Pod Insights Optimist Economy $79 Trillion Worth of Income Inequality About this episode Our own optimist economist Kathryn Anne Edwards worked on a research project several years ago to measure income inequality. Its massive headline number has taken on a life of its own in columns, talking points, memes. We explain how Kathryn and co-author Carter Price managed to answer this question: What would have happened to Americans’ incomes if they’d grown at the same rate as the U. S. economy overall? Spoiler alert: 90% of us would be a lot better off.
Read the working paper Kathryn co-wrote in 2020: Trends in Income From 1975 to 2018 https://www.rand.org/pubs/working_papers/WRA516-1.html and Carter Price’s update going through 2023 https://www.rand.org/pubs/working_papers/WRA516-2.html.
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 Mitt Romney and Ted Kennedy were about as different as two politicians could be. The lanky businessman and the stout old senator, the conservative darling and the liberal icon. But did you know they once teamed up to tackle an elusive challenge: universal healthcare?
0:16 Speaker 01 This is a politician's dream.
0:18 Speaker 00 In season four of the Big Dig podcast, we tell the story of Romney Care and the odd couple alliance behind it. Find Mitt and Ted wherever you listen.
0:30 Robin Rauzi? So I just want you to know, I literally fell asleep on the couch last night with your report.
0:37 Speaker 03 It was your idea to make this an entire episode, and you can't even stay awake to read it? God, that's cutting.
0:50 Speaker 03 Hello, welcome to Optimist Economy. I'm Catherine Ann Edwards, economist.
0:53 Robin Rauzi? I'm Robin Rousey, and I'm an editor.
0:56 Speaker 03 On this show, we believe the US economy can be better, and we talk about how to get there, one problem and solution at a time. And we're back for season two.
1:03 Robin Rauzi? We are back for season two.
1:07 Robin Rauzi? Today, we're going to talk about income inequality, and specifically, an attention-grabbing number that gets thrown around a lot, which is the $79 trillion that would have gone to the bottom 90% of earners, but instead went to the top 1% over the last 50 years. But first, do we have any announcements? Did anything happen while we were on hiatus?
1:28 Speaker 03 A lot happened while we were on hiatus, actually, but let's focus on where it counts. Y'all, we opened a store, and we sell hats, and we'll have more hats. That's a big deal.
1:38 Robin Rauzi? That's true. Our hats were sold out. We're ordering new ones.
1:41 Speaker 03 I was also so excited to run out of something. That was such a win when we sold out of the hats, especially because I had to get over the initial disappointment that my vision for the Optimist Economy merch store was like straight out of Spaceballs. The like, merchandise, merchandise. Optimist Economy, the lunchbox. Optimist Economy, the flamethrower. Like, I, like, all of them.
2:05 Speaker 04 Spaceballs, the t-shirt. Spaceballs, the coloring book. Spaceballs, the lunchbox. Spaceballs, the breakfast cereal. Spaceballs, the flamethrower. The kids love this one.
2:18 Speaker 03 That was my idea for the merch store. And luckily, the people who ran the merch store was like, you probably shouldn't do that.
2:24 Robin Rauzi? You should probably start with some core items.
2:26 Speaker 03 Start with core items and see how they sell. And I'm like, or hear me out. An homage to spaceballs.
2:35 Robin Rauzi? We did hear from a listener who was like, I think that you really need more stuff that says, I would rather be consuming leisure.
2:41 Speaker 03 Consuming leisure. I'd have to put that on a sticker. All right. So that's the announcement. Two quick retcons, obviously coming from me. The first is that I-
2:50 Robin Rauzi? Really, really. Because this is season two and we are sure that we're going to get new listeners, we need to like, welcome them to the optimist vocabulary.
2:59 Speaker 03 Oh, sure. Because they'll have no idea what I'm talking about. I just like started rambling off about nonsense.
3:03 Robin Rauzi? No, it's all right. It's all right.
3:04 Speaker 03 All right.
3:04 Robin Rauzi? Here we are, chapter two. Retcon stands for retroactive continuity. It's where we talk about things we might have wanted to talk about before. Make corrections, look back, reflect.
3:15 Speaker 03 Now, you wouldn't think, because this is the first episode of season two, that there would be a retcon, but there is. So in between season one and two, when we took a break, because if you knew the show, I was on material D leave. Baby's doing great, by the way. I guess that is an update. We could have announced that. I successfully brought life into the world and we're both okay.
3:35 Robin Rauzi? Nicely done.
3:37 Speaker 03 Thank you. Thank you. So in between season one and two, we had two bonus episodes that we didn't tell you we were going to release, but we did. The first was the Thanksgiving episode, which was a lot of fun, but not everybody loved. And the second was a Q and A answer from one of our prior shows that we put out as a small episode, in which I incorrectly identified a former student named Max. Clearly, I'm petty and can't let it go. I just wanted to clarify. He looks a lot like a student I had who used to sit next to, or at least was in a class with, a student named Max. So in my mind, I like merged together two people into him that he's not. I knew what he looked like because he had friended me on LinkedIn.
4:22 Speaker 03 And I was like, oh, that's Max, my student. So when he accepted the friend request, I thought he was my student, too. I was wrong for like, months about who Max was. It wasn't like I was wrong in the moment in that episode. I've been wrong for a long time. So I like to advertise just how wrong I got a student's name, in case y'all think I'm down to earth, you know? Apparently, I'm really bad. The second red con is that in between the seasons, someone who works at the Social Security Administration emailed me to say that I had said something incorrect about Social Security, which, if you guys listen to the show, you know, that's going to be devastating to me personally, to say something incorrect about Social Security. However, during the Great Recession, this is around 2010, Social Security reduced the
5:07 Speaker 03 payroll tax rates by two percentage points in order to boost the economy. And I incorrectly said that they cut taxes, but I did not mention that Congress paid Social Security the difference. So, it's normally 6.2% from your paycheck. Congress lowered it to 4.2% to try to boost the economy. That two-point difference, Congress paid into the Social Security Trust Fund on your behalf, so Social Security's finances were not affected by it. I didn't say that when I brought it up in the episode. I don't even remember which episode. I know that I'm devastated to my core to have gotten something wrong about Social Security. I don't even remember when I said it.
