Two Visions of How the Economic Pie Gets Sliced

I hate to say it, but I’m late getting to the nitty-gritty of the big CBO report Trends in the Distribution of Household Income Between 1979 and 2007.  It really is a fantastic report, with all kind of information about the data and various arguments inside it.  We’ll be talking about it more in the future, but I just want to point out two visions of how the economic pie get sliced.

The first is the “supply-side” experience we’ve had for the past 30 years:

“A bigger slice from a bigger pie” is what the 1% get.  “A smaller slice from a bigger pie” is what the rest get.

How did the post-war, strong liberal, demand and mass consumption driven model look?  From a favorite graphic (click for a bigger image):

Here the people at the top get “a thinner slice from a bigger pie,” and it “still means more pie.”  Everyone else get a larger pie than they did in the Gilded Age.

The second is a vision of society from New Dealer and prominent midcentury liberal Chester Bowles.  But the first graphic with current data is no less a vision of society – grow the economy as fast as possible, distribution be damned, and the government can just transfer and tax a much more decent and broadly shared prosperity.  Except, as you can see from the first graph (which is after taxes and transfers), it turns out to be pretty hard to do that.  The idea that the 1% will be so rich they won’t mind sharing is an absurd one. And it turns out that they like using government towards their own ends of remaking the legal codes of the corporation and the financial firm while dismantling the social safety net and other transfer devices.

And as a last graphic from the report for now, look how the inequality of every type of market income has increased.  Also check out how massive the inequality within capital gains income is (click for bigger image):

A bigger slice of the pie indeed.