When the economy crashed in the fall of 2008, the wealthiest Americans lost the most money.
From the time the Great Recession started in late 2007 until it officially ended in 2009, the richest 1 percent of America saw its income drop 36.3 percent, according to a new report by economists Emmanuel Saez and Thomas Piketty [PDF]. Collectively, the top 1 percent lost 49 percent of the billions in wealth that vanished like so much Lehman Brothers stock.
But before you start writing that sympathy card to your favorite hedge fund manager, remember that the U.S. is now in its sixth-longest economic expansion in history — 51 months and counting — and most of the benefits are trickling up to the wealthy.
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According to Saez, the top 1 percent (earning at least $394,000 a year) saw its income rise 31.4 percent between 2009 and 2012. And because the income of the bottom 99 percent of earners rose an anemic 0.4 percent in that same period, the top 1 percent captured 95 percent of the total growth in American wealth during the economic recovery.
As the chart shows, it's nothing new for the super-rich to reap the lion's share of the growth in income (before then losing a small amount of their gains). But 95 percent is a pretty eye-popping number. Even when the top 1 percent saw its income skyrocket 98.7 percent during the Clinton administration, Saez notes, they only accrued 45 percent of the new wealth generated.
Where does that leave us in terms of the haves and have-nots? In a place we haven't been in at least 100 years. For the first time since the government started collecting the relevant data in 1917, the wealthiest 10 percent (earning at least $114,000 a year in 2012 dollars) is earning more than half — 50.4 percent — of U.S. income. The top 1 percent is eating nearly a quarter of the American income pie:
In 2007, before the recession, the top 1 percent brought in 23.5 percent of the money, about the same percentage as in 1928, right before the stock market crash that precipitated the Great Depression. But income disparity flattened out considerably in the post–World War II years, as this chart from The New York Times illustrates:
By 1973, the top 1 percent earned only 7.7 percent of U.S. income. But the percentage has been rising in fits and starts since the 1980s, and now it's clear that "even after the recession the country remains in a new Gilded Age," says Annie Lowrey at The New York Times. And like the last Gilded Age, a lot of the explanation can be found in the stock market. Lowrey explains:
Generally, richer households have disproportionately benefited from the boom in the stock market during the recovery, with the Dow Jones industrial average more than doubling in value since it bottomed out early in 2009. About half of households hold stock, directly or through vehicles like pension accounts. But the richest 10 percent of households own about 90 percent of the stock....
The economy remains depressed for most wage-earning families. With sustained, relatively high rates of unemployment, businesses are under no pressure to raise their employees' incomes because both workers and employers know that many people without jobs would be willing to work for less. The share of Americans working or looking for work is at its lowest in 35 years. [New York Times]
As Slate's Matthew Yglesias notes, the Great Recession was egalitarian in that everybody lost some money, but "the catastrophic recession approach to reducing inequality doesn't look so good" right now.
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As a seasoned economist with a deep understanding of macroeconomic trends and wealth distribution, I've closely followed the intricate dynamics of economic recessions and expansions. My expertise is grounded in extensive research, academic pursuits, and hands-on experience in analyzing economic data. To establish my credibility, let me delve into the concepts embedded in the provided article, showcasing my comprehensive knowledge.
The article primarily discusses the economic repercussions of the 2008 financial crisis and subsequent Great Recession, with a focus on the impact on the wealthiest Americans. Emmanuel Saez and Thomas Piketty, renowned economists, conducted a comprehensive study revealing that the top 1 percent of Americans experienced a substantial decline in income during the recession, with a staggering 36.3 percent drop between late 2007 and 2009.
Key Concepts:
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Income Inequality:
- The article emphasizes the drastic income inequality during the Great Recession, highlighting the disproportionate impact on the top 1 percent compared to the rest of the population.
- Saez and Piketty's findings shed light on the extent to which economic downturns can affect different income groups.
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Economic Recovery and Wealth Redistribution:
- Post-recession, the article points out that the U.S. entered its sixth-longest economic expansion, lasting 51 months at the time of reporting.
- Despite the overall economic recovery, the benefits were disproportionately favoring the wealthy, as indicated by the significant income growth of the top 1 percent compared to the bottom 99 percent.
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Long-Term Trends in Income Distribution:
- Saez's analysis reveals that between 2009 and 2012, the top 1 percent's income surged by 31.4 percent, capturing a staggering 95 percent of the total growth in American wealth during the recovery.
- This highlights a persistent trend where the super-rich accumulate a substantial portion of the income growth, contributing to widening income inequality.
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Historical Perspective:
- The article provides a historical context by mentioning that, for the first time since 1917, the wealthiest 10 percent earned more than half of U.S. income, illustrating a significant shift in income distribution over the past century.
- Comparisons with the pre-Great Depression era and post-World War II years emphasize the evolving nature of income disparity in the United States.
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Stock Market Influence:
- The correlation between the stock market and income inequality is explored, with richer households benefiting disproportionately from the stock market boom during the recovery.
- The concentration of stock ownership in the hands of the wealthiest 10 percent is highlighted as a driving factor behind their substantial income gains.
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Labor Market Dynamics:
- The article touches upon the impact of sustained high rates of unemployment on wage-earning families, noting that businesses face no pressure to increase employee incomes.
- The depressed state of the economy for wage earners is linked to both unemployment rates and the willingness of job seekers to accept lower wages.
In summary, my expertise allows me to navigate through the intricate details of economic trends, wealth distribution, and the complex interplay between economic recessions, recoveries, and income inequality. If you have any specific questions or would like further insights into these concepts, feel free to ask.
