Look at this graph, from the (now virulently anti-French, and thus not suspect of bias here) Economist:
France and Britain, when inequality is taken into account, are actually richer than the USA. And the FT, also not suspect of bias, explains why:
it was not a rise of profits or other non-labour income that squeezed the middle-ranking US citizen but an increase in the share of the top 10 per cent of wage and salary earners who have captured almost half the total income gains in the past four decades. Within that, there has been a vast increase of the share of the top 1 per cent, who gained more than all of the bottom 50 per cent.
Let’s go into more detail.
First, a little bit more from the FT article:
Superstars snap up American growth (Samuel Brittain, the FT’s well respected senior economics columnist, Feb. 10)
US left-of-centre journals are full of calculations showing how a middle-income earner would have to work more hours today than five, 10 or even 25 years ago to obtain basic modern necessities.
The stock Republican reply has been to point to the increase in productivity and average real income in which the US has outpaced most other leading western countries. But what is true of the average is not necessarily true of the median – the person in the middle. One of the American economists whom I most trust in this dense jungle, Robert J. Gordon, estimates that real median earnings per hour have hardly increased at all in the US – not merely under the wicked George W. Bush administration but over the preceding period, 1966-2001.*
The question is: who has benefited from the trend annual increase of around 2 per cent in US output per hour? Prof Gordon shows that there has been little long-term change in labour’s share in US income in the past half century.
What, then, was the source of the increased skewness of the income distribution? Prof Gordon is rightly suspicious of the conventional explanation that it has been mostly due to the pressure of skill-based technical change on the least skilled workers – the ratio of median earnings to those in the bottom 10th has hardly changed.
He concludes that it was not a rise of profits or other non-labour income that squeezed the middle-ranking US citizen but an increase in the share of the top 10 per cent of wage and salary earners who have captured almost half the total income gains in the past four decades. Within that, there has been a vast increase of the share of the top 1 per cent, who gained more than all of the bottom 50 per cent.
I went to the original sources mentioned in this article (The Polarisation of the US Labor Market, pdf) , and found some spectacular graphs, which simply have to be shown here…
In the past 30 years, there has been a steady increase in the gap between the rich (the “90”) and the median (the “50”), whereas the gap between the median and the poorest (the “10”), which also increased in the 70s, has now stabilised. (you could even argue that it imporved under Clinton and got worse the rest of the time)
This graph shows that everybody did better in the last 15 years than in the 15 years before that; in both cases the rich did better, but in the last 15 years, the poor did as well as the middle classes. The problem is this:
The middle is getting thinner. Jobs have been created at both ends of the spectrum, instead of throughout. So having a poorly paying job that sees its salary increase as much as that of the middle classes is a pretty small consolation from falling from the middle classes into the lower classes.
Which brings us back to our original graph, with a more detailed version below, from the OECD original study (this page allows you to explore the study, the actual graph is here (pdf)):
I have not been able to find the exact methodology for this graph, but the OECD is a pretty serious institution, and from what I can see, it looks like they have simply taken out of the calculation of the GDP the highest x% (with various values for x depending on “inequality aversion”).
What this says is that America is richer because America’s rich are richer than Europe’s rich. Take the very rich out, and America and Europe have pretty much the same standards of living (according to GDP numbers anyway).
As the FT’s columnist points out:
In any case, we can no longer say with as much confidence as before that redistribution will achieve very little. Tony Blair, prime minister, once said that reducing the earnings of football star David Beckham was not a priority. But if Beckham’s corporate equivalents now account for a substantial proportion of the national income, the matter looks different.
Does that mean another “soak the rich” campaign? One is indeed likely in the US. Republicans will not be able for ever to divert attention to religious and “moral” issues.
Thus, the conservative economics columnist of Europe’s foremost business newspaper expects a “soak the rich” campaign, and indeed seems to think that it would be pretty justified. What are you guys waiting for??
You are already poorer than the French, with no free healthcare, no permanent holidays, and no pains au chocolat. What more do you need to act?!
“You are already poorer than the French, with no free healthcare, no permanent holidays, and no pains au chocolat. What more do you need to act?!”
A Democrat.
Wonderful post. This one is going far and wide.
As usual, this is great post Jerome. Kudos
Imho, underlying the inequality, CEOs take the golden eggs (jobs) of their workers, including the highly educated, elsewhere. The high cost of everydaylow price fattens only the pockets of CEOs and shareholders.
So “It’s a job’s depression” so say Paul Craig Roberts, former Assistant Secretary of the Treasury in the Reagan administration.
Roberts states we’ve been deceived. WAAaaaah, that from a republican? In his essay, “Nuking the Economy” Forget about Iran, American should be hysterical about this” is that we have a jobs depression.
the whole piece is here
http://www.counterpunch.org/roberts02112006.html
No wonder Cheney advised the CPAC crowd over the weekend that the ’06 and ’08 elections be on fear of terror.
Let’s see if it won’t be about “It’s the economy STUPID,” round 2.
A very good diary. Americans seem to shy away from the term “class warfare” as if even uttering those words would let marxist sentiments creep into our hearts and minds, but Republican policy has been nothing but class warfare for decades.
Although I consider myself zillions of times more informed since I started reading your diaries (and those of billmon and bonddad), I don’t understand that first graph at all.
Do you have a small explanation for my pea brain?
Now, it does not take an economic brain trust to see what’s happening in the “middle,” all one has to do is look around and listen to regular folks having regular conversations. It is encouraging to see the on-the-ground problems getting some serious discussion.
And not said enough by me: Thank you for all your good work.
What it says is that the average person is doing better in France than in the US. Our rich people may be doing better than everyone, but most of us in the fatter portion of the economic bell curve (i.e., the middle class) are doing less well than our compatriots in France and the UK.
US is phasing out its middle class, as part of the transition to feudalism.
France is not, and in fact, the argument could be made that there is something of an attempt to actually enlarge the middle class.
Also, France, like most countries, has a different basic philosophy than US. Many nations, especially in Europe, have been moving toward the idea that the purpose of the government is to benefit the people.
In US, both people and government exist to serve the corporations.
Thanks, Steven. What I really don’t understand are the qualifications:
“Purchasing power parity” and “Household income adjusted for inequality”
Just curious about what these mean and how they’re arrived at.
The top bar for each country compares its GDP per capita to that of the USA (equal to 100 in this graph). This means that Americans are 25%, on average, richer than most Europeans.
The second bar takes into account leisure time. This simply means that leisure time is added to GDP as if it had the same average “value” as a worked hour. Thus countries with lots of leisure time and/or high productivity see their numbers improve. The Nethermands do especially well there, although I could not explain why in detail.
The third bar adjusts GDP per capita to take into account inequality. I have not bee able to find the exact methodology, but the last graph below from the OECD suggests that they have simply taken out a portion of the richest out of the calculations to identify the GDP per capita of “normal” people (in the OECD study, they have done this with various definitions for “normal”). Take this as the GDP per capita of the 90% poorest people in the country. There, countries like France and Britain do better than the USA, meaning that our low and middle classes are, on average, better off than that of the USA.
Sorry, invert second and third above
Yes, I pretty much get it now. And it seems instructive to take out that top ultra-rich groupette, especially here in the US. One certainly can’t figure in their stats and get an accurate picture of what’s really going on with “normal” folks.
Again, Thank you.
Good post.
From my limited (one year) direct exposure to the US, I think we’ll have to wait for a skilled orator who can connect
a) “equality” (considered a bit suspect at best)
and
b) “by gosh I worked hard for this and I deserve it” (central to the culture.)