5:45 Robin Rauzi? I'm going to have to go look it up.
5:46 Speaker 03 Yes, I was like, wait, I said something wrong about Social Security in an episode? Burn the back catalog. I can't do this anymore. But Social Security paid Congress back-
5:58 Robin Rauzi? And that was the end of Optimus.
5:59 Speaker 03 And that was the end, yeah. It's been a great run. If you're looking forward to season two, sorry. Our next chapter, after we make up for all the mistakes we made, is Terms and Condition, where we talk about what we looked up this week, often in reference to the episode that we're preparing for. So, this is called Terms and Conditions. Robyn, did you look anything up?
6:23 Robin Rauzi? I did. I looked up what I thought was pronounced Pareto, but it's apparently pronounced Paredo.
6:28 Speaker 03 He's Italian. I've always learned Paredo.
6:31 Robin Rauzi? Parato.
6:34 Robin Rauzi? Pareto. I'm gonna say Pareto.
6:35 Speaker 03 Pareto.
6:36 Robin Rauzi? The Pareto Principle, which is the context I was looking it up in, is the idea that small inputs have outsized outputs. And I looked it up and find out it's actually a guy's name, and he was an Italian economist, and that there are these other things called like Pareto distributions, right, and Pareto improvement. And then it showed up in the paper that we're going to discuss today. So maybe you can actually, as an economist, tell me what economists think it means.
7:04 Speaker 03 Oh, so you've heard of Pareto as the 80/20 rule?
7:08 Robin Rauzi? Yeah.
7:09 Speaker 03 You can think of it as the Pareto distribution, and it's just showing you how something is distributed along any type of like figure. So when we think of distributions, if you ever had the misfortune of taking statistics, you think of the normal distribution, like a bell curve. Pareto's just another distribution, but it describes inequality. And of course, he was using it to describe wealth inequality in Italy. And he noticed that 20% of Italians owned 80% of the wealth, and that was what he was trying to describe. It just kind of works out in a rather remarkable way. There are lots of 80/20 splits found in all parts of our society and economies. Totally separate and not necessarily related is a Pareto improvement, which is what we call it when you make, you can make someone else better off with making
7:54 Speaker 03 nobody else worse off.
7:55 Robin Rauzi? In the economy.
7:56 Speaker 03 In the economy. He was really fundamental and influential in how economists think about how people make choices. And the idea of utility and preferences, in addition to distribution, like he was a bit of a polyglot within the profession. He contributed in a lot of ways. So his name is attached to a lot of what he did. And one of them is this distribution, and we think of him in inequality. And the other is this idea of how he worked with preferences and utility. And what, utility is what economists call happiness, by the way. We don't have happiness. We have utility. So if I consume something I like, I get utility from it.
8:31 Robin Rauzi? Oh, that's nice.
8:33 Speaker 03 Yeah. And if I have to decide between two things, I'm going to decide whatever gives me the greatest utility. And that's, that's a function of both how much something costs and what my preferences are. So. So a Pareto improvement would be you could make someone better off and no one else is worse off. It's almost the opposite of a zero sum.
8:51 Robin Rauzi? We should also say his first name was Vilfredo, which is a pretty great name. Vilfredo Pareto.
8:56 Speaker 03 Vilfredo Pareto. Something happened with him and the fascist, but then I think that's like every Italian in the 1930s.
9:08 Robin Rauzi? He's frequently considered a predecessor of fascism, a result of his support for the movement when it began.
9:14 Speaker 03 Great.
9:17 Robin Rauzi? Thank you, Wikipedia.
9:20 Robin Rauzi? OG, OG fascist. He argued democracy was an illusion and the ruling class always emerged and enriched itself.
9:29 Speaker 03 I will say economist of that time, even the ones that were great and influential and did amazing things, like you don't want to dig too deep. You're like, oh, you had an economic principle? I should learn nothing else about you. But this was also a time when economics was a new profession. So like literally anything you thought of got named after you. And all of the big names in economics were from this period in which we named things after people. So there's like Walracyan and there's, you know.
9:55 Robin Rauzi? I think Edwardian is taken, so.
9:57 Speaker 03 Yeah, God, thanks, kings of England.
9:59 Robin Rauzi? We're going to get to our centerpiece in a second. We're going to take a quick break first and then we'll be right back.
10:07 Robin Rauzi? It's time for the big pill crow.
10:12 Speaker 03 The big pill crow, the big conversation. So.
10:14 Robin Rauzi? Also known as the centerpiece, chapter four.
10:17 Speaker 03 Centerpiece, chapter four, big essay, pill crow. Listeners, if you're new, what you'll find out is that we're not very professional and we change, we call things every so often just to keep our listeners on their feet. And also because why be consistent? Whatever. Oh, on their toes. God, also listeners, you'll learn, I don't say any phrase correctly.
10:37 Robin Rauzi? Okay.
10:39 Speaker 03 So, season two, episode one, income inequality.
10:43 Robin Rauzi? Here we are.
10:44 Speaker 03 Robin pitched this to me and wanted to see if I was okay talking about it because actually this big number, a few years ago, you might have heard.
10:53 Robin Rauzi? Forty-seven trillion?
