Four years into the economic recovery and there has been almost no improvement in either the poverty rate or median household incomes. In fact, both were worse last year than in 2009, when the unemployment rate peaked at 10 percent. That's the takeaway from the latest Census Bureau report on poverty and income, which reveals just how little the soaring stock market and record corporate profits have done to help America's poor and struggling middle class.
According to the latest data, median household income fell for the fifth year in a row in 2012, to $51,017—essentially unchanged from the year before, but a drop of over $5,000 from peak median income in 1999 ($56,080, adjusted for inflation). While the rich got even richer, the median household earned no more last year than they did at the end of the Cold War in 1989.
There was little variation among racial groups, with the downward trend in median incomes taking place across the board. Although some groups fared better than others, Asian, white, Hispanic and black households all earned less in 2012 than before the recession, and significantly less since the bursting of the Dot-com bubble and the end of the Clinton-era economic expansion.
Only Asian households increased their median income by a noticeable amount (3.2 percent) in 2012, from $66,490 to $68,636. White and black households saw marginal gains (about one percent), with median incomes of $53,706 and $33,321, respectively, while Hispanic income actually fell slightly (1.1 percent) to $39,005.
As a result, the poverty rate was also essentially unchanged. Last year, 15 percent of Americans lived below the poverty line—about as high as at any point in the last half-century—representing approximately 46 million people earning less than $23,492 for a family of four, or $11,945 for a working-age individual. Of that number, one third were younger than eighteen: a total of 16 million children, or one in five (21.8 percent), were living in poverty in 2012.
At first glance, it's hard to square these figures with the economic recovery being discussed in the news. After all, GDP has increased by more than $2 trillion since the first quarter of 2009. If median household incomes haven't increased, and the poverty rate hasn't come down, where did all that money go?
The answer, according to a report released last week, is the richest 1 percent. Using advance data from the IRS, economists Emmanuel Saez and Thomas Piketty found that incomes for the top 1 percent of households soared 31.4 percent between 2009 and 2012—an amount equal to 95 percent of all new income gains. Only 5 percent of growth went to the bottom 99 percent of earners, whose incomes increased just 0.4 percent. They also found that, for the first time ever, the richest 10 percent of Americans took home more than half of every dollar earned in 2012.
The result has been a rapid increase in income and wealth inequality. The latest Census data, graphed below, illustrates this growing divide using the Gini index—a way of measuring inequality where zero represents complete equality (everyone earns the same income) and 1 represents absolute inequality (a single person receives all the income). Since 1968, the Gini index for the United States has increased from 0.386 to .477 in 2012, one of the highest levels in the developed world. In fact, it would be even higher if the Census included data on capital gains, which are the primary source of income for many of the ultra-rich in the top 0.1 percent.
There is a startling lack of consensus among economists over which social or political forces—lower taxes, globalization, technology, deregulation and weaker unions—are driving higher inequality. Some even argue that more inequality can be a good thing, creating greater competition and innovation. Certainly that has been the case in many developing countries, like China and India, where freer markets have lifted hundreds of millions of people out of poverty.
But whatever benefits the United States may at one point have gained from lowering top marginal tax rates (they were above 90 percent in the 1950s and '60s), rising income inequality has long since stopped having any positive effect on society. Falling median household incomes and a poverty rate that has increased in nearly every single year of the last decade is the proof.