Income and the Internet Bubble

August 23, 2007
Posted by Jay Livingston

In the previous post, I suggested that much of the fluctuation in mean income (but not median income) in this century was accounted for by the changing fortunes of the very rich. Here are some relevant graphs showing the share of income going sectors among the top 10% of families. The first one shows the share of total income going to the all but the top 1% – the 90th to 95th percentiles and the 95th to 99th.

These folks are not poor – the lower group averaged $110,000, the upper group $177,000 – and their incomes have increased faster than those of those below them. That’s why their share of all income increased from about 24% in 1973 to 27% in 2005. But the changes are not dramatic. The difference in the lower group, the 90th to 95th percentiles, is essentially unchanged. The upper group increased its share by a factor of 18%.

Now here is the top 1%, all except the tenth of one percent of the population, the top 145,000 families. Here too, I’ve divided them into two.

The “poorer” half of this 1% (average income $370,000) increased its share from 2.7% to 4%. The share of the upper half (average income $696,000) went from 3.2% to nearly 6%. As in the first graph, the richer half got even richer than did the lower half – an 87% increase compared with a 47% increase.

But what about the truyly rich, he top tenth of 1% of families – with incomes well over $2 million? Their considerable incomes show much larger fluctuations.

The overall trend is a big increase. Their share of total income doubled. It is also in this group that we see the effects of the dot-com boom (1995-2000) and bust (2000-2003). In 2004 and 2005, they seem to have gotten their groove back.

(Note: these graphs are based on data published by Piketty and Saez based on tax returns. The figures for income do not include capital gains. If capital gains were included, the differences between the very rich and the rest would be even larger.)

Here’s one final picture showing that the largest effects of the Internet bubble occurred at the top. It shows the ratio of CEO income (including bonuses and stock options) relative to that of the average worker.

The billowing and bursting of the Internet bubble is obvious. But smoothing out the curve also shows the general trend towards increasing inequality.

Income - Averages vs. Medians

August 21, 2007
Posted by Jay Livingston

David Cay Johnston reports on taxes and income for the New York Times, and he does a great job. Not too many other publications have reporters on this beat. But why, in today’s article, is he using averages?

While incomes have been on the rise since 2002, the average income in 2005 was $55,238, still nearly 1 percent less than the $55,714 in 2000, after adjusting for inflation, analysis of new tax statistics show[s].

Here’s the graph that accompanies the article.

Much of the fluctuation in income is accounted for by those at the top. When average income rises, it’s probably because those at the top are getting a lot richer. But the decline in the average income in the early years of this decade may have been driven by the bursting of the Internet bubble, a bubble which affected the top 10% or less.

When economists want a single figure that shows income trends, they use not the average but the median. In this case, the news is about the same. Here are some data from the Regional Economic Information System (REIS) of the U.S. Department of Commerce, Bureau of Economic Analysis. It uses 3-year averages.

In constant dollars, median income is about $1000 (2%) lower in 2005 than it had been in 2000.

There was one bit of good news in the Times article: “The I.R.S. data showed that the number of Americans making less than $25,000 a year shrank, down by 3.2 million, or 5.5 percent.” Unfortunately, we don't know how may of those 3.2 million people increased their income and how many just dropped out of the labor market entirely

There Will Be More Joy in Heaven . . . (Crime and Punishment - II)

August 19, 2007
Posted by Jay Livingston

Yesterday, I posted an excerpt from an essay by Glenn Loury. Loury is trained as an economist, and when economists explain behavior, they usually focus on individual factors. But Loury was emphasizing the constraining power of social forces. The difference in focus is also the difference between conservative and liberal thinking, especially on matters like crime and deviance. Conservatives ignore social forces, locate all cause in the individual, and see punishment for bad behavior as the only way to deal with crime. Loury’s article is a critique of American punitiveness.

Glenn Loury used to be a conservative. Black conservative intellectuals are something of a rarity. The vast right-wing conspiracy carefully nurtures the few there are, installing them in conservative think tanks and trotting them out as needed. Each published piece seems to be accompanied by a chorus of conservatives, neo and paleo, gloating and nyah-nyahing, as though they’d brought off some game-winning coup in capture-the-flag.

In his days as a conservative, Loury was befriended by neo-con publications, think tanks, and politicians. He was the highest ranking African American in the Reagan Administration (Deputy Secretary of Education).

But he drifted away from conservatism, and this latest article is both a moral critique of

American punitiveness and an indictment of social conditions as causes of crime. Our society—the society we have made—creates criminogenic conditions in our sprawling urban ghettos, and then acts out rituals of punishment against them as some awful form of human sacrifice.

No wonder it has been spread so quickly around the liberal orbits of the Internet.

For those not familiar with the phrase alluded to in the title of this post, here’s the full quote: “There will be more joy in heaven over one sinner who repents than over ninety-nine righteous persons who need no repentance.” (Luke, 15-21)

Crime and Punishment - I

August 18, 2007
Posted by Jay Livingston

The first time I was on jury duty, many years ago, I was eager to serve. I wanted to be on a jury and see how the process worked. But I never made it past voir dire. The lawyers would ask some basic questions – age, occupation, neighborhood – maybe something about free-time activities. They’d meet with the judge, sotto voce, and then several jurors would be dismissed. I was always among the rejected.

One afternoon, I happened to bump into the prosecuting attorney whose case I’d been rejected for that morning.
“Why’d you throw me off your jury?” I asked.
“A sociologist?” he said. “You people don’t believe anybody’s responsible for what they do.”
At the time, I didn’t really know how to respond.

I remembered this encounter when I read the following paragraph from an article by economist Glenn Loury, “Why Are So Many Americans in Prison? Race and the transformation of criminal justice.” It was posted on the Internet recently, and several of my friends have sent me the link.

We would, in short, recognize a kind of social responsibility, even for the wrongful acts freely chosen by individual persons. I am not arguing that people commit crimes because they have no choices, and that in this sense the “root causes” of crime are social; individuals always have choices. My point is that responsibility is a matter of ethics, not social science. Society at large is implicated in an individual person’s choices because we have acquiesced in—perhaps actively supported, through our taxes and votes, words and deeds—social arrangements that work to our benefit and his detriment, and which shape his consciousness and sense of identity in such a way that the choices he makes, which we may condemn, are nevertheless compelling to him—an entirely understandable response to circumstance. Closed and bounded social structures—like racially homogeneous urban ghettos—create contexts where “pathological” and “dysfunctional” cultural forms emerge; but these forms are neither intrinsic to the people caught in these structures nor independent of the behavior of people who stand outside them.

What he said.