10:54 Speaker 03 Forty-seven trillion, fifty trillion.
10:56 Robin Rauzi? Or fifty trillion.
10:57 Speaker 03 Seventy-nine trillion. It's this massive number that the bottom ninety percent of Americans are missing because of income inequality. I wrote that report that it's based on, and that was an estimate that I had come up with when I was still at the Rand Corporation with a co-author there. And it's amazing that it has gone so far.
11:17 Robin Rauzi? I mean, this, I do not try to seek this out, this figure, but it's one of these things that, once you know it, it shows up again and again. It showed up in a letter to the editor in the Los Angeles Times last week. You know, Bernie Sanders, of course, is probably one of the reasons for this. His office put out this statement, nearly eighty trillion dollars in wealth in the U.S. has been redistributed from the bottom ninety percent of Americans to the top one percent in the last fifty years. Robert Reich has shared this same thing on social media. That seventy-nine trillion dollars that would have gone into the paychecks of the working class. Heather Cox Richardson cites it all the time in her newsletter. It showed up again in December in her newsletter. You know, like I said, I don't, I don't seek these things out.
12:01 Robin Rauzi? I just, they, but they surface again and again. And I always think, that's really interesting because it came out of this working paper that you guys did, and I, and I often wonder if their interpretation of, of its findings is totally right.
12:15 Speaker 03 I don't think anyone has ever said it correctly.
12:18 Robin Rauzi? Yeah.
12:18 Speaker 03 No one says the number correctly. I mean, it's income, not wealth. It's a cumulative total over time, not an annual amount. I'm still shocked of how, like, famous this number is and what kind of life it has had over the course of the report. I mean, I think the year we released it, it was in the top ten most downloaded reports from the Rand Corporation. Now, granted, no one's putting that on a T-shirt, and maybe y'all don't follow that closely. But, I mean, like, Rand has, Rand has, like, hundreds of PhDs on staff writing a report a day.
12:53 Robin Rauzi? The initial report came out in 2020.
12:55 Speaker 03 Yeah.
12:56 Robin Rauzi? So there was, like, other stuff going on.
12:58 Speaker 03 There was a lot of stuff going on. There, I mean, there was a lot of stuff going on. And it took off. We went on a media blitz about it because there was so much interest. Oh, my God, this is a great story. So after this report came out, I was called by The Rolling Stone to do an interview about income inequality. And I talked to this guy for like an hour. And he has so many questions about the report, about the findings. But he keeps pushing me and pushing me. And he's like, but where did the money go? Like, where did the income go? And I was like, the top ate it. That's the only thing in the article. The top ate it. I have a PhD. I was in school for over a decade, after a lot of people.
13:42 Speaker 03 And my only quote in The Rolling Stone is, "Income inequality in America? The top ate it," says economist Catherine Edwards. I was like, oh, my God. But my best friend put "the top ate it" on a coffee mug and sent it to me because she was so proud. She was like, no, "the top ate it" is an amazing quote. And I was like, it doesn't exactly convey that I know what I'm talking about.
14:08 Robin Rauzi? By the way, it's just Rolling Stone magazine. It's not The Rolling Stone.
14:13 Speaker 03 Wait, really? Oh, my God. I don't know why I host a podcast. I cannot talk. Drop the "the."
14:21 Robin Rauzi? Drop the "the." Just Rolling Stone.
14:23 Speaker 03 Rolling Stone. I don't even know who I am anymore.
14:27 Robin Rauzi? Anyway, I think of this filcrie as sort of like the anatomy of this progressive talking point. And I'd like for us to delve into a little bit what the actual report did and what it found. And then also a little bit about how accurately and inaccurately the findings get thrown around. And then I have a couple of other questions for you, too, based on just my own reading of the report. And I'm curious about your co-author, Carter, did an update, too, and what he found.
14:55 Speaker 03 The genesis of this report is my co-author, who is a mathematician at Rand named Carter Price, who came to me and said he was working on income inequality and he had come up with some new methods that he thought he could apply and would I like to help him work on it and write it up. When you study income inequality, you are studying measurement and how to measure. And it's not straightforward. It's not easy. It has a lot of problems. And it is one of the nastiest parts of the profession because you have to make choices. So like, let's say I was doing a study and I wanted to know how much childcare increased work. All right, well, that first half, it's childcare, did it go up or down?
15:39 Speaker 03 Typically, there's like a policy or an initiative or spending, like Mom Donnie's gonna make childcare free in New York City. If I want to know if people work, I really only have a few options, right? I can look at hours of work. I can look at dollars earned. Or I can look at the number of people who say they're employed. And that's about it. Those are three ways of looking at that question. When you're looking at income over time, you are entering a minefield. So now we have to decide, who are we measuring? People, families, or households? Are we measuring all income or just earned income? Or also business income? Capital gains, tax income? What about money from the government?
16:22 Speaker 03 What about help from the government that's not money? Like, do I count food stamps? Do I count Medicaid? What if you get low-income housing, energy assistance? Do I count that? On the flip side, do I count tax credits or tax deductions? Do I look at your pre-tax income or your post-tax income? Now I need to aggregate all of these things up. If I'm looking at anything related to the labor market, I have to decide if I'm looking at hourly, weekly, quarterly, or annual earnings? If I'm looking at everyone who worked or just people who worked full-time or just people who worked full-time and full-year? And all of these things.
16:57 Robin Rauzi? Or prime age workers.
16:58 Speaker 03 Yeah, do I look at everybody or do I just look at people in the prime age who are 25 to 54 years old, right? Any one of these choices, if you go in the other direction, you're going to have a different result in the end. And so you just set out, you know, bright eyed, bushy tailed, I want the world to be a better place and I want the US economy to be better for the people at the bottom. And I just set off on my little like Yellow Brick Road journey of like, well, let's go do this. And then like 10 feet in, 10 people have told me I'm a liar, a manipulator, I'm biased, I'm a liberal liar. I mean, we posted this article and two different people from AEI wrote a tweet thread takedown of how stupid and wrong we were.
