Income Inequality Has Fallen... Let's Hope It Rises Again

Despite some recent talk about a widening income gap, the gap between rich and poor has finally begun to contract. Basically, the rich have become poorer.

While the top 1% of American families earned 23.5% of all income in 2007, by 2010 this should drop to 15 – 19%.

WSJ: “Based on past experience, it looks like inequality will go down and change the long-term trend of America becoming a less egalitarian society,” says Ariell Reshef, a University of Virginia economist and another student of the equality issue.

Be careful what you wish for though. By this economist’s logic, the most egalitarian society of all would be one where all top-earners run into financial disaster. Government income tax revenue would also collapse since high income Americans produce the lion’s share of it.

Taxes Paid By Income Group

Also, income inequality generally expands during economic upturns, since top-earners usually have “high-beta” incomes that rise and fall in an exaggerated fashion relative to the economy’s health.

Thus, as odd as it may sound, we should actually hope that income inequality starts to widen again, since it would likely be the result of an economic recovery.

Wage Difference

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