Monday, March 12, 2012

The 1%

This is the buzzword of the year, eh?

Most Americans tend to view their personal issues with the top 1% as a peculiarly American problem: you know, America’s 1% is a problem for America’s 99% because America’s 1% has rigged the system in their favor.

When people make sweeping generalizations like that, facts tend to be a problem.

Allan Meltzer, a once top-flight macroeconomist, who is now merely a quite old and still active economist puts things in perspective.*

First, the data. America isn’t alone:

A wide variety of developed countries have seen the share of income earned by the to 1% increase over the last generation. What’s interesting, is note that this effect has occurred even in countries regarded in the U.S. as the model for the direction in which Democrats would like us to shift: Sweden, the Netherlands, and France. It’s also worth noting the anecdotal evidence that very rich Swedes, Dutch and French like to emmigrate to California, which probably exaggerates the upward slope for the U.S.

Meltzer’s point is that if we see a wide variety of countries experiencing the same thing, at the same time, then we should look to a global issue that occurred at just about the same time.

The main reasons for these increases are not hard to find. Adding a few hundred million Chinese and Indians to the world's productive labor force after 1980 slowed the rise in income for workers all over the developed world. That's the most important factor at work. The top 1% gain relatively because they are less affected by the hordes of newly productive workers.

The other thing to keep in mind is that the typical “solution” to the increasing share of the top 1% is an increase in redistributive policies. But, the evidence doesn’t support this: in the heyday of redistributive social programs of the 1960s and 1970s, the decline in the share of the top 1% was modest.

Read the whole thing, entitled “A Look at the Global One Percent” in the March 9 issue of The Wall Street Journal.

* Note that liberals and Democrats could, with some support, argue that Meltzer is not politically neutral.

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