17:40 Robin Rauzi? You mean after, this is a working paper, when you put out the.
17:43 Speaker 03 This is after this working paper comes out. And, and all of it is like, these people are so wrong because if you look at the CPS measurement of family in 1980, I mean, it's just like, it gets so detailed of like, they decided to find family like this and that's why this is wrong. So it's, in some ways, it's both like, it's like boring but angry at the same time. That's income inequality measurement amongst economists. And I, I say this with like, a lot of love for people who, who are in this and who like to measure. That is the, that is the prelude to all this is that this was not like, an easy endeavor because we had to set about trying to piece together what is income.
18:22 Robin Rauzi? What you wanted to measure and how.
18:23 Speaker 03 Yeah. And then, and that required a ton of choices and you could find a conservative commentator who would take the report and just like rip it to shreds, being like, and here's another thing they did, and here's another thing they did. I guess maybe this is all a way to say, it can certainly be presented by someone like outside the family that this is liberal bias, but someone inside the family, someone who understands the measurement issues, might just not agree with what we say, but then that can be extrapolated to, here's liberal lies.
18:53 Robin Rauzi? Yeah. Did you have anything more to say about Carter?
18:55 Speaker 03 Yeah, we're going to talk about what Carter did because Carter did the brilliant part, I sold.
18:59 Robin Rauzi? Yeah, well, I noticed that when Carter updated this, his report was five pages long and that when you guys did it together, it was 65 pages long.
19:09 Speaker 03 I don't really, I don't really like what you're trying to say here.
19:13 Robin Rauzi? There's a lot of tables. It's okay. A lot of appendices.
19:17 Speaker 03 All right.
19:18 Robin Rauzi? Let's talk about what you did measure.
19:19 Speaker 03 What we did measure.
19:20 Robin Rauzi? You measured taxable income.
19:22 Speaker 03 Yeah. So the biggest challenge to understanding income and income inequality in the United States, which is that we don't believe people should have uniform income. But we think that there's a problem that the rich are making too much and the people at the bottom are making too little. And that is wrapped into this very nebulous, not well-defined idea of inequality. Right? Which is not the same as being different. It's being different to a degree that's wrong or detrimental to our economy, impossible to define. It's like know it when you see it, but how do you measure it? Well, the biggest challenge to measuring income inequality in the United States, aside from like who determines what income is too high or what income is too low,
20:05 Speaker 03 just coming up with what incomes people have and how much are people actually taking home has a really, really, really, really hard problem, which is that in public surveys, our best data for this research, we top code high incomes, which means that after a certain amount of money, we don't say how much you earn.
20:26 Robin Rauzi? Why do we call this top coding?
20:27 Speaker 03 Because they'll, they'll report their actual income on the survey. And then when it's released publicly, the high income is all substituted with a top code. It's redacted income. A survey taker comes to your house, you report your income for the year. You happen to live in Bellevue, Washington, and you own a large tech company and you report your income from the year as, you know, $185 million. That survey taker can, you know, they'll take the data as reported. And then when that data is published for us to use, that man in Bellevue, Washington's income will be like $999,000. It won't say what his actual income is. It'll just be this cap.
21:08 Robin Rauzi? He's above this threshold.
21:10 Speaker 03 Yes, he's above some threshold that we institute for privacy reasons. Well, that's a real problem concerning that most of the income growth has happened above. Of the top code. So I have a really good idea what 90% of Americans are making based on reported income through public surveys. In those same surveys, I have almost no idea what people above that top code are making. That's where all the income inequality is, like all the action is above what we can measure. So the real question is, how do we understand the progression of income inequality in the US if what we need to measure isn't there?
21:44 Robin Rauzi? Yeah, or is invisible. Yeah.
21:46 Speaker 03 It's invisible to me, the researcher. What I do know is I know certain statistics about income in the top 10%. Because you can top code a survey, but everybody has to pay taxes. So we use something called the World Inequality Database, which is built off of tax records. And so I don't know what someone's income is in the survey. But I do know that according to tax records, here is what the average household made in the 99th percentile. And here is the cutoff for being in the 99th and the 98th and the 97th and 96th. So I can use all of these, we would call these moments
22:28 Speaker 03 of this distribution, and then I can use that to fix the data. So I do this really complicated mathy thing that basically means I squish them all together. Right? I have public data with reported income for most people. And then I have public data with censored, top-coded income for very rich people. And then I have the summary data from tax distribution of what the rich people's income looks like. So I just squish them together. And, you know, if you're a rich person in my data set, I have a top code for you. I'm going to replace your top code with a value that I've imputed based on the distribution of income from the IRS tax data.
23:09 Robin Rauzi? So there's a lot of little Sherlock Holmes kind of inference here.
23:14 Speaker 03 Yeah.
23:15 Robin Rauzi? Okay, well, let's get to what I actually think is the more interesting thing that you did, which is the counterfactual.
23:21 Speaker 03 Yeah.
23:22 Robin Rauzi? This is like a movie where what if the Nazis won World War II? Or, you know, that's what we mean by a counterfactual. And in this case, the counterfactual is what if people's incomes kept pace, in this case with growth in gross national product or GDP?
23:43 Speaker 03 Yeah, this is, this is the other half of the challenge of, of studying income inequality. You know, it's, it's two problems, hard to measure, difficult to see. Hard to measure, we just talked about that.
23:53 Robin Rauzi? Yeah.
