[Originally posted on Facebook, September 6, 2010]
Robert Reich’s Labor Day blog referred to the following fact: ”In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.” He used this data point along with statistics about the underperforming economy to propose “solutions” that mostly involved increased taxes and fees that would essentially transfer wealth around. Most of the other issues he referred to were genuine problems – persistently high unemployment, people underwater on their mortgages and underemployment. But is it really a problem that the richest 1 percent of Americans now earn 23.5 percent of total income compared with 9 percent in the ’70s? How do we know what the “right” percentage should be? Frankly, I don’t care. Here are some of the reasons why.
First, the richest 1 percent of Americans today is not the same richest 1 percent of the late 1970s. Unlike countries where the elite ruling class is typically the same generation after generation and the wealth concentrates amongst this elite, wealth in the US is very mobile. A moment’s consideration bears this out. Bill Gates, Larry Page, Sergey Brin, Steve Jobs, Jeff Bezos, Larry Ellison, Steve Jobs… all of these gentlemen were around in the 1970s, but to the best of my knowledge none was amongst the richest 1 percent and their families weren’t either. Many of the rich from the ‘70s got beaten by competitors, made bad investments or left their wealth to children who squandered it. Nowhere is it more possible for people to go from “rags to riches”, and vice versa, than in the US.
Second, the US is vastly wealthier today than in the 1970s. Even though the rich may be earning 23.5 percent of total income, the total size of the pie is much larger than in the ‘70s. To use a Seattle analogy, if the rich take 23.5 percent of a venti, there’s a lot more left for the rest of us than if they take 9 percent of a tall. What’s more, the rich entrepreneurs who’ve come along in the past few decades are most responsible for creating all this additional wealth. Their businesses are the ones that have generated jobs, increased our productivity, created new business opportunities and generally increased our standard of living.
Third, the vast majority of the poor in the US today were not the poor of the 1970s. Take any 20 year period in the US over the past hundred years, and most people in the lower income decile at the start have moved out of it by the end. In other words, while being in the top 1% means you’re doing well, very few people in the US linger persistently at the bottom.
Fourth, while the people who have moved into the top 1% since the 1970s have done well for themselves, even those who have since found themselves classified as poor in the US have seen their lot improve. As Walter Williams has noted