The 1 percent recovery
Forget Roman Catholics and contraception, evangelicals and Mormonism, Newt Gingrich’s three wives and even Mitt Romney’s dog. If you are struggling to understand a roller-coaster U.S. election season, described by one writer as “wackadoodle,” your Rosetta Stone should be a dry academic paper by the economist Emmanuel Saez.
In an age of celebrity scholars, Saez, a professor at the University of California at Berkeley, is a shy data jock who does most of his communicating by marshaling vast pools of statistics. But he has probably done more than any pundit or political spinmeister to shape the political narrative of our age — it is the number-crunching of Saez and his longtime collaborator, Thomas Piketty, that gave us the notion of the 1 percent and the evidence that they are pulling away from everyone else.
That’s why, in the community where economics and politics intersect, a new Saez paper is hot news. And his latest, which set Twitter abuzz this week, is a humdinger. Saez has come up with a killer fact: In the 2010 recovery, 93 percent of the gains were captured by the top 1 percent. That’s because top incomes grew 11.6 percent in 2010, while the incomes of the 99 percent increased only 0.2 percent.
That gain is particularly painful because it comes after an 11.6 percent drop in income for the 99 percent, Saez reports, the largest such fall over a two-year period since the Great Depression. That decline more than erases the income gains since the last downturn. We may not yet be a lost generation, but we have certainly experienced a lost decade.
This battering of the middle class — or really, everyone except the rich — is the powerful and painful economic reality that is driving the angry, polarized political debate in the United States. Saez is hardly a household name in the U.S. heartland, but the economic whiplash he describes is American everyday life. It is why voters are so angry, and why they are attracted by candidates who present themselves as outsiders offering a vision of change.
The healthy rebound of the 1 percent that Saez documents is also important because it runs counter to the rising narrative of an economic elite that is under siege. The recent decline in Wall Street bonuses and attacks on the titans of finance by both Occupy Wall Street and, less predictably, the Republican presidential candidate Newt Gingrich, have provoked the angry retort that the people at the top have suffered from the financial crisis, too, and that their travails are no less worthy of sympathy.
But Saez shows that while the financial crisis hurt those at the top more than anyone else — the income of the 1 percent plummeted 36.3 percent between 2007 and 2009, compared with an overall average fall of 17.4 percent — their recovery has been spectacular, while everyone else has languished. Interestingly, the top 1 percent fared better in President Barack Obama’s recession than they did in the recession of President George W. Bush from 2000 to 2002.
Conventional wisdom has it that Americans are more tolerant of the ultrarich than people in many other countries, and that one reason for this benevolent attitude is that in the United States, those at the top earned their way there. Saez offers some support for this view.
“The evidence suggests that top income earners today are not ‘rentiers’ deriving their incomes from past wealth, but rather are ‘working rich,’ highly paid employees or new entrepreneurs who have not yet accumulated fortunes comparable to those accumulated during the Gilded Age,” Saez writes.
That’s a good thing, and it helps to explain why the same people who cheered Occupy Wall Street also treated the death of Steve Jobs like the passing of a secular saint.
But Saez cautions that a plutocracy of the working rich “might not last for very long,” pointing in particular to the cuts in the estate tax as a measure that could “accelerate the path toward the reconstitution of the great wealth concentration that existed in the U.S. economy before the Great Depression.”
In a footnote, Saez also directs readers to a 2007 paper he co-wrote that reveals another worrying characteristic of the 1 percent. Social mobility — the other great promise of U.S. capitalism — is weaker than Americans assume, and it’s getting worse. “At the same time as the gap in earnings between the upper-middle class and the top percentile was drastically widening, it was becoming less likely that an upper-middle class earner could reach the top percentile within 10 years,” he writes.
Saez’s new research is bad news for Mitt Romney, this political season’s most striking emblem of the 1 percent, and it provides a playbook for Obama’s re-election campaign. But the men who will take the most pleasure from it are former President Bill Clinton and his economic team, a group today much maligned for not foreseeing the financial crisis.
The Clintonites turn out to be the heroes of Saez’s economic history of the 1 percent. The economic expansion between 1993 and 2000 was a bonanza for the 1 percent, whose income grew 98.7 percent, a staggering increase that exceeded even the 61.8 percent gain for the 1 percent during the 2002 to 2007 Bush expansion. But the income of the 99 percent grew only 6.8 percent during the Bush go-go years, while it increased a solid 20.3 percent during the Clinton expansion.
As Saez dryly comments: “Those results may also help explain why the dramatic growth in top incomes during the Clinton administration did not generate much public outcry while there has been a great level of attention to top incomes in the press and in the public debate since 2005.” That is the ultimate irony — Clinton, a hated figure of the right, was actually the guy who made it safe for the 1 percent.