23:54 Speaker 03 We don't have great measurement of income at the top. Difficult to see is in some ways a more fundamental question of when is inequality bad or too bad? When is it detrimental to the economy? I mean, I don't make as much as everyone in the US. They don't make as much as me, but we're not communist. We don't get assigned income. We have differences, we have a distribution.
24:15 Robin Rauzi? Mm-hmm.
24:16 Speaker 03 The real question is, when is that bad? Maybe another way to say it is, there is a tolerable amount of income inequality that we have in the US, but when does it become intolerable? When does it become detrimental? Hard to measure, difficult to see.
24:32 Robin Rauzi? But I do think, no matter what, if you're going to look at something over time, you need to gauge it against one kind of consistent measure. And you guys chose.
24:41 Speaker 03 We chose growth in the economy. So.
24:43 Robin Rauzi? Yeah.
24:44 Speaker 03 The reason why we chose growth in the economy is that I think it gets at a very fundamental question, which is, is the economy and its growth generating income growth for everyone in it?
24:54 Robin Rauzi? Mm-hmm.
24:55 Speaker 03 And who is it leaving behind?
24:56 Robin Rauzi? Sure.
24:56 Speaker 03 As far as normative questions go, right? It's not saying like you need to eat the rich and give all of their money above a million dollars like back to homeless shelters, right? It's just a, we have an economy, it's growing. Is it generating income for everybody in it? And is that income growing at the same rate as the economy? So we decide to compare income growth over this period to economic growth. And we thought it was a fair question because in the two decades following World War II, incomes did grow at the same rate as the economy. Income at the top, income at the bottom, everybody grew at about the same pace and they were growing at the same pace as the economy overall.
25:36 Speaker 03 I understand the appeal for this era and why we think of the like 50s as this like truly halcyon time in America, at least in terms of economic growth and income growth. It was very special. We had this very short period in which the bottom 20% had incomes growing just as fast, if not faster than the top 20%. It's not just that the middle was booming, it's that the bottom was booming as well. So in this paper, Carter and I just say, you know, all right, so that didn't keep going. That stopped at around the late 1970s. What would have happened if it had kept going?
26:14 Robin Rauzi? Mm-hmm.
26:15 Speaker 03 I think the central number of this report is if you look at full-time, full-year, prime-age workers, this is the bread and butter of the economy. These are people who are working full-time, who are in their, who are in their prime earnings years, they're 25 to 54. If you look at the middle person, and they made $42,000 in annual income in 1975, in inflation-adjusted dollars. If that had grown with the economy and the pace of economic growth overall, they'd be making a little over $90,000 a year. And instead, they're making around $50,000 a year. It's an almost doubling of income at the middle. Right? Well, now let's go to the top 1%. The counterfactual for the top 1% is that
26:57 Speaker 03 they should be making $200,000 less a year. But because their income grew faster than GDP, they're making $200,000 more. For the past almost 50 years, we've had income at the top grow incredibly fast, faster than the economy, and incomes at the bottom grow slower than the economy. So if you just were to like do a mathematical exercise where you switch it and have them all grow at the same pace, you can come up with a sense of what does economic inequality cost us?
27:29 Robin Rauzi? I'm going to try to say this for regular people.
27:32 Speaker 03 Okay.
27:33 Robin Rauzi? But basically, they took people's income and they went back in time and adjusted it all for inflation. And then they said, if I go back to 1975 and I take that inflation-adjusted number, and I grow it going forward at the same pace that GDP grew, what would their income actually look like? And so that's what Catherine's saying, is that the median, in 2018, the median US income was about $50,000. If incomes for the last 40 years had been growing at the same pace as the economy overall, that median person would have been making $92,000. I mean, to me, more than the abstract $79 trillion, that's the number that made
28:17 Robin Rauzi? this study concrete to me. And it's funny that it's not the thing that gets bandied around on social media.
28:23 Speaker 03 No, maybe it's not as big. I mean, this is the difference between $50,000 and $90,000 a year. This penalty adds up over time in a real way. But if you take that difference of, you know, the counterfactual growth at the pace of the economy versus the growth that we actually saw, and you add up the difference for everyone between the counterfactual...
28:47 Robin Rauzi? Over years and years and years.
28:49 Speaker 03 Right. And you do that over the course of 50 years. You come up with, the first time we published the report, it was around $50 trillion. And then when you updated, we updated it later, it was around $79...
28:59 Robin Rauzi? Yeah, $80 trillion.
29:00 Speaker 03 Yeah. But I think it was just a way to try to make clear what was lost over this era.
29:07 Robin Rauzi? I do just want to talk about this, you know, alternative history and what it would have looked like in 2018. I mean, people in the 25th percentile of income, so these are the lowest 25% of earners, would have been making $61,000 instead of $33,000. And at the 90th percentile, in the top 10%, would have been making $168,000 instead of $133,000.
29:37 Speaker 03 Yeah, I mean, I'll have to do the kind of like, put on my economist tiara. I don't want to wear a hat, I don't want to wear a tiara, it looks better with my bone structure. But if I were to put on my economist tiara, I would point out that like, if incomes had grown at this pace, lots of other things would have changed. And so it's not as simple as we just would have had a check for $50,000 and everything would be priced the same or distributed the same. Like, it's not as if there was a land with no problems waiting for us. It's just, we would not have so many people struggling, was what I would feel comfortable saying, is that the world would not be the same, stuff would not cost the same, families wouldn't look the same. Like, there'd be too much that would change in our economy overall if people did make this much money. But we would have a lot less struggle and deprivation, is what I would feel safe to say.
