A Tale of Two Countries

by Brian on March 14, 2006

“Brad DeLong”:http://delong.typepad.com/sdj/2006/03/income_inequali.html quotes “Paul Krugman”:http://krugman.page.nytimes.com/b/a/251584.htm on income inequality in America. (Note the Krugman link is behind the TimesSelect firewall.)

One of the truly strange features about discussions of inequality is the way people shy away from talking about the extent to which the gains from rising inequality have gone to a tiny, wealthy elite … A few days ago Steve Pearlstein of the Washington Post — a good guy, and sensible — wrote about income inequality. As I did in my column just a few days earlier, “Feeling No Pain,” he emphasized the “retrospective income” distribution data released by the I.R.S. (Paper at http://www.irs.gov/pub/irs-soi/04asastr.pdf. Tables at http://www.irs.gov/pub/irs-soi/04asastr.xls.) As he pointed out, those data show that the share of income received by the top 10 percent of taxpayers rose from 33 percent in 1979 to 44 percent in 2003 … But Pearlstein stops there, leaving the impression that everyone in the top 10 percent was a big winner. In fact, there was hardly any rise in the share of income going to people between the 90th and 95th percentiles: almost all the gain went to the top 5 percent. And most of the gain went to a very small elite. The income share of the top 1 percent went from 9.6 to 17.5 percent, accounting for more than 70 percent of the top decile’s gain. The income share of the top 0.25 percent went from 4.9 to 10.5, accounting for a bit more than half the total gain.

Today “this story about income inequality in Australia”:http://www.theage.com.au/news/national/so-it-emisem-the-rich-what-gets-the-pleasure/2006/03/14/1142098463260.html was on the front page of The Age online.

Appearing to contradict claims that Australia is now a more egalitarian society, research by the Australian National University and Oxford University has concluded that the richest 1 per cent of the population has almost doubled its share of national wealth. The report, by ANU economist Andrew Leigh and Oxford’s Sir Anthony Atkinson, found that the wealthiest 1 per cent of Australians now took 9 per cent of national income, compared with a 5 per cent share in 1980.

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The interest rate bears …

by John Q on March 14, 2006

… of whom I am one, are starting to growl again.

The cenral tenet of interest rate bearishness is that if interest rates are low enough to generate negative savings, as is the case in the US and Australia, they are too low to be sustained. The counterargument, put most forcefully by Ben Bernanke is that someone must be willing to lend at these low interest rates, and this lending must reflect a “global savings glut”. Bears respond that the supposed glut does not reflect savings by households or business, but is really a liquidity glut created by expansionary monetary policy around the world, which must eventually come to an end, or be dissipated in inflation.

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