During his June 26, 2017 interview with Judy Woodruff of PBS NewsHour, Warren Buffet said, “If you go to 1982, when Forbes put on their first 400 list, those people had a total of $93 billion. They now have $2.4 trillion, a multiple of 25 for one. This has been a prosperity that’s been disproportionately rewarding to the people on top.” Later he says, “The real problem, in my view, is – this has been – the prosperity has been unbelievable for the extremely rich people.”
On this topic, David Brooks wrote in a New York Times article, “There is a structural flaw in modern capitalism. Tremendous income gains are going to those in the top 20 percent, but prospects are diminishing for those in the middle and working classes”. To which professor Gabriel Zuchman of UC Berkeley tweeted a graph showing that in fact these tremendous income gains are going to the top 1%. With the largest amount of income growth going to the top .001%. While real annual income growth for the vast majority of Americans has been flat or negative.
— Gabriel Zucman (@gabriel_zucman) August 8, 2017
The idea of income inequality is not a new concept, as with all things macroeconomic, over time the measure of income inequality expands and contracts. However, the current trend seems to be picking up steam. Based on another UC Berkeley professors findings, Emmanuel Saez, in 1982, the highest-earning 1% of families received 10.8% of all pretax income, while the bottom 90% received 64.7%. Now, three decades later, the top 1% received 22.5% of pretax income, while the bottom 90%’s share had fallen to 49.6%. These are all similar findings and illustrate a growing frustration within society.
Does all of this data indicate that there has been a breakdown in the U.S. economic model? Based on Labor Department reporting the economy is essentially at full employment. However, significant wage growth has not occurred for the vast majority of Americans. I don’t believe this is an issue of timing, check back in a couple years of sustained full employment and it’s possible that the trend illustrated on the chart above will reverse, but I’m not confident.