Recessions are bad for most people: production, employment, income all fall. But economic expansions are supposed to more than compensate for the down times. However, as we see below, that is no longer the case.
Increasingly, the lion’s share of all the new income generated during economic expansions now goes to a very few. In other words, a sizeable majority of the US population now loses regardless of the state of the economy. It is time to shift the focus of our discussions from how best to control the business cycle to how to build a movement strong enough to transform the workings of contemporary capitalism.
Pavline R. Tcherneva has calculated the distribution of new income between the top 10 percent and bottom 90 percent of households and the top 1 percent and bottom 99 percent of households in every post-war US economic expansion. The following figures come from her Levy Economics Institute of Bard College policy paper titled Inequality Update: Who Gains When Income Grows?
Figure 2 shows a steady rise in the share of income growth claimed by the top 10 percent of households (red bar). However, as we can see, a striking change takes place with the 1982-90 economic expansion. Starting with that expansion, the top 10 percent have come to dominate the income gains, leaving little for the bottom 90 percent of households (blue bar). And as Tchervena comments: “Notably, the entire 2001–7 recovery produced almost no income growth for the bottom 90 percent of households.” So much for the pre-Great Recession debt-driven golden years.
Figure 4 illustrates the distribution of income gains between the top 1 percent of households and the bottom 99 percent of households. As we can see, the top 1 percent of households now capture a greater share of newly created income than the bottom 99 percent of US households. It is no exaggeration to say that our economy now largely works only for the benefit of those few families.
Tcherneva sums up her work well:
the growth pattern that emerged in the ’80s and delivered increasing income inequality is alive and well. The rising tide no longer lifts most boats. Instead, the majority of gains go to a very small segment of the population. As I have discussed elsewhere, this growth pattern is neither accidental nor unavoidable. It is largely a by-product of policy design, specifically, the shift in macroeconomic methods used to stabilize an unstable economy and stimulate economic growth.