The Death Of Trickle Down Economics?

Most of the discussion about income inequality leaves me cold because most of it is an apples to oranges comparison that fosters an “us vs them” mentality instead of trying to get at the heart of the matter. The problem is primarily stock ownership vs annual salary. Anyone who’s a billionaire has gotten that way because of stock ownership, as, even if you’re making $10 million/year with zero taxes, it would take you 100 years to amass $1 billion. Certain artists are exceptions to this rule of stock ownership route to mega-wealth. Take a musician like Beyonce for example… her wealth is driven by music sales, but do we have a right to force her to sell music for $0.10/song just because she’s already rich? To similarly force the Walton family to give up their billions because they pay a bunch of their employees the minimum wage is just as goofy.

But this graphic and article from about 2 years ago on Bill Moyer’s website is a step in the right direction. Here it clearly showcases the issue, comparing the average income for the top 1% against the average income for the bottom 90%. The chart is adjusted for inflation.(The green line at the bottom is NOT the x-axis, it’s the average income of the bottom 90%!)

Income Inequality

Some caveats… Firstly I need to assume this is in fact income and not total change in wealth. There’s a little noise as the interactive graphic cites the 1993 change in stock option ruling, but as many will know some component of options are taxed as income (vs capital gains) and so I would assume this graph is still largely an income based graph. Other than calling it “income” the article doesn’t further specify though it does cite its source, the book “Winner-Take-All Politics”.

Second, the eye is naturally drawn toward the peaks in this chart, and 2nd to that to the periods of sharp upturns. One such period is 1986-1988, possibly the largest percentage increase for the rich in the entire graph. Coincidentally there’s a legislative change also in 1986, but it was the successful passing the tax reform act of 1986. The article implies that it wasn’t that tax reform act that caused this upturn, but what the lobbyists did afterward that contributed to this rise. It would be nice to know what that was.

The trend is largely bipartisan… it started during the Reagan era and continues today through both Democratic and Republican administrations. From 1970 to 1986 the top 1% made 10x to 13x more than the bottom 90%. Today that ratio is 30x. Regardless of what caused that gap, it’s clear: trickle down economics does not work. If it did, or at least if it broke even, then the bottom 90% would be averaging $90,000/year.

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