08 November 2007

Bush vs. Clinton - Income Growth by Percentile

The amount of joy you get from a scoop of ice cream depends on lots of things. One big determinant of how much joy you get from it is how much you already have. If you already have 1,000 gallons of ice cream, your enjoyment isn't going to go up much if you get another. If you have only one scoop of ice cream, your joy will go up more. As you get more, your marginal utility (fancy economist speak for your additional joy from the next unit) falls. It is as true of money as it is for ice cream and clothes. A person with only $100 will get far more excited about another $10,000 than a person with $1 million. To be a Bush supporter is to deny this very simple and hard to refute claim.

CSPAN posted some charts today in conjunction with Bernanke's hearing, one of which I've recreated here. For me, this graph seems to capture what is indefensible about Bush's policies. (And note that even the median income in 2006 was probably much lower than what most people think - about $35,000.)

Income growth was higher for everyone during the 1990s. For those in the top ten percent, incomes grew twice as much. More important, though, is what happened to those at or below the median. The difference for those in the bottom 10 percent could hardly be more dramatic - during the 1990s, their income went up 11% and so far this decade, their incomes have dropped 3%.It is not just that the incomes are growing more slowly. The increase in marginal utility under Bush's tenure has been negligible. Is it any wonder his approval ratings have been abysmal?


cce said...

Oh, I don't do graphs but ice cream...now you're talking. Day six of the self imposed sugar strike and I can't get past the first few sentences here. I'll just keep rereading them and salivating.

Life Hiker said...

The democrats are trying to run through eliminating the AMT (alernative minimum tax) and replacing the $50 billion in lost revenue by taxing the compensation of hedge fund managers at the "earned income" rate (35%) rather than the capital gains rate (15%). Makes sense to me, but the republicans don't like it.

On the other hand, globalization has resulted in average Americans being unable to compete in the world economy at the wage levels Americans have come to expect. Low income Americans - those with little education or skills - are actually worth less than they were a decade or two ago. They need to either get educated or start picking apples for $12/hour. Tough words, but true.

Vladimir Dzhuvinov said...

Yes, we do have exact data, numbers that shows different trends under the two presidencies. But it is difficult to say how much of that was globalisation and how much fiscal policy.

We often hear politicians talk about 'the divide' and 'the growing income disparity'. Some attribute this to education, others to the globalisation, in less developed countries to technology.

Recently I began to think that there is another factor which has been ignored and I reflected my conclusions in the article Held together by faith.

Who is in the top 10% income bracket? Investors, entrepreneurs, independent professionals, people with own businesses. What is common to all of them? Their economic activity takes place in the free market where they enjoy a higher degree of economic agency and potentials -- compared to employees 'locked' in companies, limited by centralised bureaucratic systems. This is the real divide.

So it no surprise that to those who are in the market, to entrepreneurs, globalisation came like a manna: access to more capital and more clients, new possibilities for networking and investment.

Ron Davison said...

I'm sorry to have lost you on the first scoop. Must have been your fudge ripple post that subconsciously suggested the comparison.

I agree that globalization has put enormous pressure on low-skiled workers. But we can't really let Americans compete with people who survive on $300 a month, not with housing and food, and fuel costs what they are here. We need to mitigate the pain.

As with LH, I agree with the cause - in part. I don't believe that globalization just kicked up its heels since 2000. I also believe that there are policy solutions that help to mitigate the divide.

Vladimir Dzhuvinov said...

Nowhere did I say that globalisation was a distinct event that started on this and this date :) It probably began developing in ancient times and its effects have been building up gradually.

I refined my rhetoric on this issue in a separate article in my blog, together with two caricature drawings to lighten up the mood :)

Anyway, whatever I say is freely available for misinterpretation :)

Daryl said...

Ron, this looks like a manipulated graph. Why isn't Clinton's whole 8 year run included? Why pick those percentile breaks?

Also, you cannot look only at income growth you also have to look at the quality and cost improvements made in what you buy. The bottom percentile folks are massively better off under both presidents when you factor in quality improvement and cost reduction in what they buy.