$79 Trillion Worth of Income Inequality

Summary

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Optimist Economy Podcast

Episode: $79 Trillion Worth of Income Inequality
Hosts: Kathryn Anne Edwards & Robin Rauzi
Date: January 27, 2026

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Episode Overview

In this Season Two opener, economist Kathryn Anne Edwards and co-host Robin Rauzi take a deep dive into the roots, measurement, and real-world meaning of income inequality in the United States, centered around the attention-grabbing statistic that $79 trillion in income over the past 50 years "should have" gone to the bottom 90% but instead ended up with the top 1%. The episode explores what this figure actually means, the pitfalls of inequality measurement, why the statistic went viral, and what future solutions and optimism can be found amid these gloomy numbers.

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Key Discussion Points & Insights

1. Setting the Stage: Announcements & Inside Jokes

• [00:33] Recap of hiatus and show updates: hats, a growing merch store, welcoming new listeners to the show's running jokes and "optimist vocabulary."
• Retcons (“retroactive continuity”): Corrections from previous episodes, including Social Security payroll tax details—"I was wrong for, like, months about who Max was… I like to advertise just how wrong I got a student's name." (Kathryn, [04:15])

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2. Terms & Conditions – Defining Pareto, Utility, and Economic Jargon

• [05:53] Robin looks up “Pareto Principle” (the 80/20 rule); Kathryn discusses Vilfredo Pareto and the principle’s roots in describing inequality.
• Explores the difference between Pareto distribution and Pareto improvement (“making someone better off without making anyone else worse off”).

"His name is attached to a lot of what he did. And one of them is this distribution, and we think of him in inequality and the other is this idea of how he worked with preferences and utility… We don't have happiness, we have utility." (Kathryn, [07:25])

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3. The Big Pilcrow: Anatomy of a $79 Trillion Talking Point

[09:42]

a. Origins & Virality of the Statistic

• The $79 trillion figure is frequently cited by politicians and commentators (Bernie Sanders, Robert Reich, Heather Cox Richardson), often incorrectly.

"I wrote that report that it's based on… I'm still shocked how famous this number is and what kind of life it has had..." (Kathryn, [10:47])

• Kathryn’s favorite media gaffe:

"Rolling Stone… he keeps pushing me and pushing me and he's like, but where did the money go? Like, where did the income go? And I was like, the top ate it." (Kathryn, [12:28])

b. How the Statistic Was Created—Measurement is Everything

• The process of measuring inequality is filled with methodological choices—who to count, what kinds of income to include, whether to measure pre- or post-tax dollars, etc.

"When you're looking at income over time, you are entering a minefield… Any one of these choices, if you go in the other direction, you're gonna have a different result in the end." (Kathryn, [14:25])

• The pitfalls of "top coding"—public survey data caps high incomes for privacy, making it impossible to accurately measure what's happening at the very top.

"Most of the income growth has happened above the top code… All the action is above what we can measure." (Kathryn, [20:40])

c. Data Repair: Combining Survey & IRS Data

• Solution: Merge public survey data with tax records using the World Inequality Database to estimate what high earners really earn.

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4. The Counterfactual: What If Incomes Grew With the Economy?

[22:44]

a. Explaining the Counterfactual

• The study imagines an alternative history: what if everyone’s income grew at the same rate as overall economic growth since the 1970s?

“The reason why we chose growth in the economy is… is the economy and its growth generating income growth for everyone in it?” (Kathryn, [24:12])

• Incomes tracked with GDP after WWII, but diverged starting in the late 1970s.

b. Concrete Findings

• Median full-time, full-year prime-age worker:
  • 1975 (inflation-adjusted): $42,000
  • 2018 (actual): $50,000
  • 2018 (if kept pace with GDP): $92,000
• Top 1% would have earned $200K less; instead, rapid income growth benefited only them.

"If you look at full time, full year prime age workers… if that had grown with the economy… they'd be making a little over $90,000 a year. And instead they're making around $50,000 a year." (Kathryn, [25:07])

• The missing income: Adding the difference for all Americans, year after year, results in $79 trillion lost to the bottom 90%.

"The first time we published the report, it was around $50 trillion. And then when we updated it later, it was around 70… 80 trillion." (Kathryn, [28:19])

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5. Breaking Down Group Inequality

• The report dissects inequality by education, race, gender, and geography.
• High school or less-educated workers, rural residents, and certain racial groups lost out disproportionately.
• Women's income growth was mostly through greater work hours, not higher pay per hour.

"For people who had a high school degree or less… not just did their income not keep pace with just inflation… sometimes they didn't even… they were really losing ground." (Robin, [32:32])

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6. Policy Implications and the “Optimist” Perspective

[37:48]

• Flawed economic “common sense” dominated for decades: economic growth benefits all (trickle-down).

"For so long, the history was we just need more business growth. We just need more tax cuts…" (Kathryn, [38:59])

• Kathryn’s hopeful take: The fact that we’re openly talking about the problem is the first step—"We are not at the beginning of this problem, we are at the end of it."

“You cannot design a good solution if you don't adequately and correctly diagnose the problem… At least it's seen as a problem.” (Kathryn, [40:07])

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Notable Quotes & Memorable Moments

• “The top ate it.” (Kathryn, [12:28])
  Her now-famous, tongue-in-cheek quote about where lost income went.