30:23 Speaker 03 I mean, probably a lot less resentment if there was more progress for everyone as opposed to a stall. My other kind of economist tiara would be to point out that, you know, someone's listening and they're like, "Yeah, but it would just be eaten up by prices." And they're saying that if, this is like, when people say the reason why you can't have a UBI is because prices would go up by that much. It is not the case that if you give people more money, prices will go up to a degree that no one is better off. However, it is often only used against people at the bottom or people in the middle, that if you give them a raise, it'll just be eaten away by inflation, or prices will only go up by that much. And it never comes down to, you know, rich people have had-
31:05 Robin Rauzi? People got a lot of money and-
31:06 Speaker 03 They got a lot of money and their income grew net of prices and they have a ton of money at the top and no one's saying like, "Well, no, he can't earn more because inflation would just take it away." What I would push back against someone who would say that is to point out like, you only say that when it comes to giving poor people money, or coming to giving the middle class money. Of like, "Well, the middle class can't take 10 grand because like, it'll just be eaten up by prices", is not the same thing you would say about, you know, a $100 million a year pay package for somebody else. And there's a scale issue, but there's also just a, "We can't have nice things" applied to people at the middle and bottom. They don't have to follow the same rules at the top, they just get to earn more money.
31:48 Speaker 03 We have to show why our earnings would be more than inflation and therefore worth fighting for. I don't buy that at all and I don't support that at all. There's so much that would be different about the world if people made more money at the bottom. Prices least of which.
32:04 Robin Rauzi? You know, I I'm embarrassed to say that when I looked at this paper five years ago, I didn't dig into the 30 pages of tables in the back, but I did this time and I.
32:14 Speaker 03 Oh, I'm sorry. I thought you fell asleep this time.
32:16 Robin Rauzi? No, I did it this morning after I woke up.
32:18 Speaker 03 Okay, after you woke up from that, from the very deep sleep that this paper put you in.
32:22 Robin Rauzi? Yeah. Um, in the body of the paper, you look at these counterfactual questions. And I think one of the things that you explain is that what you're trying to do is bridge this gap about how we talk about inequality. But this is talking about a different kind of overtime measurement of inequality and income. And then you divide these, these incomes into, say, groups of people by education level. You do it by racial groups. You do it by gender groups. Uh, am I missing one?
32:53 Speaker 03 We did urbanicity.
32:54 Robin Rauzi? There's a word I love, urbanicity.
32:56 Speaker 03 Urbanicity, it comes right, like, it's like, it just falls right off the tongue, but still crisp in its own way.
33:02 Robin Rauzi? Urbanicity. Um, you know, overall, there's very little there that surprises me or, but on the other hand, it's a reality check on your kind of gut feelings about what's been happening with income inequality. Well, one of the things that, that you found that, you know, I think we all suspected is about the value of education and how for people who had a high school degree or less than a high school degree, that they in particular took a hit over time. In some cases, not just did their income not keep pace with just inflation, sometimes they, they didn't even, they were really losing ground. You saw that
33:45 Robin Rauzi? with earners in rural areas as opposed to suburban and urban areas. You did see women make gains, but you make the point that a lot of that is coming from women just working more hours. I mean, there's a, there's a lot of granular detail here that to me just kind of supports a lot of the things that you might feel about the, the economy, but that nobody's dissected before. I mean, maybe they have, but.
34:10 Speaker 03 I mean, what's so funny about the way that this report ended up making an impact of this headline number and Bernie says it and.
34:19 Speaker 03 Heather Cox Richardson says it, and it becomes this like, almost like fabled number that people refer to of like, the missing income for the bottom 90%. That was not what I wanted to have happen. What I wanted, when we wrote this paper, was to have something as accessible as like, the pay gap, that people could take with them. So that, you know, every year, when income is reported of how much people earn, and the Census Bureau data comes out, you could say like, well, the economy grew at 3%, and here are the like, 50 groups of income earners that didn't grow at 3%. And to be able to kind of like, say in a, in a single metric, here's who the economy
35:04 Speaker 03 left behind this year. And we know this number, and we understand this number, it's people whose incomes didn't grow as fast as the economy. And here's the one-year mark, and the five-year mark, and the 10-year mark.
35:14 Robin Rauzi? You, you do say, you know, in 2018, like, for that year, the overall gap is $2.5 trillion, right?
35:22 Speaker 03 Yeah.
35:23 Robin Rauzi? And in 2023, when Carter updated it, it was $3.9 trillion, five years later. He explains that as inflation got high, there's just sort of an over time compounding of this inequality. And then he said inequality got worse. And you think about the pandemic period that he's dealing with, was a time of, I thought, remarkable income growth. And again, this is income, this isn't wealth, this is what people are actually earning. Income inequality got worse.
35:53 Speaker 03 Yeah, that's because, you know, you think of income, and most people think of income as their paycheck. But there are many forms of income. There's income from your earnings, there could be income from your business, there could be income from rental properties, interest income, dividend income.
36:11 Robin Rauzi? Because you look at taxable, all sorts of taxable income, not just payroll income.
36:14 Speaker 03 Right, our basis of measurement was taxable income.
36:18 Robin Rauzi? Yeah.
36:19 Speaker 03 So that's everything. And we didn't, we didn't apply tax rates to it, we didn't correct for the tax system, which, for the record, if you look at after-tax income, it is always better picture in terms of income inequality than pre-tax income, because the tax system is, the federal tax system is progressive. For the record, the Census Bureau does publish a lot of measures of income inequality, and they publish it alongside their statistics. They tell us and measure income inequality as part of their mandate of reporting household incomes and poverty every year. But in some ways, I hope people just use this to like, look to the future to say, okay, we've got two eras in our past. One era in which all incomes grew.
