjusted) dollars.

One feature that jumps out at you are how relatively flat mean income has been for the bottom 80% over the last 45 years and how much it has grown for the top 20%, from an already high baseline. I thought this merited some further investigation.

If you look at the far left, in 1967, the income difference between the quintiles of the bottom 80% was remarkably similar, less than $17,000 between each group ($16,679 between the 1st (lowest quintile) and 2nd; $15,572 between the 2nd and 3rd; and $16,631 between the 3rd and 4th). But even in 1967, we see significant income disparity ($46,619) between the 4th and 5th (top) quintile. The top 20% have an income difference nearly 3 times as great as the other quintiles.

In the succeeding decades, difference between the 4 lower quintiles showed some moderate spreading. For 2011, they are $17,965 from 1st to 2nd; $20,638 from 2nd to 3rd; $30,238 from 3rd to 4th; and $97,940 from 4th to highest 5th). What we see in this is a movement of the top 20% from around 3 times the initial 1967 spreads between quintiles (~$17,000) to something over 5 times them ($97,940).

What is interesting is that the mean income of the top 20% increased $73,100 from 1967 to 2011. About $20,000 of this increase occurred during the Reagan years, but what often gets overlooked is that about $43,000 of it happened during the Clinton years.

Because the first 4 quintiles are so flat, it is worthwhile to look at their averages over the 45 years of data.

For the bottom 20%, their average mean income was $11,618.
For the second 20%, it was $29,425.
For the third 20%, it was $48,938.
For the fourth 20%, it was $74,183.
For the highest fifth 20%, it was $146,693.

Now compare these to the 2011 mean income numbers.

For the bottom 20%, it was $11,239.
For the second 20%, it was $29,204.
For the third 20%, it was $49,842.
For the fourth 20%, it was $80,080.
For the highest fifth 20%, it was $178,020.

The lowest 40% are essentially unchanged, actually slightly worse, than their 45 year average. The middle 20% is also not much changed, but slightly better than its average.
The fourth quintile is doing modestly better, about a $6,000 increase.
The highest 20% is doing about $31,000 better than its average.

You can see this effect in the chart where dramatic rises in the income of the top 20% are reflected in smaller and smaller rises as we go down from one quintile to the next until we arrive at the bottom 20% where there is almost no change at all.

If you think about it, this chart completely refutes trickledown economics. As I said, the periods of greatest income growth in the top 20% correspond to the Reagan and Clinton Administrations. But what we see is that great increases in income at the top have only modest effects on the incomes of the nearest quintiles and have almost no effect at all on the lowest quintiles. That is very little trickles down, and almost nothing trickles down to the bottom.

The chart shows in easy accessible terms much of what we already knew. Wages have been flat for most of us our whole working lives even as the rich have been making out like bandits. But it also shows that theory so near and dear to neoliberals: trickledown aka supply side economics aka Reaganomics aka "job creators" doesn't work, has never worked.

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Cujo359's picture
Submitted by Cujo359 on

Looking at the last three years, it's also obvious that only the upper quintile have recovered their losses from the crash of 2008.

letsgetitdone's picture
Submitted by letsgetitdone on

it's only about the upper 3%.

letsgetitdone's picture
Submitted by letsgetitdone on

Very important! The analysis is just as important as the Chart. Tweeted and Facebooked.