- Introduction to series analyzing income and wealth trends in the US
- Looking at trends in inflation adjusted income since 1980
- Comparing income trends across countries
- Per capita GDP trends over past 70 years
- US taxation trends in the post war era
Leveraging a diagram from the New York Times to look at trends in inflation adjusted income since 1980. Discussion of possible levers that could be driving the trends. Created by Sal Khan.
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- What is considered income? Are capital gains from investments and self-employed business income included. If so, some of what this is showing is that lower-income brackets spend most if not all of their money on consumption and higher-income brackets invest, which has a multiplier effect as time goes on.(5 votes)
- I have the same question too, Jonathon. But I'd like to take a chance at answering your question, though I'm likely wrong: Income refers to the money one earned by selling a product or service, or the output of one's knowledge and skills. It doesn't, in other words, include things like gifts and money won in contests.
Again, anybody reading this please correct my answer, and let us know what the right answer actually is.(1 vote)
- [Instructor] What we're looking at is a graphic that's put together by "The New York Times," and it's a way of thinking about how incomes have grown since 1980. So before we even look at the various percentiles of income, this black line is interesting to look at because this is real per capita GDP, and you can see relative to 1980, real per capita GDP has grown, it looks like, about 80%. And that's interesting because, in theory, if all of the growth of productivity of a country were evenly distributed, then everyone would be growing on that per capita GDP line. But what's interesting about this graphic is we clearly do not see that. So, for example, folks with incomes in the 90th to 99th percentiles, their income actually is growing inline with per capita GDP. And, in the year that this was compiled, that would be someone, after taxes, making 120,000 to 425,000 per year after taxes, so that's a good amount of money. Someone making 425,000 after taxes might be making roughly 700,000 or even $800,000 before taxes. But we see a spread for people making more or making less. The folks in the top 1%, their income has grown about twice as fast as per capita GDP, and folks in the 0.01%, so this one out of every 10,000 people, their income looks like it has grown roughly five times faster than GDP. And, obviously, if some folks' incomes are growing faster than per capita GDP, other folks' incomes have to be growing slower than per capita GDP, and we can see that. The middle 40%, their growth, it looks like it's about 2/3 as fast as per capita GDP, and the bottom 50%, it looks like their growth is about 1/3 of per capita GDP. Now some folks might say, "Hey, this is alarming. "We see an increase in inequality as our economy grows," while some might say, "Hey, this is a side effect of capitalism. "Everyone's income is growing in real terms, "but in a capitalist world "some people might grow more than others." But regardless of your point of view, it's interesting to think about why we see this spread happening. And we're not going to be able to dissect all of it right now, but I'll talk about some of the areas of interest that might explain this phenomenon, and it's not in any particular order, but some folks would point to globalization. Why would globalization do this? Well, in the globalized world, capital can flow to wherever they can get the cheapest labor. And so, for example, if you're someone in the top 1% or someone in the 0.01%, and you own a company, you could take your capital to a lower cost place. You don't have to make wages in your country go up, and so the demand for labor is going to go offshore, and so there will be less demand for labor in your country, so it wouldn't drive wages up. Another possibility that folks could talk about is technology. Technology, oftentimes, has similar effect as globalization. Instead of taking labor and taking it offshore to find cheaper labor, technology, oftentimes, can replace labor. Or another way to think about it, it can make folks more productive so you don't need as much labor. And so the folks who own the technology or who are able to take advantage of technological trends, well, they might get a disproportionate amount of that GDP growth. Related to both of these is the idea of education. Maybe in a globalized world and a technology world, the payback of education matters even more, and so if someone doesn't get as much of an education, they can't participate in the benefits of technology as much, or jobs that they're qualified for go offshore, so they can't demand as high wages. Another potential lever to think about is immigration policy, which, from a wage point of view, could have a similar effect as technology or globalization. If you have an increase in supply of lower skilled labor, economics will tell us that the price for that labor, which are wages, would be suppressed. Another major lever that folks will definitely point to is tax policy, or fiscal policy in general. For example, generally speaking, the ordinary income tax rates, the more money you make become a higher and higher percentage of your income, but people in the very high brackets, in that top 1%, or in that top 1/100 of a percent, many of their income comes disproportionately from capital gains, income on asset price appreciation, and that time of income, today, is taxed at a significantly lower tax rate than ordinary income. And then last, but not least, you have monetary policy. And this is the actions of the Federal Reserve and interest rates, and many times, especially when you go through crises, the benefits of lower interest rates might disproportionately benefit those who own capital, who are in the position to borrow at those lower interest rates and then invest it at higher interest rates, and that might speak to some of these higher brackets. So I'll leave you there. The goal of this video isn't to make a value judgment over what's good, what's bad, or what likely is the case, but it's just to get us thinking about the trends that we are for sure seeing and what might be the levers, and this isn't an exhaustive list, that might be causing them.