Derek Thompson: Hi, I'm Derek Thompson. This is Economics in Plain English, where I answer you questions about business and money. You asked, "Are the rich getting too much of the economic pie?" Now, it's very important to begin any discussion about economic pie with non-economic pie. Which is to say, pie.
So we're here at Dangerously Delicious Pies in northeast D.C. Officially, we're here to answer you question about income distribution. Unofficially, we're here to have dessert.
When we talk about how the economic pie is sliced, what we're really talking about is how money is distributed between rich and poor families. Now of course, rich families will have a bigger slice of the pie. That's what makes them rich. But what's really astonishing is how much the gap between rich and poor families has grown in the last 30 years.
Let's imagine this peanut butter pie, right here, represents all income growth between 1979 and 2007. Just before the Great Recession. In this period, the top 1% of households in the U.S. got 38% of all income growth. This slice right here.
The rest of the top 10% got another quarter. Right here. The bottom 60% received only about 1/9 of overall income growth. And the bottom fifth, they got just .7% of total income growth.
So the bottom grew by very, very little and the top grew by a lot. This is exactly what widening income inequality looks like.
But what about today's economy? This custard pie represents all income in the U.S. today. But to make the clearest point, let's just look at the top 20% of households versus the bottom 20%. The top fifth earns about half of all after-tax income. The bottom fifth, just 6%.
Income is a measurement of how much money you get every year. But wealth is a measurement of how much you're worth. It represents income plus all your assets: stocks, real estate, business equity. And the wealth pie, represented by this blueberry pie, right here, turns out to be much more unequal.
Here we see the top 10% owns nearly 3/4 of the total wealth pie. Everybody else owns just 27%. There's no question that the rich have relatively more pie than they've had in a really long time. Their slice of the economy is growing. But it's fair to ask, So what?
Income inequality isn't just inevitable, it's good. If everybody made the exact same wage, there wouldn't be much incentive to work hard and try to get ahead. So long as the pie is growing for the vast majority of families, why does income inequality matter?
Well, here's why: A growing body of research suggests the countries with lower inequality and higher middle class wages are just better economies. They grow more, they expand for longer periods of time. And it turns out that economies like the U.S. with the largest gaps between the rich and the poor, often have the lowest social mobility.
It's hardest in places like here for the poor to get ahead. So in the end, if we all want a bigger overall pie, we should all ask for more evenly cut slices.There may be small errors in this transcript.