But Kornbluth has made a movie out of it. A really astonishingly good movie that takes some big economic ideas and how these relate to the quality of everyday life as lived by most ordinary people. The love and care and artistic flair that Kornbluth brought to it is evident in every frame.
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It was really really hard work, he tells me, to make something look that simple. But then "I grew up poor. So I've always been very aware of who has what in society. And his mother, who didn't work because she was raising three children, died when he was Any synopsis of the film runs the risk of making it seem dry again, but essentially it describes how the middle classes have come to have a smaller and smaller portion of the economic pie. Meanwhile, the government has allowed the super-rich, the "one per cent", to take more of the nation's wealth.
Half of the US's total assets are now owned by just people — ! Reading this on mobile? Click here to view video. Kornbluth tells me that he initially had the idea of casting Reich in a feature film. Although, actually, it turned out he was a terrible actor. But we hit it off. And I discovered that he and I share a sense of humour. I'm not a documentarian. My background is comedy. Yet I just thought that this could be an amazingly riveting film. To me it's the most important story of our time.
And nobody was telling it. I kept on reading the papers and watching the news and I really wanted a story. I craved it. I just knew that to do it, we would have to make it as funny and human as possible. And it's this, the gentle humour at the heart of the film, and the lightness of its direction, that are its winning ingredients, disguising what is, in fact, incredibly powerful.
Because at heart Inequality for All is a revolutionary film. Or, at least, its dearest desire is to precipitate a revolution in the way that we think about economic matters. As Reich tells me, "the economy is not like the weather".
It's not inevitable. It's not determined. We don't have to settle. But the film's main stroke of brilliance is to put Reich, the unlikely hero, at the centre. But seeing his example, the way that he has fought this fight for so many years has been an absolute inspiration to me. I see it in his students, they really do walk out of his lectures and want to change the world. As in An Inconvenient Truth — or "the most lucrative PowerPoint presentation in history", as one critic called it — the film is structured around a lecture, or rather series of lectures: Reich's incredibly popular wealth and poverty class at Berkeley.
But it is only loosely used as a vehicle. There are also news clips and interviews and stylised graphics and archive footage. It is, in some respects, a theory of everything.
Reich charts the three decades of increasing median income after the second world war, a period he calls "the great prosperity" and then examines what happened in the late s to put an end to it. The economy didn't falter. It kept on growing. But wages didn't. The figures that Reich supplies are simply gobsmacking.
And much of the rest of the film is working out what happened. Some inequality is inevitable, he says. Even desirable. It's what makes capitalism tick. But at what point does it become a problem? Reich's thesis is that since the s a combination of anti-union legislation and deregulation of the markets contrived to create a situation in which the economy boomed but less of the wealth trickled down. Though for a while, nobody noticed. There were "coping mechanisms". More women entered the workforce, creating dual-income families. Working hours rose. And increasing house prices enabled people to borrow.
And then, in , this all came crashing to a halt.
There's nowhere else left to go. It's crunch time. It's crunch time that so many working families understand too well. They may not be familiar with the theory of income inequality but they haven't been able to avoid noticing that they've got less money in their pockets. I've always tried to relate economics to where people live. That's why I was so excited about the film. The human stories of working American families struggling to cope are at the emotional centre of the film.
And, it gradually transpires, that he's a student in Reich's wealth and poverty class at Berkeley. One of Reich's greatest sources of humour is himself. In the opening shots of the film, the camera follows him walking to his car, a Mini Cooper. I feel we are in proportion.
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Me and my car. We are together facing the rest of the world. Later he takes a box out of the back of his car. The box is what he always takes to public-speaking events so that he can reach the podium. He was bullied as a child "because that's just what happens when you're small" and repeatedly beaten up. His grandmother consoled him by telling him that when he was 10, 11 or 12 he'd shoot up. He never did. And maybe it's because of that that I can empathise with poor people. Because they are the most vulnerable. There is no one to protect them.
