Inflation adjusted percentage increase in after-tax household income for the top 1% and the four quintiles, between 1979 and 2005 (gains by top 1% are reflected by bottom bar; bottom quintile by top bar). (source: Wikipedia)

Alan Blinder has a great story in the Wall Street Journal Friday about the US economy and how impossibly tilted it is toward the rich:

Those of us who live near the top of the income pyramid are doing very nicely, thank you. Yet our government keeps showering us with Christmas presents. Meanwhile, economic life is pretty miserable for those near the bottom and is getting worse for those in the middle. Does this strike you as fair?

The main story line of the U.S. economy over the last third of a century evokes Charles Dickens’s classic “A Christmas Carol.” Starting in the late 1970s, the labor market turned ferociously against those with less education and in favor of those with more. This was not Ronald Reagan’s fault, nor George Bush’s (either one), nor Mitch McConnell’s. It just happened. And except for a brief shining moment during the Clinton boom, the Great Disequalization has continued unabated to this day […]

When it comes to wages, the basic story of recent decades is redolent of Scrooge. Real average hourly earnings (excluding fringe benefits) now stand roughly at 1974 levels. Yes, that’s right, no real increase in over 35 years. That is an astounding, dismaying and profoundly ahistorical development. The American story for two centuries was one of real wages advancing more or less in line with productivity. But not lately. Since 1978, productivity in the nonfarm business sector is up 86%, but real compensation per hour (which includes fringe benefits) is up just 37%. Does that seem fair?

I’m focusing on wages, though the inequality throughout the rest of the economy is crucial as well. But basically, you have working people producing for their employers and not coming close to sharing in the benefit. You have stagnant incomes for the last 35 years, which is absolutely incredible. [cont’d]

And this leads necessarily to income inequality. This chart of inequality in New York City approaching that of a banana republic tells the tale. Income has become concentrated in the hands of a few. They set the political agenda, they use the commons to an expansive degree, and they don’t pay their freight on that use. Government policies for 30 years have bestowed gifts on the rich at the expense of the poor, something we just saw a few minutes ago with the signing of a tax cut bill which will effectively increase taxes on those making under $20,000 a year, and reduce them on the top 2%.

And yet the loudest voices among those who haven’t had to commit a fair share to the functioning of this country continually scream about the budget deficit, not the structural revenue gap. Blinder has a word for them too.

But here’s a stunning coincidence. The entire Bowles-Simpson plan would reduce federal borrowing by $3.9 trillion over 10 years, including interest savings. That’s a lot of money. In fact, it’s almost enough to cover the cost of extending all the Bush tax cuts for 10 years.

So here’s a choice: We can achieve nearly $4 trillion in budgetary savings by accepting everything on the Bowles-Simpson list—spinach, broccoli and all. Or we can get a bit more than $4 trillion simply by letting all the Bush tax cuts expire in 2012. Of course, ending those tax cuts would mean returning to the tax rates of the Clinton years—when, as I’m sure you recall, high tax rates killed incentives and left our economy dead in the water.

It’s only slightly related, but you have to read Moe Tkacik on Peter Orszag. The words “corporate oligarchy” come to mind.

David Dayen

David Dayen