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Saturday, December 17, 2016

Is it Truly the End of the "American Dream"?

Lately there has been a lot of talk about the end of the "American Dream", namely the ability of younger generations to climb up the economic ladder and do better than their parents generation. It seems like populist campaign slogans like Donald Trump's "Make America Great Again" resonated well with people who voted in the last Presidential Election. However, beyond the political debates and the spin doctor speeches, is there real reason to believe that there facts behind the perception by majority of Americans that the economic future of their children is gradually fading away?

Are there facts behind the public notion that income inequality is rising to the point that a new oligarchy is replacing Government, by owning most of the wealth in our country?

 A freshly published research paper by the NATIONAL BUREAU OF ECONOMIC RESEARCH, may shed better light on debated facts. The paper authors: Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, are world renowned researchers, who are known for their meticulous studies of complex economic issues.

The title of this study is:

Here is the paper Abstract:

This paper combines tax, survey, and national accounts data to estimate the distribution of national income in the United States since 1913. Our distributional national accounts capture 100% of national income, allowing us to compute growth rates for each quantile of the income distribution consistent with macroeconomic growth. We estimate the distribution of both pre-tax and post-tax income, making it possible to provide a comprehensive view of how government redistribution affects inequality. Average pre-tax national income per adult has increased 60% since 1980, but we find that it has stagnated for the bottom 50% of the distribution at about $16,000 a year. The pre-tax income of the middle class—adults between the median and the 90th percentile—has grown 40% since 1980, faster than what tax and survey data suggest, due in particular to the rise of tax-exempt fringe benefits. Income has boomed at the top: in 1980, top 1% adults earned on average 27 times more than bottom 50% adults, while they earn 81 times more today. The upsurge of top incomes was first a labor income phenomenon but has mostly been a capital income phenomenon since 2000. The government has offset only a small fraction of the increase in inequality. The reduction of the gender gap in earnings has mitigated the increase in inequality among adults. The share of women, however, falls steeply as one moves up the labor income distribution, and is only 11% in the top 0.1% today.

Below are some of the more meaningful charts, showing the income distribution trends of the bottom 50% of American tax payers, vs. the top 10% vs. the top 1%.  You can click on each one of the images below to enlarge the details.

I highly recommend reading the full report, which is available in PDF format at this link:

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All the best.

--Dr Flywheel

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