• On misleading talking points:
  “I don't think anyone has ever said it correctly. No one says the number correctly. I mean it's income, not wealth. It's a cumulative total over time, not an annual amount.” (Kathryn, [11:45])

• On the purpose of counterfactuals:
  “We have differences. We have a distribution. The real question is, when is that bad?... When does it become detrimental? Hard to measure, difficult to see.” (Kathryn, [23:12])

• Tough on “we can’t have nice things” logic:
  “We can't have nice things applied to people at the middle and bottom. They don't have to follow the same rules at the top. They just get to earn more money.” (Kathryn, [30:41])

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Timestamps for Key Segments

• [00:33] – Season Two intro & hat store news
• [05:53] – Pareto Principle & economist terminology explainer
• [09:42] – "Big Pilcrow": $79T figure’s origin, virality, and misconceptions
• [14:25] – Measurement minefield: Defining income and inequality
• [19:56] – “Top coding” problem and IRS/tax record workaround
• [22:44] – How the counterfactual works—explaining the “what if” scenario
• [25:07] – Core findings: Median earnings if GDP-shared, group breakdowns
• [32:22] – Granularity: Inequality by education, race, gender, region
• [37:48] – Optimism & the shift to recognizing the problem
• [40:44] – Executive Orders (humorous listener & host rules)
• [43:04] – Spiritual Sponsors (pop culture, life during postpartum)

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Final Reflections

Kathryn and Robin combine accessible explanations, self-deprecating humor, and rigorous economic insight to dissect one of America’s most cited and misunderstood inequality statistics. The hosts clarify common misconceptions, confront the complexity of measuring economic outcomes, and ultimately affirm that awareness and open discussion of inequality is the necessary first step toward lasting solutions.

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Links:

• [Original $79 trillion RAND paper] (see episode show notes)
• [Carter Price's 2023 Update] (see episode show notes)

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Transcript

[A]

So I just want you to know I literally fell asleep on the couch last night with your report.

[B]

It was your idea to make this an entire episode and you can't even stay awake to read it. God, that's cutting. Hello and welcome to Optimist Economy. I'm Katherine Ann Edwards, economist.

[A]

I'm Robin Rousey and I'm an editor on this show.

[B]

We believe the US Economy can be better, and we talk about how to get there. One problem and solution at a. And we're back for season two.

[A]

We are back for season two. Today we're going to talk about income inequality and specifically an attention grabbing number that gets thrown around a lot, which is the $79 trillion that would have gone to the bottom 90% of earners, but instead went to the top 1% over the last 50 years. But first, do we have any announcements? Did anything happen while we were on hiatus?

[B]

A lot happened while we were on hiatus, actually. But let's focus on where it counts, y'. All. We opened a store and we sell hats and we'll have more hats. That's a big deal.

[A]

Our hats were sold out. We're ordering new ones.

[B]

I was also so excited to run out of something. I thought that that was, like, such a win when we sold out of the hats. Especially because I was like, had to get over the initial disappointment that my vision for the optimist economy merch store was like, straight out of Spaceballs, but, like, merchandise. Merchandise. Optimist Economy, the lunchbox. Optimist economy, the flamethrower. Like, I like all of them. Spaceballs, the T shirt. Spaceballs the coloring book. Spaceballs the lunchbox. Spaceballs the breakfast cereal. Spaceballs the flamethrower.

[A]

The kids love this one.

[B]

That was my idea for the merch store. And luckily the people who ran the merch store was like, you probably shouldn't do that.

[A]

Should probably start with some. Some core items.

[B]

Start with core items and see how they sell. And I'm like. Or hear me out. An homage to Spaceballs.

[A]

We did hear from a listener who was like, I think that you really need more stuff that says, I would rather be consuming leisure.

[B]

Consuming leisure. I'd have to put that on a sticker.

[A]

Yeah.

[B]

All right, so that's the announcement. Two quick retcons, obviously, coming from me. The first is that I.

[A]

Because this is season two and we are sure that we're gonna get new listeners, we need to, like, welcome them to the optimist vocabulary.

[B]

Oh, sure. Cause they'll have no idea what I'm Talking about. I just, like, started rambling off about nonsense.

[A]

Yeah. It's all right. It's all right. All right, here we are. Chapter 2 Retcon stands for retroactive continuity. It's where we talk about things we might have wanted to talk about before, make corrections, look back, reflect.

[B]

Now, you wouldn't think because this is the first episode of season two, that there would be a retcon, but there is. So in between season one and two, when we took a break, because if you're new to the show, I was on maternity leave. Baby's doing great, by the way. I guess that is an update. We could have announced that I successfully brought life into the world, and we're both okay.

[A]

Nicely done.

[B]

Thank you. Thank you. So in between seasons one and two, we had two bonus episodes that we didn't tell you we were going to release, but we did. The first was the Thanksgiving episode, which was a lot of fun, but not everybody loved. And the second was a Q and A answer from one of our prior shows that we put out as a small episode in which I incorrectly identified a former student named Max. Clearly, I'm petty and can't let it go. I just wanted you to. I just wanted to clarify. He looks a lot like a student I had who used to sit next to or at least was in a class with a student named Max. So in my mind, I, like, merged together two people into him that he's not. I knew what he looked like because he had friended me on LinkedIn, and I was like, oh, that's Max, my student. So when he accepted the friend, I thought he was my student, too. I was wrong for, like, months about who Max was. It wasn't like I was wrong in the moment. In that episode. I've been wrong for a long time. So I like to advertise just how wrong I got a student's name. In case y' all think I'm down to earth, you know, apparently I'm really bad. The second retcon is that in between the seasons, someone who works at the Social Security Administration emailed me to say that I had said something incorrect about Social Security, which, if you guys listen to the show, you know that's gonna be devastating to me personally to say something incorrect about Social Security. However, during the Great Recession, so this is around 2010, Social Security reduced the payroll tax rates by 2 percentage points in order to boost the economy. And I incorrectly said that they cut taxes, but I did not mention that Congress paid Social Security the difference. So it's normally 6.2% from your paycheck. Congress lowered it to 4.2% to try to boost the economy. That two point difference, Congress paid into the Social Security trust fund on your behalf. So Social Security's finances were not affected by it. I didn't say that when I brought it up in the episode. I don't even remember which episode. I know that I'm devastated to my core to have gotten something wrong about Social Security. I don't even remember when I said it or what episode.

