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The One Percent Bounce Back

The "one percent"--that is, the people in the top percentile of U.S. incomes, or families currently pulling down more than about $350,000--have been gobbling up an ever-larger share of the nation's income for the past three decades. But during the Great Recession of 2007-2009 the one-percenters took a break from their meal. Some observers, including Megan McArdle of the Atlantic, took this to mean that the 33-year inequality trend might be reversing itself. Most everybody else, including me, pointed out that income share for the top one percent typically falters during recessions. When the economy recovered, so would the Great Divergence. Now we know that it has.

The World Top Incomes Database tells the story. The WTIC is the creation of the economists Facundo Alvaredo, Tony Atkinson, Thomas Piketty, and Emmanuel Saez. It was Piketty and Saez who, in a now-famous 2003 paper, introduced to discussion of American income inequality the terms "one percent" and "99 percent." Anyway, the WTIC now has numbers for the post-recession year of 2010. (I know it doesn't feel like the recession ended three years ago, but it did. The recovery has just been very, very weak.) 

Income share for the top one percent reached a post-1929 peak of 23.5 percent in 2007. (The previous peak, in 1928, was 23.94 percent.) That means roughly one out of every four dollars earned in the United States during 2007 went to people whose family income exceeded about $420,000 in 2010 dollars. (The price of a ticket to enter the one-percent club was higher in 2007 than it is today because the economy was doing a lot better.)  

Then the recession hit. The one percent's income share fell to 20.95 in 2008 and 18.12 in 2009. But in 2010 it bounced back up to 19.77. These calculations include capital gains (as they should, because capital gains are no small part of where the one percent gets its income.) But if you exclude capital gains the same pattern holds. The top one percent's income share peaked in 2007, fell the following two years, and then began growing again in 2010. As of 2010 the one percent's income share remained below the 2007 peak. But give it time.

Saez has posted an essay on his Web site ("Striking It Richer: The Evolution Of Top Incomes In The United States") that translates his 2003 paper into laymen's English. Every time he gets new numbers he updates the paper. The latest version explains that during the Great Recession average family income fell 17.4 percent. That's the worst two-year drop since the Great Depression. The one percent got socked worse than the 99 percent. Indeed, it absorbed 49 percent of the income loss. But that's to be expected. Rich people lose income during recessions. The Great Recession wasn't as hard on the one percent, relative to everybody else, as the 2000-2002 recession. In that earlier downturn, which was a lot less harsh on the 99 percent, the one percent absorbed 57 percent of the income loss. 

Now get ready for a statistic that you will likely hear President Obama and all Democratic candidates--maybe even a few Republicans--repeat this year. In the first year of the recovery, 93 percent of all income gains went to the top one percent. As of 2010, recovery was a luxury item. You had to be in the one percent to get any. "Such an uneven recovery," Saez suggests, "can help explain the recent public demonstrations against inequality." I'll say. "It is likely," Saez goes on, "that this uneven recovery has continued in 2011 as the stock market has continued to recover. National Accounts statistics show that corporate profits and dividends distributed have grown strongly in 2011 while wage and salary accruals have grown only modestly." 

Probably the one percenters aren't hogging recovery dollars as much in 2012 as they were in 2010. Unemployment, after all, has gone down a bit. Still, 93 percent is a shockingly large share of recovery dollars for the one-percenters to gobble up. This is an economy that was in no hurry to share what little prosperity there was with the bottom 99 percent. I wonder how much it's sharing now.