The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It by Timothy Noah

Author:Timothy Noah [Noah, Timothy]
Language: eng
Format: epub
Tags: 21st Century, Business & Economics, Economic Conditions, Economic Policy, Foreign Affairs, History, Political Science, Poverty & Homelessness, Public Policy, Social Classes & Economic Disparity, United States
ISBN: 9781608196340
Google: vAkOWStY4IcC
Amazon: B00745YXES
Publisher: Bloomsbury Press
Published: 2012-04-24T03:00:00+00:00

9

Rise of the Stinking Rich

IN 2003 THOMAS PIKETTY AND EMMANUEL Saez noticed a dimension to the Great Divergence that had nothing to do with the gap between college graduates and high school graduates, or the decline of labor unions, or the differing political philosophies of Democrats and Republicans. The causes of this newly discovered trend were so fundamentally different from most of what’s been discussed in this book thus far that it’s best to think of it as a separate and distinct phenomenon: the Great Divergence, Part 2.

What Piketty and Saez saw was that the very richest Americans had, during the preceding two decades, swallowed up a lot more of the nation’s collective income than had been previously understood. Prior to the publication of their groundbreaking paper “Income Inequality in the United States, 1913–1998,” the data typically used to analyze U.S. income distribution came from monthly household income surveys conducted by the U.S. census. This data set, known to experts as the Current Population Survey, was very useful if you wanted to track income trends for households as divided into quintiles (five groups, richest to poorest). But it wasn’t particularly useful if you wanted to break down the population into much smaller groups, especially at the top end of the income scale. There were two reasons for this. First, the Current Population Survey didn’t distinguish among incomes of $1 million per year or more. Households that made that much money were “top-coded” as belonging to a single category. The second problem with the Current Population Survey was that it was based on sampling data. Sampling is very useful when you’re measuring extremely large populations; that’s why demographers are forever recommending that the Census Bureau’s much better-known project, the decennial census, quit trying to count every last American—a method that’s bound to miss some hard-to-find people—and instead conduct a scientifically rigorous sampling, which would be more accurate. But sampling becomes a lot less accurate when you’re measuring trends within a very small subgroup of the larger population. And the proportion of households with annual incomes above $1 million is well under 1 percent.1

Rather than rely on the Current Population Survey for broad-brush data about the rich, Piketty and Saez did what Simon Kuznets had done prior to his groundbreaking 1954 analysis of U.S. income distribution. They looked at data from the Internal Revenue Service. Except perhaps for a very few criminals who possess a superhuman ability to hide enormous quantities of cash, everyone in the United States who makes $1 million or more files a yearly tax return, and the IRS keeps track of precisely how much each of these people rakes in. That solved the top-coding and sampling problems. The IRS data posed a different problem: Some people don’t have to file income tax returns because they don’t make enough money. Today that’s a pretty small group of people at very low incomes, but prior to 1944 it was true of most people. Even so, Piketty and Saez found that

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