[A]

You have to go look it up.

[B]

I was like, wait, I said something wrong about Social Security in an episode? Burn the back catalog. I can't do this anymore. But Social Security paid Congress back.

[A]

That was the end of Optimus, and.

[B]

That was the end. Yeah, it's been a great run if you're looking forward to season two. Sorry. Our next chapter after we make up for all the mistakes we made is Terms and Condition, where we talk about what we looked up this week, often in reference to the episode that we're preparing for. So this is called Terms and Conditions. Robin, did you look anything up?

[A]

I did. I looked up what I thought was pronounced Pareto, but it's apparently pronounced Pareto.

[B]

He's Italian. I've always learned. Pareto, Pareto.

[A]

Pareto. I'm going to say Pareto.

[B]

Pareto.

[A]

The Pareto principle, which is the context I was looking it up in, is the idea that small inputs have outsized outputs. And I looked it up to find out it's actually a guy's name and he was an Italian economist and that there are these other things called, like, Pareto distributions. Right. And Pareto improvement. And then it showed up in the paper that we're going to discuss today. So maybe you can actually, as an economist, tell me what economists think it means.

[B]

Oh, so you've heard of Pareto as the 8020 rule? Yeah, you can think of it as the Pareto distribution. And it's just showing you how something is distributed along any type of, like, figure. So when we think of distributions, if you ever had the misfortune of taking statistics, you think of the normal distribution like a bell curve. Pareto's just another distribution, but it describes inequality. And of course, he was using it to describe wealth inequality in Italy, and He noticed that 20% of Italians owned 80% of the wealth. And that was what he was trying to describe. It just kind of works out in a rather remarkable way. There are lots of 8020 splits found in all parts of our society and economy. Totally separate and not Necessarily related is a Pareto improvement, which is what we call it when you can make someone else better off with making nobody else worse off.

[A]

In the economy.

[B]

In the economy. He was really fundamental and influential in how economists thinks about how people make choices and the idea of utility and preferences in addition to distribution. Like, he was a bit of a polyglot within the profession. He contributed in a lot of ways. So his name is attached to a lot of what he did. And one of them is this distribution, and we think of him in inequality and the other is this idea of how he worked with preferences and utility and what utility is what economists call happiness, by the way. We don't have happiness, we have utility. So if I consume something I like, I get utility from it.

[A]

Oh, that's nice.

[B]

Yeah. And if I have to decide between two things, I'm going to decide whatever gives me the greatest utility. And that's. That's a function of both how much something cost and what my preferences are. So a Pareto improvement would be you can make someone better off and no one else is worse off. It's almost the opposite of a zero sum.

[A]

We should also say his first name was Vilfredo, which is a pretty great name. Vilfredo Pareto.

[B]

Vilfredo Pareto. Something happened with him in the Fascist, but then I think that's like every Italian in the 1930s.

[A]

He's frequently considered a predecessor of fascism, a result of his support for the movement when it began. Great. Thank you, Wikipedia. Og. OG Fascist. He argued democracy was an illusion and the ruling class always emerged and enriched itself.

[B]

I will say economists of that time, even the ones that were great and influential and did amazing things, you don't want to dig too deep. You're like, oh, you had an economic principle. I should learn nothing else about you. But this was also a time when economics was a new profession. So, like, literally anything you thought of got named after you. And all of the big names in economics were from this period in which we name things after people. So there's like, wow, Racian. And there's, you know, I think Edwardian is taken.

[A]

So, yeah, God.

[B]

Thanks, Kings of England.

[A]

We're going to get to our centerpiece in a second. We're going to take a quick break first and then we'll be right back. It's time for the Big Pilcrow.

[B]

The Big Pilcrow. The Big Conversation.

[A]

So, also known as the Centerpiece. Chapter four.

[B]

Centerpiece. Chapter four. Big essay. Pilcrow listeners, if you're new, what you'll find out is that we're not very professional and we change, we call things every so often just to keep our listeners on their feet and also because why be consistent. Whatever. On their toes. God. Also listeners, you'll learn I don't say any phrase correctly. Okay, so Season two Episode one Income Inequality Here we are. Robin pitched this to me and wanted to see if I was okay talking about it because actually this big number a few years ago you might have heard 47 trillion. 47 trillion, 50 trillion, 79 trillion. It's this massive number that the bottom of Americans are missing because of income inequality. I wrote that report that it's based on and that was an estimate that I had come up with when I was still at the Rand Corporation with the co author there. And it's amazing that it has gone so far.

[A]

I mean this, I do not try to seek this out, this figure, but it's one of these things that once you know it, it shows up again and again. It showed up in a letter to the editor in the Los Angeles Times last week. You know, Bernie Sanders, of course, is probably one of the reasons for this. His office put out this statement. Nearly $80 trillion in wealth in the US has been redistributed from the bottom 90% of Americans to the top 1% in the last 50 years. Robert Reich has shared this same thing on social media. That $79 trillion that would have gone into the paychecks of the working class. Heather Cox Richardson cites it all the time in her newsletter. It showed up again in December in her newsletter. You know, like I said, I don't, I don't seek these things out. I just, they, but they surface again and again. And I always think that's really interesting because it came out of this working paper that you guys did. And I, and I often wonder if their interpretation of, of its findings is totally right.

