Has there been a $50 trillion wealth transfer to the richest Americans?

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Speaker 1 Hello and thanks for downloading the More Orless podcast. We're the program that looks at the numbers in the news and life and the 1970s.
I'm Tim Harford.

Speaker 1 Loyal listener Milena Kopkowska got in touch to ask us to look into a claim to do with income and wealth inequality.

Speaker 5 Since 1975, $80 trillion has shifted from the bottom 90% to the top 1%.

Speaker 5 In 2023 alone, it was $3.9 trillion.

Speaker 5 That's enough to give every full-time worker in the 90% an extra $32,000 a year.

Speaker 1 The claim appears to have been popularized by left-wing Vermont Senator Bernie Sanders, although he uses a slightly different figure.

Speaker 3 There has been a $50 trillion transfer transfer of wealth from the bottom 90% to the top 1%.

Speaker 1 Are these numbers right and what do they mean?

Speaker 3 My name is Carter Price. I am a senior mathematician at the RAND Corporation.

Speaker 1 Carter knows all about these trillions of dollars. He's the author of the two reports that Arlista Milena and Bernie Sanders are talking about.
So how were these numbers worked out? Step one.

Speaker 3 We took the economic growth rate and looked at the actual growth in pay for the bottom 90% of workers.

Speaker 1 This claim is about income, and Carter started by looking at the relationship between the incomes of the bottom 90% of workers and the economy more generally.

Speaker 1 Now, there was a time, perhaps an unusual time, when this relationship was very stable.

Speaker 3 From after, you know, shortly after the Second World War up to the mid-70s, you know, if the economy grew 5%, people's wages went up 5%. If the economy grew 2%, people's wages went up 2%,

Speaker 3 more or less across the board.

Speaker 3 And so we saw very even growth for that 25-ish year period.

Speaker 1 So there was an inequality, but the inequality

Speaker 1 was consistent. It wasn't growing or shrinking over time.
Correct.

Speaker 3 Yeah. It was more or less the economy grew evenly.

Speaker 1 That even income growth is certainly not the rule, and it did not continue forever.

Speaker 3 Beginning in the mid-70s, the top of the income distribution started to pull away, and that expanded over time. So, that, in particular, the top 1%,

Speaker 3 the top 0.1%, and sort of the higher up the income distribution you grow, the faster incomes grew. And that has more or less persisted in the 50 years since 1975.

Speaker 1 Carter wanted to work out what would have happened if this post-war era of even growth in incomes had continued into the 80s, 90s, 00s, and so on. So, step two, he did some maths.

Speaker 1 Again, looking at the bottom 90% of worker incomes.

Speaker 3 Instead of what their pay actually grew at, had it grown at the rate of the broader economy, what would have happened? And so, we did that for each year.

Speaker 3 That told us what that gap would have been for that given year. And then we added it all up to get the 50 trillion or the 80 trillion.

Speaker 1 These two figures are just numbers from two different papers. The first calculated the difference with this alternative universe up until 2018.
The second moved it a few years on to 2023.

Speaker 1 And so the 50 trillion, which is the older figure, the more recent figure of 80 trillion. This is basically, if I understand it, this is foregone income.

Speaker 1 This is the total income that everybody in the bottom 90%,

Speaker 1 the extra income they would have made if the economy grew evenly as it used to, but they didn't because it grew unevenly and more money went to the top 10%.

Speaker 3 Correct. Yeah, we're summing up each year.
So in 2018, it was about two, two and a half trillion was that gap.

Speaker 3 And since then, that gap has grown to more than three and a half, almost four trillion dollars each year.

Speaker 1 But that's a number that makes more sense to me because you sum something up over 50 years.

Speaker 1 Half these people are dead, and

Speaker 1 the other half have been born. I mean, it's such a long period of time, but $4 trillion a year I can get my head around.

Speaker 3 Yes.

Speaker 1 This works out at something like $30,000 per full-time employee in the US, which does look on the face of it like a big number.

Speaker 1 So, what does it tell us? It's certainly a fresh way of visualizing the magnitude of the increase in inequality.

Speaker 1 What it doesn't tell us is what caused the increase, nor whether we could actually have tweaked some policy to land us in this counterfactual world where we get all of the extra growth, but none of the extra inequality.

Speaker 1 Perhaps pay at the top increased dramatically because American entrepreneurs started companies that brought in huge wealth to the US.

Speaker 1 Perhaps without them, everyone would have earned less and been poorer. Or perhaps if growth had been more inclusive, it would have been even higher.

Speaker 1 That's not a question that Carter's research seeks to answer.

Speaker 1 Just so I'm clear, you're not...

Speaker 1 This is not to do with a change in growth rate or anything like that. You're purely trying to track the change in inequality.

Speaker 3 Correct. Yes.
And so the growth rate did decline

Speaker 3 during this time period. So in those early years, the economy was growing much faster.

Speaker 3 And then, you know, the sort of the stagflation period of the 70s. And then we entered a period of much slower growth following that.

Speaker 1 Now, Bernie Sanders has an explanation for why inequality has gone up.

Speaker 1 And his story workers became more productive, but the people who own the companies basically took all the benefits of that productivity, they added it to their own pay packets or their share packages, and they didn't pay the workers in line with increasing productivity.

Speaker 1 What do the data tell us about that story?

Speaker 3 I think that lines up with the facts that you did not see most workers' pay growing with the rate of productivity um

Speaker 1 but you know the the top the highest earners uh many of them would be you know corporate executives saw their wages growing much faster your data is is all pre-tax pre-transfer right um so obviously after that the you know the government kind of gets involved and moves money around and taxes some people and gives money to other people

Speaker 1 do we have any idea what difference that makes and whether the tax system has changed to kind of offset the trend that you describe or maybe it's changed to exacerbate the trend that you describe?

Speaker 3 In some sense, it has exacerbated

Speaker 3 that change.

Speaker 1 In 1975, the top rate of income tax in the US was 70%.

Speaker 1 In 2023, it was 37%.

Speaker 1 But that does raise a question, because when Senator Bernie Saunders used this number, he talked about a transfer of wealth.

Speaker 1 But Carter's analysis is looking at incomes over time and not wealth, and it doesn't include data about taxes at all.

Speaker 1 That sort of language like wealth transfers and so on, is that the language you would use, or would you have a different form of word?

Speaker 3 That's certainly not the language I use. It's not wealth.

Speaker 3 It's income in some sense because when we look at the cumulative effect of this, it is

Speaker 3 like wealth, but because it's you know, income over time, um,

Speaker 3 obviously, a portion of that you spend, some of it you save, so it would be correlated with wealth, but it, I would not, it is not wealth, and so that's not the

Speaker 3 maybe not the best way to describe this.

Speaker 1 Thanks to Carter Price, and that's it for this episode of More or Less. If you've seen a number you want us to take a look at, email us at more or less at bbc.co.uk.
Until next time, goodbye.

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