37:01 Speaker 03 We call this the picket fence era, not just because of like, the 1950s idealized nuclear family in a home with a picket fence, but because if you look at growth rates, you've got like, the income distribution and the growth rates, they actually make a picket fence because all the bars are on the same height. As opposed to, you know, the 80s and 90s.
37:21 Robin Rauzi? Ski slopes.
37:22 Speaker 03 Our ski slopes, right? It's just a total bloodbath of like, the top 1% grows the fastest, and then the next 5%, and then the next 10%. Yeah, the ski slope is the nightmare scenario. But, okay, to the point of the pandemic, actually, and the COVID, and these past five years, increasing inequality to a certain degree. The Great Recession was so bad, it actually reduced income inequality because it took out so much wealth at the top.
37:47 Robin Rauzi? Yeah.
37:48 Speaker 03 And the housing bubble burst, and the stock market crashing, and the financial, I mean, all of that combined reduced, or erased, a lot of wealth. Some of that was wealth held by people in the middle and bottom, but most wealth is held by the top, so a huge hit to wealth is felt by the top more. And so that we actually had like, a little bit of progress in terms of income inequality through a massive and horrible recession. So, um, that's not the way to do it.
38:14 Robin Rauzi? Yeah, yeah.
38:16 Speaker 03 Um, you know, talking about income inequality, it's, can be tough to find that optimist bent.
38:24 Robin Rauzi? I'm sure you've been meditating on that, since I told you we should talk about your paper.
38:30 Speaker 03 I think, yeah, this is a really big, bad number, that is built on a lot of bad numbers inside a report that is not necessarily meant to make you feel good about the US economy. So where's the optimism?
38:45 Speaker 03 I think what I would stress to listeners is we are not at the beginning of this problem. We are at the end of it. I think the fact that we talk about it so clearly. It is something that, you know, even people would casually say that income inequality is a problem. People in 1985 didn't talk like this. The reason why I think that we're, you know, towards the end of this problem is because it has gotten so bad and so obvious that's, maybe not so obvious, so palpable that people are demanding a change to policies. I mean, for so long, the history was, we just need to have more business growth. We just need to have more tax cuts. We just need to have.
39:29 Robin Rauzi? The pie will get bigger if we just grow the economy. The pie will get bigger and everybody, you know, rising tide, lift all boats.
39:35 Speaker 03 Everybody has been told for so long, if we can have a strong, growing economy, everyone will be okay. And if they didn't say trickle down, that's what they meant. And they didn't necessarily mean trickle down from the top. They really meant that if the economy was strong and we could keep the economy strong, then Americans would be okay. This paper is one of many that says they weren't. They weren't okay. The economy grew and people's incomes didn't. And they didn't for years, for decades, in all kinds of places, for all kinds of households. It wasn't just the labor market. It was the capital market. Our strong, quote unquote, strong economy was not helping the majority of Americans have incomes grow to the degree that they should. Our incomes should be higher. They should be a lot higher.
40:20 Speaker 03 And here's a really reasonable estimate of how much higher they should be. We didn't have this conversation 40 years ago, and we're having it now. And we're having it in 50 different ways.
40:31 Robin Rauzi? Yeah.
40:32 Speaker 03 It is optimistic to me to be.
40:36 Robin Rauzi? To have that clarity.
40:37 Speaker 03 To have that clarity, right? You, you, you cannot design a good solution if you don't adequately and correctly diagnose the problem. And I think it sucks that we're just at the diagnosing problem stage. But at least we're there.
40:51 Robin Rauzi? Yeah.
40:52 Speaker 03 At least it's seen as a problem.
40:53 Robin Rauzi? Yeah.
40:57 Robin Rauzi? Great.
40:57 Speaker 03 Anyway, for further information, download my published works.
41:02 Robin Rauzi? We will put a link to the paper in the show notes and to Carter's update from 2023.
41:09 Speaker 03 We're going to take a very quick break and we'll be right back.
41:14 Robin Rauzi? It's time for executive orders.
41:16 Speaker 03 So we like to end the show with executive orders for you new listeners. And this is where we come up with rules for our economy and society that come from Robin. And I, I think going back,
41:27 Robin Rauzi? Come from you too.
41:28 Speaker 03 Come from me and Robin. I think looking back, this might be something I would tell, like, episode one, season one, me don't do, because it just reveals how deeply petty we are.
41:39 Robin Rauzi? Totally true.
41:41 Speaker 03 But you know what?
41:41 Robin Rauzi? However, listeners send us really great executive orders that I do love to share, which is what I just.
41:45 Speaker 03 Yeah, like ours are so petty and theirs are like, just put the gas part of the car on the same part of every car.
41:51 Robin Rauzi? I don't even think that was yours. Yeah, that was somebody else's.
41:53 Speaker 03 That wasn't mine, though. That was a listener's.
41:55 Robin Rauzi? Yeah, yeah.
41:56 Speaker 03 Yeah, y'all come up with great ones. We come up with petty ones, starting with, doctor's appointments start at the time that they're posted. None of this come 15 minutes early.
42:07 Robin Rauzi? Surely.
42:07 Speaker 03 Bull****. No. If the appointment's at 12, I'm showing up at 12. 11:59 if you're lucky. I had a doctor's appointment. All right, when you have a newborn in your postpartum, you go to the doctor.
42:19 Robin Rauzi? A lot.
42:20 Speaker 03 A lot. And please show up 15 minutes early. Finally got a notification that was like, please show up 30 minutes early. And I was like, no, sir. This feels personal. Like, only I got it. And also, appointments start when they start. That's it.
42:34 Robin Rauzi? That's good. I'm going to share an executive order we got from Natania in Portland, Oregon, who says, "Charging devices, particularly those you keep on your nightstand, cannot have bright charging lights that stay on all night." Oh, my God. So with you. We have an air filter in our, and it's like, we have to throw t-shirts over it because it's so bright. It's like daylight.