[B]

I don't think anyone has ever said it correctly. Yeah, no one says the number correctly. I mean it's income, not wealth. It's a cumulative total over time, not an annual amount. I'm still shocked of how like famous this number is and what kind of life it has had over the course of the report. I mean, I think the year we released it, it was in the top 10 most downloaded reports from the Rand Corporation. Now granted, no one's putting that on a T shirt and maybe y' all don't follow that closely, but I mean like Rand has, Rand has like hundreds of PhDs on staff writing a report a day.

[A]

The initial report came out in 2020?

[B]

Yeah.

[A]

So there was, like, other stuff going on, too.

[B]

There was a lot of stuff going on. I mean, there was a lot of stuff going on, and it took off. We went on a media blitz about it because there was so much interest. Oh, my God, this is a great story. So after this report came out, I was called by the Rolling Stone to do an interview about income inequality. And I talked to this guy for like, an hour, and he has so many questions about the report, about the findings. But he keeps pushing me and pushing me and he's like, but where did the money go? Like, where did the income go? And I was like, the top ate it. That's the only thing in the article. The top ate it. I have a PhD. I was in school for over a decade after a lot of people, and my only quote in the Rolling Stone is income inequality in America, the top ate it. As economist Katherine Edwards, I was like, oh, my God. But my best friend put the top ate it on a coffee mug and sent it to me because she was so proud. She was like, no, the top ate it is an amazing quote. And I was like, it doesn't exactly convey that I know what I'm talking about.

[A]

By the way, it's just Rolling Stone magazine. It's not the Rolling Stone.

[B]

Just wait.

[A]

Really? Oh, my God.

[B]

I don't know why I host a podcast. I cannot talk. Drop the duh.

[A]

Drop the the. Just Rolling Stone.

[B]

Rolling Stone. I don't even know who I am anymore.

[A]

Anyway, I think of this pilgrim as sort of like the anatomy of this progressive talking point. And I'd like for us to delve into a little bit what the actual report did and what it found, and then also a little bit about how accurately and inaccurately the findings get thrown around. And then I have a couple other questions for you too, based on just my own reading of the report. And I'm curious about your co author. Carter did an update, too, and what he found.

[B]

The genesis of this report is my co author, who is a mathematician at RAND, named Carter Price, who came to me and said he was working on income inequality and he had come up with some new methods that he thought he could apply and would I like to help him work on it and write it up. When you study income inequality, you are studying measurement and how to measure, and it's not straightforward, it's not easy, it has a lot of problems, and it is one of the nastiest parts of the profession because you have to make choices. So, like, let's say I was doing a study and I wanted to know how much childcare increased work. All right, well that first half, it's childcare, did it go up or down? Typically there's like a policy or an initiative or spending like mom Donnie is going to make childcare free in New York City. If I want to know if people work, I really only have a few options, right? I can look at hours of work, I can look at dollars earned, or I can look at the number of people who say they're employed and that's about it. Those are three ways of looking at that question. When you're looking at income over time, you are entering a minefield. So now we have to dec. Who are we measuring? People, families or households? Are we measuring all income or just earned income or also business income? Capital gains tax income? What about money from the government? What about help from the government? That's not money. Like do I count food stamps? Do I count Medicaid? What if you get low income housing, energy assistance, do I count that? On the flip side, do I count tax credits or tax deductions? Do I look at your pre tax income or your post tax income? Now I need to aggregate all of these things up. If I'm looking at anything related to the labor market, I have to decide if I'm looking at hourly, weekly, quarterly or annual earnings. If I'm looking at everyone who worked or just people who worked full time, or just people who worked full time and full year and all of these workers. Yeah, do I look at everybody or do I just look at people in the prime age who are 25 to 54 years old? Right. Any one of these choices, if you go in the other direction, you're gonna have a different result in the end. And so you just set out, you know, bright eyed, bushy tailed. I want the world to be a better place and I want the US economy to be better for the people at the bottom. And I just set off on my little like yellow brick road journey of like, well, let's go do this. And then like 10ft in 10 people have told me I'm a liar, a manipulator, I'm biased, I'm a liberal liar. I mean, we posted this article and two different people from AEI wrote a tweet thread takedown of how stupid and wrong we were.

[A]

You mean after this is a working paper? When you.

[B]

This is after this working paper comes out and all of it is like, these people are so wrong. Because if you look at the CPS measurement of family in 1980. I mean, it's just like, it gets so detailed of like, they decided to define family like this, and that's why this is wrong. So it's, in some ways it's both, like, it's like, boring but angry at the same time. That's income inequality measurement amongst economists. And I say this with a lot of love for people who are in this and who like to measure. That is the prelude to all of this, is that this was not, like, an easy endeavor because we had to set about trying to piece together what.

[A]

Is income, what you wanted to measure and how.

[B]

Yeah. And that required a ton of choices. And you could find a conservative commentator who would take the report and just, like, rip it to shreds. Being like. And here's another thing they did. And here's another thing they did. I guess maybe this is all a way to say it can certainly be presented by someone, like, outside the family, that this is liberal bias. But someone inside the family, someone who understands the measurement issues, might just not agree with what we say. But then that can be extrapolated to here's liberal lies.

[A]

Yeah. Did you have anything more to say about Carter?

[B]

Yeah, we're going to talk about what Carter did, because Carter did the brilliant part. I sold.

[A]

Yeah. Well, I noticed that when Carter updated this, his report was five pages long, and that when you guys did it together, it was 65 pages long.

[B]

I don't really. I don't really. Like, there's a lot of tables.

[A]

It's okay. A lot of appendices.

[B]

All right, let's talk about what you.

[A]

Did measure, which was you measured taxable income.

