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“THE $2.5 TRILLION THEFT”: RAND study uncovers massive income shift to the top 1%

Published: September 15, 2020
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Source: fastcompany.com

Just how far has the working class been left behind by the winner-take-all economy? A new analysis by the RAND Corporation examines what rising inequality has cost Americans in lost income—and the results are stunning.

A full-time worker whose taxable income is at the median—with half the population making more and half making less—now pulls in about $50,000 a year. Yet had the fruits of the nation’s economic output been shared over the past 45 years as broadly as they were from the end of World War II until the early 1970s, that worker would instead be making $92,000 to $102,000. (The exact figures vary slightly depending on how inflation is calculated.)

The findings, which land amid a global pandemic, help to illuminate the paradoxes of an economy in which so-called essential workers are struggling to make ends meet while the rich keep getting richer.

“We were shocked by the numbers,” says Nick Hanauer, a venture capitalist who came up with the idea for the research along with David Rolf, founder of Local 775 of the Service Employees International Union and president of the Fair Work Center in Seattle. “It explains almost everything. It explains why people are so pissed off. It explains why they are so economically precarious.”

Trends in Income From 1975 to 2018 [Chart: Carter C. Price and Kathryn Edwards, RAND Corporation]

“THE $2.5 TRILLION THEFT”

Notably, it isn’t just those in the middle who’ve been hit. RAND found that full-time, prime-age workers in the 25th percentile of the U.S. income distribution would be making $61,000 instead of $33,000 had everyone’s earnings from 1975 to 2018 expanded roughly in line with gross domestic product, as they did during the 1950s and ’60s.

Workers in the 75th percentile would be at $126,000 instead of $81,000. Remarkably, even those in the 90th percentile would be better off than they are now if economic growth had been shared as it was in the post-war era. They’d be making $168,000 rather than $133,000.

Tally it all up, according to RAND, and the bottom 90% of American workers would be bringing home an additional $2.5 trillion in total annual income if economic gains were as equitably divided as they’d been in the past—leading Rolf to dub the phenomenon “the $2.5 trillion theft.”

“From the standpoint of people who have worked hard and played by the rules and yet are participating far less in economic growth than Americans did a generation ago,” he says, “whether you call it ‘reverse distribution’ or ‘theft,’ it demands to be called something.”

The RAND data also makes clear who the winners from inequality are: those in the top 1%.

Of course, they’d be in a less advantageous position if the economic pie had been divvied up since the mid-1970s like it was previously. If that were the case, RAND says, yearly income for the average one-percenter would fall from about $1.2 million to $549,000.

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