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There’s A New Way To Watch The Widening Income Gap in (Almost) Real Time

5 minute read

Goldman Sachs paid its CEO David Solomon $35 million in 2021, the investment bank announced recently. The handsome sum— a reflection of the fact that the investment bank netted nearly $60 billion under his watch last year—puts Solomon in the top 0.01% of earners in 2021, alongside such other lucre luminaries as Morgan Stanley’s James Gorman ($35 million), JPMorgan’s Jamie Dimon ($34.5 million) and 30,000 or so other folks. Since the beginning of the pandemic in 2020, American households in this teensy tiny slice of society have increased their income by about 8%.

In contrast, the households in the bottom half of U.S. earners— those with an average disposable income of about $35,000 — have increased their annual take by about 0.8 percent. At least, this is the conclusion that can be drawn from a new income inequality measuring tool devised by economists at the University of Berkeley.

The fact that the extremely rich folks increased their earning power by 10 times as much as the half of American homes at the bottom of the income scale in just two years comes as no surprise to anybody who’s been watching the decades-long widening between the wealthy and the poor in the United States. Very few people think having such a lot of terrain between the richest and poorest earners in a country is a welcome development. It leads to a fractured economy, political instability and it suggests the U.S. has a deeply unfair economic and social system. But as the old management saying goes, if you can’t measure something, you can’t begin to address it.

“A large amount of economic statistics are being released very regularly by official agencies in the United States,” says Thomas Blanchet, a postgraduate researcher who worked on the data system, alongside Emmanuel Saez, and Gabriel Zucman, well-known (among economists, anyway) for their work on measuring global income inequality. While that government data is good at measuring the performance of the economy as a whole, it doesn’t tell the whole story. “What we don’t really know—at least not with any kind of granularity and frequency—is how the pie is distributed,” says Blanchet. “Which parts of the distribution are growing and how fast? And that’s basically what we’re constructing with this project.”

The tool, Realtime Inequality, is a set of online graphs, which can be manipulated depending on what data users are seeking. It uses economic information collected by the government alongside other measures—some devised by Saez and Zucman in their earlier work with Thomas Piketty—to track income inequality almost as it happens. It combines data from population surveys with data from the IRS, the Quarterly Census of Employment and Wages, the financial markets and other sources to more accurately assess the way national wealth is apportioned to different groups of Americans.

The tool makes plain, for example, how much government stimulus and welfare payments increased the income of bottom earners, if only briefly. When the graph is set to display the growth in disposable income since January 2020, the fortunes of the households in the bottom 50% of earners look like a line of cypress trees. Their disposable income, which includes government benefits, grew by more than twice as much as households in the top 10%.

But it’s easier to double your income if you’re not making much money. The charts also show, for example, that wealth inequality sharply increased over the pandemic. The data it presents suggests that real wealth grew about 28% among the middle 40% of earners, which is impressive. But the mega-rich, the 0.01% of top earners that Solomon and his brethren are in, saw their already enormous fortunes grow by more than 50%. (The bottom 50% don’t even make it into this graph.)

It’s not all bad news, however. The charts showed that the incomes of the lowest earners had bounced back much faster than after the 2008 recession. “If you compare the COVID crisis to the 2008 crisis, you see really a completely different type of recovery,” says Blanchet. “The recovery was extremely fast with COVID. With the 2008 crisis, it took 10 years for the income of the bottom 50% to reach the level it had been at.”

The economists hope that monitoring income inequality almost as it happens might enable policy makers and government finance experts to develop more timely interventions, much as data has powered awareness of climate change. “Statistics on the distribution of income and inequality arrive after the battle, as kind of an afterthought,” says Blanchet. “And so one of our interests in this project is making it possible to discuss all this data in real time.” The question becomes, as it has already with climate change, once people know what’s happening, will anyone be able to do anything?

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