[B]

Yeah. So the biggest challenge to understanding income and income inequality in the United States, which is that we don't believe people should have uniform income, but we think that there's a problem that the rich are making too much and the people at the bottom are making too little. And that is wrapped into this very nebulous, not well defined idea of inequality. Right. Which is not the same as being different. It's being different to a degree that's wrong or detrimental to our economy. Impossible to define. It's like, know it when you see it, but how do you measure it? Well, the biggest challenge to measuring income inequality in the United States, aside from, like, who determines what income is too high or what income is too low. Just coming up with what incomes people have and how much are people actually taking home, has a really, really, really, really hard problem, which is that in public surveys, our best data for this research, we top Code high incomes, which means that after a certain amount of money, we don't say how much you earn.

[A]

Why do we call this top coding?

[B]

Because they'll report their actual income on the survey, and then when it's released publicly, the high income is all substituted with a top code. It's redacted income. A survey taker comes to your house, you report your income for the year. You happen to live in Bellevue, Washington, and you own a large tech company, and you report your income from the year, as you know, $185 million. That survey taker can. They'll take the data as reported, and then when that data is published for us to use, that man in Bellevue, Washington's income will be like $999,000. It won't say what his actual income is. It'll just be this cap.

[A]

He's above this threshold.

[B]

Yes, he's above some threshold that we institute for privacy reasons. Well, that's a real problem considering that most of the income growth has happened above the top code. So I have a really good idea what 90% of Americans are based on reported income through public surveys. In those same surveys, I have almost no idea what people above that top coat are making. That's where all the income inequality is like. All the action is above what we can measure. So the real question is, how do we understand the progression of income inequality in the US if what we need to measure isn't there?

[A]

Yeah. Or is invisible.

[B]

Yeah, it's. Yeah, invisible to me, the researcher. What I do know is I know certain statistics about income in the top 10%, because you can top code a survey, but everybody has to pay taxes. So we use something called the World Inequality Database, which is built off of tax records. And so I don't know what someone's income is in the survey, but I do know that according to tax records, here is what the average household made in the 99th percentile. And here is the cutoff for being in the 99th and the 98th and the 97th and 96th. So I can use all of these, we would call these moments of this distribution, and then I can use that to fix the data. So I do this really complicated mathy thing that basically means I squish them all together. Right. I have public data with reported income for most people, and then I have public data with censored, top coded income for very rich people. And then I have the summary data from tax distribution of what the rich people's income looks like. So I just squish them together. And, you know, if you're a rich person in my data set, I have a top code for you. I'm going to replace your top code with a value that I've imputed based on the distribution of income from the IRS tax data.

[A]

So there's a lot of little Sherlock Holmes kind of inference here.

[B]

Yeah.

[A]

Okay. Well, let's get to what I actually think is the more interesting thing that you did, which is the counterfactual. Yeah, this is like a movie where what if the Nazis won World War II? Or, you know, that's what we mean by a counterfactual. And in this case, the counterfactual is what if people's incomes kept pace, in this case with growth in gross national product or gdp?

[B]

Yeah, this is, this is the other half of the challenge of studying income inequality. You know, it's. It's two problems. Hard to measure, difficult to see, hard to measure. We just talked, talked about that. We don't have great measurement of income at the top. Difficult to see is in some ways a more fundamental question of when is inequality bad or too bad? When is it detrimental to the economy? I mean, I don't make as much as everyone in the US they don't make as much as me. But we're not communist. We don't get assigned income. We have differences. We have a distribution. The real question is, when is that bad? Maybe another way to say it is, there is a tolerable amount of income inequality that we have in the US but when does it become intolerable? When does it become detrimental? Hard to measure, difficult to see.

[A]

But I do think no matter what, if you're going to look at something over time, you need to gauge it against one kind of consistent measure. And you guys chose.

[B]

We chose growth in the economy. So the reason why we chose growth in the economy is that I think it gets at a very fundamental question, which is, is the economy and its growth generating income growth for everyone in it and who is it leaving behind as far as normative questions go? Right. It's not saying like, you need to eat the rich and give all of their money above $1 million, like back to homeless shelters. Right. It's just a. We have an economy. It's growing. Is it generating income for everybody in it, and is that income growing at the same rate as the economy? So we decide to compare income growth over this period to economic growth. And we thought it was a fair question because in the two decades following World War II, incomes did grow at the same rate as the Economy, income at the top, income at the bottom, everybody grew at about the same pace, and they were growing at the same pace as the economy overall. I understand the appeal for the, for this era and why we think of the like 50s as this, like truly halcyon time in America, at least in terms of economic growth and income growth. It was very, we had this very short period in which the bottom 20% had incomes growing just as fast, if not faster, than the top 20%. It's not just that the middle was booming, it's that the bottom was booming as well. So in this paper, Carter and I just say, you know, all right, so that didn't keep going. That stopped at around the late 1970s. What would have happened if it had kept going? I think the central number of this report is if you look at full time, full year prime age workers, this is the bread and butter of the economy. These are people who are working full time who are in their, who are in their prime earnings years. They're 25 to 54. If you look at the middle person, and they made $42,000 in annual income in 1975 and inflation adjusted dollars, if that had grown with the economy in the pace of economic growth overall, they'd be making a little over $90,000 a year. And instead they're making around $50,000 a year. It's an almost doubling of income at the middle. Right. Well now let's go to the top 1%. The counterfactual for the top 1% is that they should be making $200,000 less a year, but because their income grew faster than GDP, they're making $200,000 more. For the past almost 50 years, we've had income at the top grow incredibly fast, faster than the economy, and incomes at the bottom grow slower than the economy. So if you just were to like do a mathematical exercise where you switch it and have them all grow at the same pace, you can come up with a sense of what does economic inequality cost us.