Some of the W-2s in it belong to people who got married and never reported changing their name. Others are people who filled out their tax forms incorrectly. As of , efforts to track these taxpayers down allowed the Social Security Administration to match million tax forms to their rightful owners. But there are still about million unclaimed tax forms recorded in the file, compared to million nearly a decade ago.
A good portion of those forms were filed by employers on behalf of some of the most unlikely funders of Social Security: undocumented immigrants. In fact, illegal immigration is considered largely responsible for the mushrooming of the file, with undocumented workers paying billions in taxes for retirement benefits they will likely never receive.
And then, a large chunk of that money ends up in the Social Security trust funds, from which retirement benefits are doled out to aging Americans. The Social Security system has grown increasingly reliant on this stream of revenue, particularly as aging Baby Boomers start to retire. Stephen Goss, the chief actuary of the Social Security Administration, estimates that about 1. The second provides an overview of the trends revealed in those key data sources. The third and fourth sections supply additional information on wealth, which complements the income data as a measure of how the most well-off Americans are doing, and poverty, which measures how the least well-off Americans are doing.
Each agency produces its own tables and statistics and makes a public-use file of the underlying data available to other researchers.
In addition, the Congressional Budget Office CBO has developed a model that combines CPS and SOI data to estimate household income both before and after taxes, as well as average taxes paid by income group back to The Census Bureau bases its report on income and poverty on a sample of about 92, addresses  conducted through the Annual Social and Economic Supplement ASEC to the monthly Current Population Survey, which is the primary source of data for estimating the unemployment rate and other household employment statistics.
The income measure used in the Census report is money income  before taxes, and the unit of analysis is the household. The latest data, for , were released in September The statistics on household income are available going back to Equivalence adjustment takes into account the fact that larger families need more total income but less per capita income than smaller families because they can share resources and take advantage of economies of scale.
In recent reports, Census has supplemented its measures of income inequality based on household money income with estimates based on equivalence-adjusted income. For reasons having to do with small sample size, data reporting and processing restrictions, and confidentiality considerations, Census provides more limited information about incomes at the very top of the income distribution than it does for incomes elsewhere in the distribution. For , the sample consisted of about , returns scientifically selected from the roughly million returns filed that year.
However, not all people are required to file tax returns, and tax returns do not reflect all sources of income. Those who do not file returns are likely to have limited incomes; hence tax data do not provide a representative view of low-income households the mirror image of inadequate coverage of high-income households in the CPS.
Like Census money income, income reported on tax returns excludes non-cash benefits such as food stamps, housing subsidies, Medicare, Medicaid, and non-taxable employer-provided fringe benefits. The exclusion of non-filers is a major limitation of the tax data for distributional analysis. SOI tax data are also less timely than Census data. Final statistics for tax year were released in August In producing its estimates, however, CBO must make judgments about how to value non-cash benefits like government-provided health insurance, and in presenting its estimates CBO must make judgments about what specific measures of income to feature, e.
In , CBO changed the way it valued government-provided health insurance such as Medicare and Medicaid. This is the same approach CBO has always used to value employer- provided health insurance benefits. Broadly speaking, this new measure consists of market income plus social insurance benefits, such as Social Security and Medicare. One effect of the change appears to be to shift more seniors with substantial Medicaid benefits into the bottom fifth of the income distribution.
CBO states that the former method of using after-tax income for ranking was appropriate for analyzing the effects of federal taxes, but with the growing importance of means-tested transfers, the change allows the agency to analyze both means-tested transfers and taxes on the same basis. Together with the change in the treatment of government-provided health insurance, however, this change appears to strongly affect income trends for the poorest households, as discussed in Section II.
The latest CBO report on the distribution of household income, released in July , includes data for on income before and after transfers and taxes as well as taxes paid for each quintile and for the top 1, 5, and 10 percent of households. Economists Thomas Piketty and Emmanuel Saez have constructed income statistics based on IRS data that go back to to provide a long-term perspective on trends in the concentration of income within the top 10 percent of the distribution.
