“We are the 99%”. Anyone who has been following the various Occupy protests in cities across America cannot have missed this slogan, or some version of it. These slogans capture something that unites most of the otherwise disparate groups that the Occupy protests have attracted: a deep disquiet at growing inequality and a sense that the vast majority of people in the world’s biggest economy are being left behind.
As, in some real sense, they have been. The reason that the “99%-vs-1%” slogan has such resonance is that it pithily captures one of the most remarkable trends in the evolution of the distribution of income in the US over the last few decades. Most recently, this has been underlined by the release of a report on income distribution in the US by the Congressional Budget Office (CBO). Between 1979 and 2007, the CBO finds that the real (that is, inflation-adjusted) post-tax income of the top 1% of the American population increased by 275% - i.e. nearly tripled. Over that same period, the take-home pay of the bottom 20% of the population rose by a measly 18%.
People affiliated with the Occupy Wall Street movement protest outside the New York. (Reuters photo)
So, in terms of income growth, the richest 1% of Americans has been living in booming coastal China, whereas the bottom fifth have been stuck in the worst-performing parts of sub-Saharan Africa. It’s another matter, of course, that even the poorest Americans are relatively well-off by international standards -- but you can see why the ‘99%’ are not happy.
Indeed, the CBO report only makes official what economists who study the evolution of income distribution have been saying for several years now. In particular, French economists Thomas Piketty and Emmanuel Saez have built up a detailed picture of how the rich have done in a number of countries over the long run, using methods that allow for comparability over time. Their data is now on a remarkably useful website housed by the Paris School of Economics, which allows us to put American inequality in some sort of historical and international context.
The picture for the US is pretty stunning. Between 1913 (when the data begins) and World War II, the richest 1% of Americans always took home at least 14.5% of total income. In 1928, the high noon of inequality, their share peaked at an astounding 19.6%. (So the richest hundredth of Americans took home one-fifth of national income). By the early 1970s, though, it had fallen to the 7%-8% range.
Since the 1980s, however, the upward trend has resumed. In 2007, the economists estimate (based on income tax filings) that the richest 1% of Americans took home 18.28% of national income - not quite 1928, but back at Gilded Age levels. And 2007 was not some sort of pre-crash aberration. In no year since 1997 has the share of income accruing to the top 1% fallen below 14%. In terms of how much of national income goes to the richest 1%, the United States of the late 1990s and 2000s looks remarkably like that of the period between the two world wars. The roaring twenties are back, but a couple of decades early.
Interestingly the website also has similar numbers for other countries, of which India is one. (Abhijit Banerjee of MIT put together the Indian data with Thomas Piketty). And the interesting thing is that at least at the 99%-versus-1% level for India, inequality looks much less marked than it does for the US. The India figures only go back to 1923, and indeed the 1920s and 1930s were pretty much as unequal in India as in the US: the top 1% took home a large and rising share of income, which ranged between 11.5% in 1928 and a peak of 17.8% in 1938. It then fell after Independence, going as low as 4.3% in 1981. And it has, indeed, risen since liberalisation, but is nowhere near the stratospheric levels it has reached in the US. The India data end in 1999 at just under 9% of total income. That’s a lot higher than it was in the 1970s – but it’s comparable to America in its least unequal period over the past century.
Inequality in India must of course be seen in the context of average incomes that are pitifully low compared to those in the US, but this data urges us to rethink what the fundamental problem Indians face is. That remains low income (as a result of many, many decades of low growth) rather than inequalityper se. By international standards, India is not a particularly unequal country. It’s just that it’s also very, very poor, which means that the absolute income levels of India’s poor are such as to make it difficult for them to live with any semblance of dignity. To a first approximation, increasing those low incomes has to be the first priority of Indian policymakers.
Saugato Datta is a development economist and journalist. He has been a researcher at the World Bank, an economics writer at the Economist, and is now Vice-President for international development at ideas42, a behavioral-economics research and design lab based in Boston