[A]

I'm going to try to say this for regular people, okay, but basically they took people's income and they went back in time and adjusted it all for inflation. And then they said, if I go back to 1975 and I take that inflation adjusted number and I grow it going forward at the same pace that GDP grew, what would their income actually look like? And so that's what Katherine's saying is that the median in 2018, the median US income was about $50,000. If incomes for the last 40 years had been Growing at the same pace as the economy overall, that median person would have been making $92,000. I mean, to me, more than the abstract. $79 trillion. That's the number that made this study concrete to me. And it's funny that it's not the thing that gets bandied around on social media.

[B]

No, maybe it's not as big. I mean, this is the difference between 50 and $90,000 a year. This penalty adds up over time in a real way. But if you take that difference of the counterfactual growth at the pace of the economy versus the growth that we actually saw, and you add up the difference for everyone between the counterfactual years.

[A]

And years and years.

[B]

Right. And you do that over the course of 50 years. You come up with. The first time we published the report, it was around $50 trillion. And then when you updated. We updated it later, it was around 70 million. 80. Yeah. $80 trillion.

[A]

Yeah.

[B]

But I think it was just a way to try to make clear what was lost over this era.

[A]

I do just want to talk about this alternative history and what it would have looked like in 2018. I mean, people in the 25th percentile of income, so these are the lowest 25% of earners, would have been making $61,000 instead of $33,000. And at the 90th percentile in the top 10% would have been making $168,000 instead of $133,000.

[B]

Yeah, I mean, I'll have to do the kind of, like, put on my economist tiara. I don't want to wear a hat. I want to wear a tiara. It looks better with my bone structure. But if I were to put on my economist tiara, I would point out that, like, if incomes had grown at this pace, lots of other things would have changed. And so it's not as simple as we just would have had a check for $50,000 and everything would be priced the same or distributed the same. Like, it's not as if there was a land with no problems waiting for us. It's just we would not have so many people struggling. Was what I would feel comfortable saying is that the world would not be the same stuff would not cost the same, families wouldn't look the same. Like, there'd be too much that would change in our economy overall if people did make this much money, but we would have a lot less struggle and deprivation, is what I would feel safe to say. I mean, probably a lot less resentment if there was more progress for everyone. As opposed to a stall. My other kind of economist tiara would be to point out that, you know, someone's listening and they're like, yeah, but it would just be eaten up by prices. And they're saying that if this is like, when people say the reason why you can't have a UBI is because prices would go up by that much. It is not the case that if you give people more money, prices will go up to a degree that no one is better off. However, it is often only used against people at the bottom or people in the middle that if you give them a raise, it'll just be eaten away by inflation or prices will only go up by that much. And it never comes down to, you know, rich people having a lot of money and they got a lot of money and their income grew net of prices, and they have a ton of money at the top. And no one's saying, like, well, no, he can't earn more, because inflation would just take it away. What I would push back against someone who would say that is to point out, like, you only say that when it comes to giving poor people money or coming to giving the middle class money of, like, well, the middle class can't take 10 grand because, like, it'll just be eaten up by prices is not the same thing you would say about, you know, $100 million a year pay package for somebody else. And there's a scale issue, but there's also just a. We can't have nice things applied to people at the middle and bottom. They don't have to follow the same rules at the top. They just get to earn more money. We have to show why our earnings would be more than inflation and therefore worth fighting for. I don't buy that at all, and I don't support that. There's so much that would be different about the world if people made more money at the bottom.

[A]

Yeah.

[B]

Prices, least of which.

[A]

Yeah. You know, I. I'm embarrassed to say that when I looked at this paper five years ago, I didn't dig into the 30 pages of tables in the back, but I did this time and.

[B]

I. Oh, I'm sorry. I thought you fell asleep this time.

[A]

No, I did this morning after I woke up.

[B]

Okay. After you woke up from that. From the very deep sleep that the paper put you in.

[A]

Yeah. In the body of the paper, you look at these counterfactual questions, and I think one of the things that you explain is that what you're trying to do is bridge this gap about how we talk about Inequality. But this is talking about a different kind of overtime measurement of inequality and income and that you divide these incomes into say, groups of people by education level, you do it by racial groups, you do it by gender groups. Am I missing one?

[B]

We did urbanicity.

[A]

There's a word I love, urbanicity.

[B]

Urbanicity. It comes right like, it's like it just falls right off the tongue, but still crisp in its own way.

[A]

Urbanicity, you know, overall there's very little there that surprises me. Or. But on the other hand, it's a reality check on your kind of gut feelings about what's been happening with income inequality. Well, one of the things that you found that I think we all suspected is about the value of education and how for people who had a high school degree or less than a high school degree, that they in particular took a hit over time in some cases, not just did their income not keep pace with just inflation. Sometimes they didn't even. They were really losing ground. You saw that with, with earners in rural areas as opposed to suburban and urban areas. You did see women make gains. But you make the point that a lot of that is coming from women just working more hours. I mean, there's a lot of granular detail here that to me just kind of supports a lot of the things that you might feel about the economy but that nobody's dissected before. I mean, maybe they have.

[B]

But I mean, what's so funny about the way that this report ended up making an impact of this headline number and Bernie says it and Heather Cox Richardson says it and it becomes this like almost like fabled number that people refer to of like the missing income for the bottom 90%. That was not what I wanted to have happen. What I wanted when we wrote this paper was to have something as accessible as like the pay gap that people could take with them. So that you know, every year when income is reported of how much people earn and the Census Bureau data comes out, you could say like, well, the economy grew at 3% and here are the like 50 groups of income earners that didn't grow at 3%. And to be able to kind of like say in a, in a single metric, here's who the economy left behind this year. And we know this number and we understand this number. It's people whose incomes didn't grow as fast as the economy. And here's the one year mark and the five year mark and the 10 year mark.

