POLITICS OCTOBER 25, 2011
If one thing survives from Occupy Wall Street and related protests, it is likely to be the concept of “the 99 percent”—that is, most of us, in opposition to the top one percent, the group that took two-thirds of the total increase in income during the Bush years. It’s a politically brilliant framing, and hardly “class warfare,” since it implies the broadest cross-class coalition imaginable, from the very poor to the fairly well off, all bound together by our shared experience of economic insecurity and relative political powerlessness.
But there are reasons, albeit wonky ones, to be wary of the 99:1 conception of the economy and society. I’m hardly alone in hesitating to embrace this language of the many against the few, not because I’m afraid of oppositional language or have a soft spot for Wall Street or imagine that I might be part of the 1 percent someday. (The price of entry to that top tier is an annual household income over $516,000.) Rather, it’s that 99:1 doesn’t seem like the best way to describe what’s really been happening in the economy, and can seem like a cheap kind of politics, in which all the responsibility for repairing our current mess would fall on the 1 percent—that is, on someone else.
One alternative approach would look at the top fifth of the population. That’s basically households earning a little over $100,000 or more. This quintile did quite well in the economic boom, though not nearly as well as the very richest, and it is far more likely to have some savings, the security that comes with education (the unemployment rate for college graduates over 25 is only 4.2 percent), and some experience in the workforce. The top quintile’s experience of the economy has little in common with the tremendous hardship chronicled on the “We are the 99 Percent” blog, although their ranks include many who slipped from more comfortable positions. A focus on the 99 percent also risks obscuring the tremendous difficulties that faced the working poor even during the boom years, and are far worse in the recession. Inequality has several dimensions—the wide gap between the very rich and the upper-middle class is one, and the widening gap between the poorest 40 percent, who lost ground through the entire last decade, and the middle and upper-middle class is another. That second dimension of inequality—especially real, not just relative, poverty—should always be the first priority of public policy.
Nor can the 1 percent bear the whole burden of the tax increases that will be necessary to bring the federal budget onto a sustainable path and avoid program cuts that will inevitably hit the poorest 40 percent the hardest. Although the top 1 percent got 18 percent of the benefits of the Bush-era tax cuts, the upper fifth got their share—more than 50 percent of the total tax cut, according to the Tax Policy Center. While it’s tempting to recall that the economy survived and thrived with tax rates of 70 percent or more on the very top incomes as recently as 1981, in reality no one paid those rates. We were “dipping deep into large fortunes, with a sieve,” in the memorable phrase of the economist Henry Simons. While we can gain significant revenues by eliminating the preferential treatment of capital gains and dividend income (the simpler version of President Obama’s “Buffett Rule”), it won’t be enough, while very high rates on just the very top earners won’t be politically sustainable.
But, as the brilliant Australian economist John Quiggin recently put it, starting from similar skepticism, “I’m now much more sympathetic to the ‘99 per cent’ analysis.” What persuaded Quiggin? In addition to the political solidarity of the 99 percent, he notes that even for most of the top 20 percent, incomes have stagnated: “The redistribution of the past three decades has gone from the bottom 80 per cent to the top 1 per cent.” And even if the top 20 percent is still doing okay, “they are less secure than at any time since the 1930s, and their children face even more uncertain prospects.” This shared experience of economic insecurity explains some of the backlash to the prospect of modest tax increases on those earning over $250,000. Even though these families (roughly the top 5 percent) are earning almost five times the median income, there’s inevitably a feeling that with such an income, an amount that would have been astonishing to our parents and grandparents, one ought to be more comfortable, more secure. And yet, many families with this level of income, along with student loans and huge mortgages, feel they’re still on the edge.
To Quiggin’s points, I’d add two others. One is that an 80:20 analysis might have made more sense at the beginning of the economic crisis, in 2008, than it does now. A severe recession should be expected to reduce inequality—in the Great Depression, for example, the share of wealth going to the top 1 percent went from 23.9 percent in 1928 to 15.5 percent in 1931, even before any of the effects of New Deal programs. It took 80 years for the top incomes to approach Roaring Twenties levels again, peaking at 23.5 percent in 2007. In the recession, that share dropped to 21 percent by the end of 2008. While we don’t have more recent data, all indications are that the top 1 percent has recovered: The stock market is booming, and executive pay—almost half of the top 1 percent are corporate executives—rose 24 percent in 2010 alone, to an average CEO pay package of $9 million. As CNBC put it, “In the boardroom, it's as if the Great Recession never happened.”
This last bit of data represents another reason to focus on the 1 percent. This is not just a winner-take-all society in which super talents and geniuses like LeBron James and Steve Jobs command huge rewards. Rather, these are simply corporations deciding to hand over more of their revenues to their CEOs and other top executives, and less to workers. In this sense, then, the gains at the top and the stagnation and decline in the middle of the income spectrum are very directly linked. Their gains are our losses, through a series of very specific choices.
The policy solutions that flow from a 99 percent analysis have to be more creative than just redistributive taxation, however. They have to address the structure of incentives in corporate compensation and the structures of power that prevent workers from bargaining for their share of profits. And they have to involve building or rebuilding the government structures that provide economic security to all of the 99 percent, such as unemployment insurance.
But we also shouldn’t let the cross-class solidarity of the 99 percent blind us to the very real, profound hardship experienced every day by the poorest 40 percent of workers and families who barely tasted the benefits of economic growth in the 2000s. We have obligations to them as well, and it’s not just the responsibility of the 1 percent.
Mark Schmitt is a senior fellow at the Roosevelt Institute and former editor of The American Prospect.