- US economy nearly two times larger in last four decades
- Small portion of population has pocketed the most new wealth
- COVID-19 pandemic reveals consequences of unequal distribution of prosperity
Let’s take a look at what has happened to the American economy in the last four decades.
Gross Domestic Product or G.D.P. measures the country’s output and that output has risen a lofty +79% since 1980, after adjusting for inflation and population growth.
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Over this same period, after-tax income of the bottom half of earners has increased only +20% while the after-tax income of those in the middle has increased only +50%.
Now take a look at the after-tax income of the very wealthy or top 0.01% – it has risen +420% since 1980!!!
The only group that has not experienced stagnant incomes has been the rich. If that were not the case, every household in the bottom 90% would be earning approximately +$12,000 more EVERY year, permanently. Instead, every household in the bottom 90% is essentially sending a check of $12,000 to every household in the top 1% year after year after year after year, etc. Put another way, Since January 1, 2011, every household in the bottom 90% has essentially given the rich $110,531.79.
Another measure of economic progress is, “Do you earn more than you parents did when they were your current age?”
- For those born in 1940, yes.
- For those born in 1980, only 50% could say yes. In other words, a coin flip could decide whether or not someone born in 1980 would earn more than their parents did at the same age of that “child.”
Today, the Boomers are richer and everyone else is poorer. Boomers have accumulated more than half of ALL household wealth…they now have nearly 58% of all household wealth. Lagging far behind in second place is Gen-X with some 17% of household wealth and Millennials come in a distant third with not quite 5% of household wealth. (All these percentages are sourced from the Federal Reserve based on work by Gray Kimbrough.) And to top it off, the 2016 median household had an approximate 30% lower level of wealth than the median household in 2007.
The top 1% experienced a median net worth increase of +13% from 2007 to 2016, while Boomers saw their net worth decrease by -15%, median household net worth dropped -30% and the bottom household net worth lost -37%.
The richest 0.1% of US households own 19.6% of the nation’s total wealth, up from 15.9% in 2005 and +7.4% in 1980. The richest 0.1% now have the combined net worth as the bottom 85%.
These wealth disparities are stark when looking at age and race:
- The median net worth of those under 35 is -40% lower than the net worth of their same age peers in 2004.
- The net worth of those 65+ years has increased +9% during the same time period.
- The median wealth of white households is now 10 times higher than the median wealth of black households, all data included here according to the Kaiser Family Foundation
All of these income gap discrepancies reflect discrepancies in health and life expectancy, smoking rates, educational outcomes, marital status, mobility trends and political persuasions.
Thanks to The New York Times’ David Leonhardt and Yaryna Serkez and authors Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren, Robert Manduca and Jimmy Narag of “The Fading American Dream: Trends in Absolute Income Mobility Since 1940,” The Economic Policy Institute, Federal Reserve Survey of Consumer Finances, Pew Research Center, American Community Survey and NBC News/Wall Street Journal.