New data show that the incomes of the ultrarich rose 11.6 per cent in 2010, while the incomes of the 99 per cent gained only 0.2 per cent. That is bad news for Mitt Romney, this political season’s most striking emblem of the 1 per cent.JESSICA RINALDI
Forget Roman Catholics and contraception, evangelicals and Mormonism, Newt Gingrich's three wives and even Mitt Romney's dog. If you are struggling to understand the roller-coaster U.S. election season, your Rosetta stone should be a dry academic paper by economist Emmanuel Saez.
In an age of celebrity scholars, Prof. Saez, of the University of California, Berkeley, is a shy data jock who marshals vast pools of statistics. But he has probably done more than any pundit to shape the political narrative of our age – it is the number-crunching of Prof. Saez and his long-time collaborator, Thomas Piketty, that gave us the notion of the 1 per cent of income earners and the evidence that they are pulling away from everyone else.
That's why new Saez research is hot news. And his latest, which set Twitter abuzz this week, is a humdinger: In the 2010 U.S. recovery, 93 per cent of the gains were captured by the top 1 per cent. That's because top incomes grew 11.6 per cent in 2010, while the incomes of the 99 per cent increased only 0.2 per cent.
That gain is particularly painful because it comes after an 11.6-per-cent drop in income for the 99 per cent, he reports, the largest such fall over a two-year period since the Great Depression. That decline more than erases the income gains since the last downturn.
This battering of the middle class – or really, everyone except the rich – is the painful economic reality driving the angry, polarized political debate in the United States. The economic whiplash Prof. Saez describes is why voters are so angry, and why they are attracted by candidates who present themselves as outsiders with a vision of change.
The healthy rebound of the 1 per cent that Prof. Saez documents is also important because it runs counter to the rising narrative of an economic elite that is under siege. The recent decline in Wall Street bonuses and attacks on the titans of finance by both Occupy Wall Street and, less predictably, Republican presidential contender Newt Gingrich, have provoked the angry retort that the people at the top have suffered from the financial crisis, too, and that their travails are no less worthy of sympathy.
But Prof. Saez shows that while the financial crisis hurt those at the top more than anyone else – the income of the 1 per cent plummeted 36.3 per cent between 2007 and 2009, compared with an overall average fall of 17.4 per cent – their recovery has been spectacular, while everyone else has languished.
Americans are generally believed to be more tolerant of the ultrarich than citizens of many other countries, and one reason is that in the United States, those at the top earned their way there. Prof. Saez offers some support for this view.
"The evidence suggests that top income earners today are not 'rentiers' deriving their incomes from past wealth, but rather are 'working rich,' highly paid employees or new entrepreneurs who have not yet accumulated fortunes comparable to those accumulated during the Gilded Age," he writes.
But he cautions that a plutocracy of the working rich "might not last very long," pointing in particular to the cuts in the estate tax as a measure that could "accelerate the path toward the reconstitution of the great wealth concentration that existed in the U.S. economy before the Great Depression."
Prof. Saez's new research is bad news for Mr. Romney, this political season's most striking emblem of the 1 per cent, and provides a playbook for President Barack Obama's re-election campaign. But the men who will take the most pleasure from it are former president Bill Clinton and his economic team, a group much maligned for not foreseeing the financial crisis.
The Clintonites turn out to be the heroes of Prof. Saez's history of the 1 per cent. The 1993-2000 economic expansion was a bonanza for the 1 per cent, whose income grew 98.7 per cent, exceeding the 61.8-per-cent gain they saw from 2002 to 2007 under George W. Bush. In contrast, the income of the 99 per cent grew only 6.8 per cent during the Bush go-go years, while it increased a solid 20.3 per cent during the Clinton expansion.
As Prof. Saez notes: "Those results may also help explain why the dramatic growth in top incomes during the Clinton administration did not generate much public outcry while there has been a great level of attention to top incomes in the press and in the public debate since 2005." That is the ultimate irony – Mr. Clinton, hated by the right, was the guy who made it safe for the 1 per cent.