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Income and Inequality in the United States: A Review through 2008

A first glimpse at income trends in the United States doesn’t reveal anything a person would complain about:

Real Median Household Income in the United States, 1967 to 2007: more than a 25% increase

From 1967 to 2007, median household income in this country rose 25%, and that’s in real, inflation-adjusted dollars. It seems like a great trend, and from this graph alone one might be tempted to clap, cheer and conclude that all is well. But within this overall rise in income, different sorts of people have had very different sorts of economic experiences.

Our first hint that not all is peachy keen is the poverty rate, which has remained essentially the same since 1967:

United States Poverty Rate, 1967 to 2008

As of 2008, the poor are the 13.2% share of the population with the least income. If we don’t want to restrict our gaze to the poor, we could think of other portions of the population according to their income, too. The U.S. Census Bureau divides American households up into five ordered groups of 20% called quintiles. The “highest” quintile is the 20% of American households with the highest income, the “lowest” quintile is the 20% of the population with the least income, and the other three quintiles lie in between these extremes. Below is a chart drawn from Census data showing the average household income of each of those quintiles from 1967-2008, measured in 2008 dollars to eliminate the effect of inflation:

Mean Household Income of Each Income Quintile, 1967-2008, source U.S. Census Bureau

The lowest income quartile saw its average annual household income rise by $2,637.82 between 1967 and 2008. The 2nd-lowest income quartile had a $4,531.00 increase in its average annual household income over the same period. Meanwhile, the average income of the 3rd quartile went up $10,243.45, and the average income of the 4th quintile went up $23,948.73. The top income quartile’s average income went up $70,617.00 from 1967-2008. And if we look at a smaller group — the top 5% of households in income — we find that this group’s average annual income shot up by $136,270.82 from 1967-2008.

It’s worth noting that every quintile’s annual income increased during the period, a trend which punctures the depressive assertion that economic conditions are always getting worse. But the first two quintiles had only negligible gains in income, while the top 5% of households’ average increase in income is more than ten times greater than the bottom quintile’s average total income. The rich are getting richer in America, a whole lot more quickly than everybody else.

Corporate Advertisements for Politicial candidates shot through the roof in 2010, especially for Republican pro-corporate candidates.This sort of thing matters when you think about power in America. Power comes from the use of resources, and resources in America are becoming more and more concentrated at the top. in 1967, the top 20% of income earners earned 43.6% of all income. By 2008, that share had increased to 50%. From 1967 to 2008, the income share of the top 5% grew from 17.2% to 21.5%. As power concentrates at the top of the income pyramid, regulations to restrict the use of that power in politics are falling away. Corporations constituted from the invested wealth of the very richest Americans gained free rein this year to give unlimited sums to politicians for their campaigns. A very small number of very well-endowed corporate groups and individual wealthy givers are dominating congressional politics this year with their donations, donations they are more capable of making than ever before, even as this country remains mired in a recession. The more that income inequality grows, the more we can expect our politics to be dominated by the agenda of the already well-off. That agenda might be cloaked in economic populism, but the perpetuation of economic elitism is its aim.

The latest data on income and income inequality in the United States will be released by the Census Bureau this Thursday. Will the gulf between the Have Mosts and the Have Leasts grow wider still?

3 thoughts on “Income and Inequality in the United States: A Review through 2008”

  1. Archer says:

    Very Interesting Article you wrote in Sep’10 and I got a chance to read it today. Wondering why no one left a comment or am I missing something. Anyways, I am learning economics via Internet/good blogs like yours. My 2cents, THE RICH GETS RICHER & THE POOR GETS SLAUGHTERED. The Income Disparity between different quartiles has always been there but in the recent decade it has grown out of bounds between the Super rich and every one else lower than median earners. I agree with you with respect to Power/resources. This country has always been run by the Shadow Forces (lobbyists or GSers or Demons whatever you call them) and It’s my understanding that everything that is happening from the current economic crises to the so called coming out of crises has been master planned. How they let Lehman, Bear Stearns Fall while AIG was saved and GS couldn’t be happier. How the Major banks on the brink of extinction got billions of dollars from the Feds (“US”) and within ONE (freakin’) year they all re-paid that loan with interest and not just that they all made record billions in profit…Heck, even AIG is about to pay off. Go figure. Was this not according to the plan? QE, QE1, QE2…all the money they are printing and buying it themselves and passing them on to the “MARKET” (primary/secondary dealers) which in return keeps pumping the Stock prices up…Hence making Rich even Richer.

    I wrote something along the same lines on my blog today, before reading yours.

  2. Ben Sands says:

    It would seem that the median income of each might give a truer picture of the “inequality” measure. Averages affected too mich by the outliers.

    1. Jim Cook says:

      Ben, I hear you. The Census Bureau doesn’t provide median income within quintiles, however — just mean income within quintiles. However, you should be reassured somewhat, because the mean is measured within each quintile, and quintiles are closely related to medians (the median is the 50th percentile).

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