Because they have no direct data on non-filers and because in any year only about 10 to 15 percent of potential tax units had to file an income tax return prior to World War II, Piketty and Saez focus on the share of income received at the top of the distribution. Their income concept is market income before individual income taxes. They define market income as the sum of all income sources reported on tax returns including realized capital gains  and taxable unemployment compensation.
Some people with market income are not required to file income tax returns;  hence they do not show up in the population of tax filers, and their income does not show up in the total income reported on tax returns. Piketty and Saez address these omissions by estimating the number of non-filers and their income and adding these to the population of tax filers and the market income calculated from the income tax data.
Piketty and Saez do not make an adjustment for family size in their analysis. The primary advantage of the Piketty-Saez data is that they provide the longest historical series of annual data on income at the top of the distribution. The key limitation is that they are based exclusively on tax return data. As a result, they do not include data for individual non-filers and therefore provide no information about the distribution of income among non-filers. The share of personal income coming from the public and private non-cash benefits that are missing from the Piketty-Saez income measure has increased over the years.
This could distort their estimates of what share of the growth of total income has come at the top of the distribution. For example, employer-sponsored health insurance benefits are most likely a much smaller fraction of income for the top 1 percent than for the vast majority of middle-income tax units; not including them could understate income growth in the middle of the distribution relative to growth at the top. Because each individual source of readily available data on income distribution has different advantages and limitations, no single source illustrates all of the major trends in inequality over the past six decades or so.
Ideally, we would look at a comprehensive measure of income that covers a long time span, allows us to compare before- and after-tax income at different points in the income distribution, and accounts for changes in the size and composition of households. CBO data satisfy many of these criteria but only go back to and are sensitive to particular methodological choices;  the historical Census family income data series and Piketty-Saez income concentration data cover a longer time span but use less-comprehensive measures of income and do not adjust for changes in the size and composition of households.
Census family income data show that from the late s to the early s, incomes across the income distribution grew at nearly the same pace. Figure 1 shows the level of real inflation-adjusted income at several points on the distribution relative to its level. It shows that real family income roughly doubled from the late s to the early s at the 95th percentile the level of income separating the 5 percent of families with the highest income from the remaining 95 percent , at the median the level of income separating the richer half of families from the poorer half , and at the 20th percentile the level of income separating the poorest fifth of families from the remaining 80 percent.
Then, beginning in the s, income disparities began to widen, with income growing much faster at the top of the ladder than in the middle or bottom.
While the Census family income data are useful for illustrating that the widening of income inequality began in the s, other data are superior for assessing more recent trends. Census family income data show that the era of shared prosperity ended in the s and illustrate the divergence in income that has emerged since that time. CBO data allow us to look at what has happened to comprehensive income measures since — both before and after taxes — and offer a better view of what has happened at the top of the distribution.
As Figure 2 shows, from to just before the financial crisis and Great Recession , average income after transfers and taxes quadrupled for the top 1 percent of the distribution. But this appears to be a methodological anomaly. The chart below shows that federal transfers and taxes are progressive. In , the top 20 percent of households had a smaller share of total income after transfers and taxes than before transfers and taxes, while the opposite is true for the other 80 percent of the distribution. Income is highly concentrated under either measure, however. In , the top 1 percent of households received 16 percent of income before transfers and taxes and 13 percent of income after federal transfers and taxes; the comparable figures for the bottom 80 percent of households were 47 and 54 percent, respectively.
After-tax incomes fell sharply at the top of the distribution in and but have since partially recovered. The up-and-down pattern in may reflect, in part, decisions by wealthy taxpayers to sell assets in that had increased in value since they were first purchased in order to pay taxes on those capital gains before income tax rates increased in The Piketty-Saez data discussed below, which go through , show a generally upward trend since that is consistent with this explanation. Although the average income after transfers and taxes of the top 1 percent of households remains well below its peak, the percentage increase in their average income after transfers and taxes from to was more than five times larger than that of the middle 60 percent and more than three times larger than that of the bottom fifth.
See Table 1.