[A]

You, you do say, you know, in 2018, like for that year, the overall gap is $2.5 trillion. Right?

[B]

Yeah.

[A]

And in 2023, when Carter updated it, it was $3.9 trillion. Five years later, he explains that as inflation got high, there's just sort of an overtime compounding of this inequality. And then he said inequality got worse. And you think about the pandemic period that he's dealing with was a time of remark. I thought, remarkable income growth. And again, this is income. This isn't wealth. This is what people are actually earning. Income inequality got worse.

[B]

Yeah, that's because, you know, you think of income and most people think of income as their paycheck. But there are many forms of income. There's income from your earnings, there could be income from your business. There could be income from rental properties, interest income, dividend income.

[A]

Because you look at taxable, all sorts of taxable income, not just payroll income.

[B]

Right. Our basis of measurement was taxable income. So that's everything. And we didn't apply tax rates to it. We didn't correct for the tax system, which, for the record, if you look at after tax income, it is always better picture in terms of income inequality than pre tax income because the tax system is, the federal tax system is progressive. For the record, the Census Bureau does publish a lot of measures of income inequality. And they publish it alongside their statistics. They tell us and measure income inequality as part of their mandate of reporting household incomes and poverty every year. But in some ways, I hope people just use this to look to the future, to say, okay, we've got two eras in our past, one era in which all incomes grew. We call this the picket fence era. Not just because of the 1950s idealized nuclear family in a home with a picket fence, but because if you look at, at growth rates, you've got like the income distribution and the growth rates, they actually make a picket fence because all the bars are on the same height. As opposed to, you know, the 80s and 90s are ski slopes. Right. It's just a total bloodbath of like the top 1% grows the fastest and then the next 5% and then the next 10%. Yeah. The ski slope is the nightmare scenario. But okay, to, to the point of the, the pandemic, actually, and the COVID and these past five years, increasing inequality to a certain degree. The Great Recession was so bad, it actually reduced income inequality because it took out so much wealth at the top.

[A]

Yeah.

[B]

And the housing bubble burst and the stock market crashing and the finance. I mean, all of that combined reduced or erased a lot of wealth. Some of that was wealth held by people in the middle and bottom, but most wealth is held by the top. So a huge hit to wealth is felt by the top more. And so we actually had like a little bit of progress in terms of income inequality. A massive and horrible recession. So that's not the way to do it.

[A]

Yeah, yeah.

[B]

You know, talking about income inequality, it's can be tough to find that optimist bent.

[A]

I'm sure you've been meditating on that since I told you we should talk about your paper.

[B]

I think, yeah, this is a really big bad number that is built on a lot of bad numbers inside a report that is not necessarily meant to make you feel good about the US Economy. So where's the optimism? I think what I would stress to listeners is we are not at the beginning of this problem, we are at the end of it. I think the fact that we talk about it so clearly it is something that, you know, even people would casually say that income inequality is a problem. People in 1985 didn't talk like this. The reason why I think that we're towards the end of this problem is because it has gotten so bad and so obvious that maybe not so obvious, so palpable that people are demanding a change to policies. I mean, for so long, the history was we just need to have more business growth. We just need to have more tax cuts. We just need to have.

[A]

The pie will get bigger. If we just grow the economy, the pie will get bigger and everybody. Rising tide, lift all boats.

[B]

Everybody has been told for so long, if we can have a strong growing economy, everyone will be okay. And if they didn't say trickle down, that's what they meant. And they didn't necessarily mean trickle down from the top. They really meant that if the economy was strong and we could keep the economy strong, then Americans would be okay. This paper is one of many that says they weren't. They weren't okay. The economy grew and people's incomes didn't. And they didn't for years, for decades, in all kinds of places, for all kinds of households. It wasn't just the labor market, it was the capital market. Our strong, quote, unquote, strong economy was not helping. The majority of Americans have incomes grow to the degree that they should. Our incomes should be higher. They should be a lot higher. And here's a really reasonable estimate of how much higher they should be. We didn't have this conversation 40 years ago, and we're having it now, and we're having it in 50 different ways. Yeah, it is optimistic to me to be.

[A]

To have that clarity.

[B]

To have that clarity. Right. You cannot design a good solution if you don't adequately and correctly diagnose the problem. And I think it sucks that we're just at the diagnosing problem stage, but at least we're there. At least it's seen as a problem.

[A]

Yeah. Great.

[B]

Anyway, for further information, download my published works.

[A]

We will put a link to the paper in the show notes and to Carter's update from 2023.

[B]

We're going to take a very quick break, and we'll be right back.

[A]

It's time for executive orders.

[B]

So we like to end the show with executive orders for you new listeners. And this is where we come up with rules for our economy and society that come from Robin. And I think going back, you two come from me and Robin. I think looking back, this might be something I would tell like, episode one, season one, Me don't do. Because it just reveals how deeply petty we are.

[A]

Totally true. But, you know, listeners send us really great executive orders that I do love to share, which is what I. Yeah.

[B]

Like, ours are so petty, and theirs are like, just put the gas part of the car on. The same part of every car.

[A]

Yeah, that was somebody.

[B]

That wasn't mine, though. That was a listener's.

[A]

Yeah, yeah, yeah.

