Marshall Auerback — Why Inequality Matters

Additional research by the economists Steven Fazzari, of Washington University in St. Louis, and Barry Cynamon, of the Federal Reserve Bank of St. Louis, backs up the anecdotal evidence. Fazzari and Cynamon have found that in 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.

More broadly, about 90 percent of the overall increase in inflation-adjusted consumption between 2009 and 2012 was generated by the top 20 percent of households in terms of income, according to the study.

The per capita numbers continue to mask an ongoing shift in income distribution: although the average per capita income data has grown some 3.3% since October 2008 (per the BEA), the median household income has shrunk some 7% over that same time span (per Sentier Research). The typical member of the electorate lives at the median, and they are not sharing the growth reported by the BEA. The recent study of Fazzari and co refutes the received wisdom among conservatives: that incomes are in proportion to productive contribution to society. Instead, the book shows that much of our extraordinary income concentration is due to “rent seeking” by the wealthy elite, and that very often this involves taking advantage of taxpayers. What their study demonstrates, and what the growing income inequality seems to confirm is that we have a system that actively redistributes income and wealth from huge numbers of people at the bottom of the pyramid to a tiny number at the very top. That’s not a sustainable growth model.

Macrobits
Why Inequality Matters
Marshall Auerback