There is an unexamined assumption in our culture and political discourse – that economic growth is desirable since it improves the well being of everybody in society. This assumption is incorrect since it neglects the reality that the gains from economic growth have over time been captured by a progressively smaller percentage of the US population – the wealthiest among us.

Leaving aside considerations over the soundness of pursuing economic growth in a resource constrained planet, one would need to recognize that during certain periods in our country’s history economic growth has indeed delivered increasing standard of living to every segment of society.

Source: Analysis of U.S. Census Bureau data in Economic Policy Institute, The State of Working America 1994-95 (M.E. Sharpe: 1994) p. 37

The chart above shows that real family income, in other words family standard of living, roughly doubled during the period from 1947 to 1979 for families at every income level. The strong economic growth during that period benefited every segment of the population regardless of their income level. Prosperity was shared.

From 1979 to 2007 the economy also experienced strong growth but the benefits were enjoyed primarily by the richest families in the US while the standard of living of most US families barely improved.

Source: Congressional Budget Office, Average Federal Taxes by Income Group, “Average After-Tax Household Income,” June, 2010

The bottom half of US families in terms of income saw they standard of living improve by less than 25% over those 38 years while the families in the top 1% of the income bracket saw their standard of living more than triple.

This trend in the allocation of the benefits of economic growth towards the very rich has accelerated in the last couple of decades. A recently updated study by Prof. Thomas Piketty and Prof. Emmanuel Saez published in the February 2013 Quarterly Journal of Economics shows the extent to which more and more of the benefits of economic growth have been captured by the richest 1% of the population (see table below).

“Income Inequality in the United States, 1913-1998” with Thomas Piketty, Quarterly Journal of Economics, 118(1), 2003, 1-39 (Longer updated version published in A.B. Atkinson and T. Piketty eds., Oxford University Press, 2007) (Tables and Figures Updated to 2012 in Excel format, September 2013)

The most mind-boggling data point relates to the allocation of the benefits of economic growth since the end of the last recession in the middle of 2009. The richest 1% of the population captured 95% of the benefits of economic growth we experienced from the middle of 2009 and to the end of 2012 while the rest – 99% of the population, got a paltry 5% of those benefits.

As Professor Gar Alperovitz remarked, we do not have an economic problem in this country. The US GDP in 2012 was just shy of $200,000 per family of four. We have a distribution problem allocating the economic benefits we collectively generate. Until we address the mechanism that distributes just about all of the benefits of economic growth to the richest 1% of the population, it is futile to pursue growth as a desirable societal goal.

Author: Rebekkah Hilgraves Broadcast and recording engineer, media production manager, cable monkey, marketing dork, project manager, chief cook and bottle-washer. Author, storyteller, shit-stirrer, enemy of the people.

One Reply to “Economic Growth and Inequality”

  1. […] Let’s get this one point straight – economic growth in the US has not reduced but actually increased inequality in the US since the 80s as I discussed in my blog post Economic Growth and Inequality. […]

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