[B]

Y' all come up with great ones. We come up with petty ones. Starting with doctor's appointments start at the time that they're posted. None of this come 15 minutes early? No. If the appointment's at 12, I'm showing up at 12. 11:59, if you're lucky. I had a doctor's appointment. All right. When you have a newborn and you're postpartum, you go to the doctor a lot. A lot. And. And please show up 15 minutes early. Finally got a notification that was like, please show up 30 minutes early. And I was like, no, sir. This feels personal. Like, only. I got it. And also, appointments start when they start. That's it.

[A]

That's good. I'm going to share an executive order we got from Natanya in Portland, Oregon, who says charging devices, particularly those you keep on your nightstand, cannot have bright charging lights that stay on all night. Oh, my God. So with you, we have an air filter in our. And it's like, we have to throw T shirts over it because it's so bright. It's like daylight.

[B]

Yes. Maybe we have the same air filter, but we have to put a book on ours so that the little. And then, of course, like, we're like, how long has that light been red? I don't know.

[A]

No idea. Exactly.

[B]

As the International Space Station, because that's how bright it is. The very end of our show is spiritual sponsors. We don't receive any money from the show except for listeners who have sent us their support and they've been so generous with it. But of course, in lieu of actual sponsors, paid sponsors that would give us money, we have to thank our spiritual sponsors of the things that keep us going. Robyn, do you have a. Who's your spiritual sponsor this week?

[A]

My spiritual sponsor is the movie Will and Harper. It's a documentary of Will Ferrell going on a cross country road trip with his friend Harper, who has somewhat recently transitioned from male to female. And first of all, I've always liked Will Ferrell. It made me like him even more. The two of them are so brave to put this thing on film. And if you want to know what the change is like when you know someone who is trans and how eventually the change isn't the thing anymore, I think that movie captures it really, really well.

[B]

I think my favorite part of that movie was when Harper explains that she sent a letter, like an email to everyone of her colleagues and friends saying what was happening. And when they're getting drinks and dinner in New York with their old SNL friends, Tim Meadows is like, I thought it was hilarious. I thought it was a joke. And then they all burst out laughing. He said, he's like, I wrote back, this is hilarious.

[A]

It's like, I mean, that does help to have some of the funniest people in the country as your. As your friends. The song that Kristen Wiig does at the end, Chef's Goes, just brilliant.

[B]

So I have a lot of spiritual sponsors since we last recorded. You know, I gave birth, had a newborn at home, was myself postpartum. And then over that time period, we posted the Thanksgiving episode. And for y' all listening, you might not know that we put clips on social media. One of them went very, very viral. And it was my response to the trans athletes shouldn't be able to play women's sports. It has over 3 million views on TikTok. And most of the responses were very positive. But something we cut from the show, as Robin correctly pointed out, it doesn't sound right. Is that at one point, at the end of my answer, when I'm like, big and huffed up and just, like, rambling, I end with, do we need to explain that?

[A]

Like, it's as if we're having a fight at the dinner table?

[B]

Yeah, it was a Fake fight. Like, she asked me at the dinner table. Yeah. And I'm giving my sassy response. And so at the end, I kind of say sarcastically, like, like, go on ahead and hate trans people. But, like, do not pretend it's because you're motivated by female athletes. Robin, when we recorded, said, you need to take that part out because it sounds like you're saying it's okay to hate trans people. And I was like, oh, good catch. Being postpartum, I didn't think to catch it in the video. And when we posted it, there was a whole, like, subset of people who saw that as I'm a trans exclusionary radical feminist and that I hate trans people and I'm telling people to hate trans people on behalf of women. And I got some of the nastiest comments I've ever gotten back in my life, including multiple suggestions of suicide. One of them came on Thanksgiving Day. And that was a lot to deal with postpartum, especially because it was taken out of context. Granted, not really, but really, it was not what I meant to say. So of course I posted an apology video where I tried to explain it. Yeah, like 5,000 people watched that. So, I mean, when we say this took off, like, Laverne Cox posted this video to her channels, like, it was very large. And the amount of hate that I received was pretty incredible. So I have a lot of spiritual sponsors to thank. Ken Burns the American Revolution. The movie watch list inspired by Ken Burns the American Revolution, including Last of the Mohicans, John Adams turn in 1776. Friends whom you can text. I am the long Caribbean who text back. My death is a great honor to the Huron people. Peter Coyote's voice. Peter Coyote's Wikipedia page. Moms who make sarcastic commentary videos on trad wife content. And in particular the mom who made a video explaining at what point during this homemade treat recipe that this woman was explaining her kids would have called 911 for child abuse because she hadn't given them a yogurt packet yet. Toddlers in capes, especially when the cape billows behind them as they walk away. Tobias Menzies as Edwin Stanton in Manhunt. Sassy responses from Carolyn Hacks advice column when she points out that the reader did in fact make it all about themselves. Really, really good Christmas presents. People on Jeopardy who say, let's make it a true daily double. And of course, the ultimate heroes of the household who parents of newborns could not live without. Truly invaluable members of our society. Washers and dryers.

[A]

Excellent. Excellent list.

[B]

Oh, my God. Hold on, hold on. Come here. Come here. What are you doing? I thought that was dad. Come here. Little did dad drop you off and send you inside? Okay, come here. Do you want to look at what Mama does?

[A]

Our show is edited by Sophie Lalonde. Our video production for social media is by Andy Robinson of Andy Robinson Video Consulting. Support from listeners like you helps keep our podcast going. If you have the means to contribute, you can do [e-mail] and I think we were supposed to say our show is distributed by prx.

[B]

Newly distributed by prx. We are now part of the PRX family. And if you ever have any questions, comments, responses, inquiries, email them to prx. Yeah, email them to somebody else. If you just want to tell us how much you love the show, that will take it. Optimist economymail.com I'm so excited we're back.