The New York Times points out that “the recession cost the rich,” in that not only their incomes but their share of total income have dropped dramatically:
The share of income received by the top 1 percent — that potent symbol of inequality — dropped to 17 percent in 2009 from 23 percent in 2007, according to federal tax data.
No surprise there–that always happens, as Scott and I noted back in 1995 in “The Truth About Income Inequality.” We wrote:
[I]ncome inequality tends to widen in times of prosperity, and narrow in times of recession. Thus, short-term drops in the income share of the top 5 percent occurred in the recession years of 1949, 1957-58, 1973-74, 1980-81, and 1990.
Upon reflection, this should not be surprising. In times of prosperity, more people are earning more money, and it takes a higher income to qualify for the top 1 percent, 5 percent, or any other statistical yardstick. Nearer the bottom of the income spectrum, incomes tend to be more fixed. So it should be expected that in boom periods, income inequality may increase somewhat, while in times of recession, income inequality will tend to narrow. And, in fact, the table above shows that this is exactly what has happened throughout the post-war era. “Increasing income inequality” is a statistical construct that, in practice, is likely to be synonymous with prosperity.
If you think the biggest problem we face is income inequality, a lousy economy represents at least a partial solution. Maybe between now and next November, Barack Obama will change his tune and claim he did it on purpose.