42:56 Speaker 03 Yes. Well, maybe we have the same air filter, but we have to put a book on ours so that the little, and then, of course, like, we're like, how long has that light been red? I don't know.
43:04 Robin Rauzi? No idea. Exactly.
43:07 Speaker 03 At the International Space Station, because that's how bright it is. The very end of our show is spiritual sponsors. We don't receive any money from the show except for listeners who have sent us their support and they've been so generous with it. But of course, in lieu of actual sponsors, paid sponsors that would give us money, we have to thank our spiritual sponsors of the things that keep us going.
43:31 Speaker 03 Robin, who's your spiritual sponsor this week?
43:33 Robin Rauzi? My spiritual sponsor is the movie Will and Harper. It's a documentary of Will Ferrell going on a cross-country road trip with his friend Harper, who has somewhat recently transitioned from male to female. And first of all, I've always liked Will Ferrell. It made me like him even more. The two of them are so brave to put this thing on film. And if you want to know what the change is like when you know someone who is trans and how eventually the change isn't the thing anymore. I think that movie captures it really, really well.
44:15 Speaker 03 I think my favorite part of that movie was when Harper explains that she sent a letter to, like an email to everyone, of her colleagues and friends, saying what was happening. And when they're getting drinks and dinner in New York with their old SNL friends, Tim Meadows is like, I thought it was hilarious. I thought it was a joke. And then they all burst out laughing. He's like, I wrote back, this is hilarious.
44:40 Robin Rauzi? I mean, it does help to have some of the funniest people in the country as your friends. The song that Kristen Wiig does at the end, Chef's Guts, just brilliant.
44:53 Speaker 03 So I have a lot of spiritual sponsors. Since we last recorded, you know, I gave birth. Had a newborn at home, was myself postpartum. And then, over that time period, we posted the Thanksgiving episode. And for y'all listening, you might not know that we put clips on social media. One of them went very, very viral. And it was my response to the "trans athletes shouldn't be able to play women's sports." It has over 3 million views on TikTok. And most of the responses were very positive, but something we cut from the show, as Robin
45:36 Speaker 03 correctly pointed out, it doesn't sound right, is that at one point, at the end of my answer, when I'm like, big and huffed up and just like, rambling, I end with-
45:45 Robin Rauzi? Do we need to explain that? Like, it's as if we're having a fight at the dinner table.
45:49 Speaker 03 Yeah, it was a fake fight. Like, she asked me a question-
45:51 Robin Rauzi? It was a fake fight at the dinner table.
45:52 Speaker 03 Yeah, and I'm giving my sassy response. And so, at the end, I kind of say sarcastically, like, "Go on ahead and hate trans people, but like, do not pretend it's because you're motivated by female athletes." Robin, when we recorded, said, "You need to take that part out." Because it sounds like you're saying it's okay to hate trans people. And I was like, "Oh, good catch." Being postpartum, I didn't think to catch it in the video. And when we posted it, there was a whole, like, subset of people who saw that as, "I'm a trans-exclusionary radical feminist, and that I hate trans people, and I'm telling people to hate trans people on behalf of women."
46:31 Speaker 03 And I got some of the nastiest comments I've ever gotten back in my life, including multiple suggestions of suicide. One of them came on Thanksgiving Day. And that was a lot to deal with, postpartum, especially because it was taken out of context. Granted, not really, but really, it was not what I meant to say. So, of course, I posted an apology video where I tried to explain it. Yeah, like, 5,000 people watched that. So, I mean, when we say this took off, like, Vern Cox posted this video to her channels. Like, it was very large, and the amount of hate that I received was pretty incredible. So I have a lot of spiritual sponsors to thank. Ken Burns, The American Revolution.
47:15 Speaker 03 The movie watch list inspired by Ken Burns, The American Revolution, including Last of the Mohicans, John Adams' Turn in 1776. Friends whom you can text, I am the Long Caribbean who texts back, my death is a great honor to the Huron people. Peter Coyote's voice, Peter Coyote's Wikipedia page. Moms who make sarcastic commentary videos on trad wife content, and in particular, the mom who made a video explaining at what point during this homemade treat recipe that this woman was explaining, her kids would have called 911 for child abuse because she hadn't given them a yogurt packet yet. Toddlers in capes, especially when the cape billows behind them as they walk away.
47:58 Speaker 03 Tobias Menzies as Edwin Stanton in Manhunt. Sassy responses from Carolyn Hax's advice column, when she points out that the reader did in fact make it all about themselves. Really, really good Christmas presents. People on Jeopardy who say, let's make it a true Daily Double. And of course, the ultimate heroes of the household, who parents of newborns could not live without, truly invaluable members of our society, washers and dryers. Excellent. Excellent list. Oh my God, hold on, hold on, come here, come here, what are you doing? I thought that was Dad, come here, little.
48:43 Speaker 03 Did Dad drop you off and send you inside? Okay, come here. Do you want to look at what Mama does?
48:51 Robin Rauzi? Our show is edited by Sophie Lalanne. Our video production for social media is by Andy Robinson of Andy Robinson Video Consulting. Support from listeners like you helps keep our podcast going. If you have the means to contribute, you can do so at optimist economy dot com. And I think we're supposed to say our show is distributed by PRX.
49:12 Speaker 03 Newly distributed by PRX. We are now part of the PRX family. And if you ever have any questions, comments, responses, inquiries-
49:21 Robin Rauzi? Email them to PRX.
49:22 Speaker 03 Yeah, email them to somebody else. If you just want to tell us how much you love the show, that will take at optimist dot economy at gmail dot com.
49:32 Speaker 03 I'm so excited we're back.
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