COLD OPEN Robin: So I, I just want you to know, I literally fell asleep on the couch last night with your report. Kathryn: It was your idea to make this an entire episode, and you can't even stay awake to read it. God, that's cutting, man. Robin, that cut. See? /// Kathryn: And we're going to do a whole episode about it. INTRO Kathryn: Hello. Welcome to Optimist Economy. I'm Kathryn Anne Edwards, economist. Robin: I'm Robin Rauzi and I'm an editor. Kathryn: On this show we believe the US economy can be better and we talk about how to get there one problem and solution at a time. And we're back for season two. Robin: 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've 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? Kathryn: A lot happened while we were on hiatus, actually. But let's, let's focus on where it counts y'all. We opened a store and we sell hats and we'll have more hats. It's a big deal. Robin: Our hats sold out and we're ordering new ones. Kathryn: 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. The like merchandise, merchandise, Optimist Economy: The lunchbox, Optimist Economy: The flamethrower. Like I like all of them. Like that was my idea for the merch store. And luckily the people who ran the merch store were like, you probably shouldn't do that. Robin: Should probably start with some core items. Kathryn: Yeah. Start with core items and see how they sell. And I'm like, or hear me out. An homage to Spaceballs. Robin: 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.’” Kathryn: Consuming leisure. I could put that on a sticker. Robin: Yeah, Kathryn: All right, so that's the announcement. RETCON Kathryn: Now, you wouldn't think because this is the first episode of season two, that there would be a retcon, but there is two, two quick retcon obviously coming from me. The first is that I… Robin: Wait, because this is season two and we are sure that we're going to get new listeners, we need to like welcome them to the Optimist vocabulary. Kathryn: Becausethey'll have no idea what I'm talking about. Just start, I just like start rambling off about nonsense. Robin: It's all right. So Kathryn: Yeah. Robin: Here we are. Chapter two. RETCON stands for Retro Retroactive Continuity. It's where we talk about things we might have wanted to talk about before, make corrections, look back, Kathryn: 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 knew 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. Um, thank you. Thank you. So in between season 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. And 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 request, 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. Um, 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 going to be devastating to me personally to say something incorrect about Social Security. However, uh, during the Great Recession, this is around 2010, Social Security reduced the payroll tax rates by two 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. Social Security's finances were not affected by it. I didn't realize. 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, 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. Robin: You didn’t go look it up. Kathryn: Yeah. I was like, wait, I said something wrong about Social Security in episode? Burn the back catalog. I, I can't do this anymore. Um, but Social Security paid Congress Robin: And that was the end of optimist economy. Kathryn: And that was the end. Yeah. It's been a great run. Robin: All right. TERMS & CONDITIONS Kathryn: Our next chapter after we make up for all the mistakes we made is Terms and Conditions 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? Robin: I did. I looked up what I thought was pronounced Pareto, but it's apparently pronounced Pareto. Kathryn: He's Italian. I've always learned Pareto. Robin: Pareto. I'm going to say Pareto. Kathryn: Yeah. Robin: 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. Kathryn: Oh, so you've heard of Pareto as the 80/20 rule. 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, right? Like a bell curve. Pareto is 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 80/20 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 without making nobody else worse off. Robin: In the economy. Kathryn: In the economy. So he was really fundamental and influential in how economists think about how people make choices and the idea of utility and preferences in addition to distribution. 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. Robin: Oh. Kathryn: Yeah, 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 costs and what my preferences are. So a Pareto improvement would be, you could make someone better off and no one else is worse off. It's almost the opposite of a zero sum. Robin: We should, we should also say his first name was Vilfredo, which is a pretty great name. Vilfredo Pareto. Kathryn: Pareto, I, something happened with him in the fascist, but then I think that's like every Italian in the, maybe in the 1930s. Um, Robin: He's frequently considered predecessor of fascism, a result of his support for the movement when it began. Great. Kathryn: Awesome. Robin: OG fascist, he argued democracy was an illusion, and the ruling class always emerged and enriched itself. Thank you, Wikipedia. Kathryn: I will say economists of that time, even the ones that were great and influential and did amazing things, like 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 named things after people. So there's like, wow, Rawls, and there's, you know, Robin: I think Edwardian has been taken, so… Kathryn: God thanks Kings of England. Um, MIDROLL 1 CENTERPIECE Robin: It is time for the big Pilcrow, Kathryn: The big Pilcrow, the big conversation, so. Robin: The centerpiece chapter four Kathryn: 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 Robin: On their toes. Kathryn: and also because, uh, why be consistent, whatever. On their toes. God damn it. Also, listeners, you'll learn, I don't say any phrase correctly, actually. So season two, episode one, income inequality. Robin: Here we are. Kathryn: 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've heard $50 trillion, $47 trillion, $50 trillion, $79 trillion. It's this massive number that the bottom 90% of Americans are missing because of income inequality. So 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 a co-author there. And it's amazing that it has gone so far. Robin: I mean, 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 shows up, it showed up in a letter to the editor at the Los Angeles Times last week. 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, this same thing on social media, that $79 trillion that would've 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. Like I said, I don't, I don't seek these things out. 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 often wonder if their interpretation of its findings is totally right. Kathryn: I don't think anyone has ever said it correctly. Like 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 by 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 it, I mean, like Rand has, Rand has like hundreds of PhDs on staff writing a report a day. Robin: The initial report came out in 2020, Kathryn: Yeah. Robin: So there was, like, other stuff going on. Kathryn: There was a lot of stuff going on there. I mean, there was a lot of stuff going on and, uh, yeah, there, I mean it just, it took off. Uh, we went on a media blitz about it because there was so much interest. Um, 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, 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, says economist Kathryn 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. Oh man, Robin: By the way, it's just Rolling Stone Magazine. It's not the Rolling Stone. Kathryn: Wait, really? Oh my God. I don't know why I host a podcast. I cannot talk. Drop the "the." Robin: Drop the "the." Just Rolling Stone. Kathryn: Rolling Stone anyway. Rolling Stone. I don't even know who I am anymore. Rolling Stone. The top ate it. All right. So. Robin: This is kind of, I think of this Pilcrow as sort of like the anatomy of this progressive talking point. And, uh, 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. 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, who did an update too, and what he found. Kathryn: Yeah, so 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 when 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, [Mayor] Mamdani's 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 decide 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 Medicaid? Do I count food stamps? Do I count Medicaid? What if you get, uh, 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 things. 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 going to 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 10 feet 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. Robin: You mean after the white paper came out? Kathryn: 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, like, boring but angry at the same time. That's income inequality measurement amongst economists and I say this with like 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 is income. Robin: Yeah. And then, 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. Kathryn: And so it's a very, like, 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. Robin: Yeah. Did you have anything more to say about Carter? Kathryn: Yeah. We're going to talk about what Carter did, because Carter did the brilliant part. Robin: 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. Kathryn: I don't really, I don't really like what you're trying to say here. I really like you say here, Robin. Robin: There's a lot of appendices. Kathryn: All right. Robin: Talk about what you did measure. You measured taxable income. Kathryn: 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, maybe this is income, 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. Robin: What do we call this? Top coding? Kathryn: Yeah, 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, you know, 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. And it won't say what his actual income is. It'll just be this cap. Robin: He's above this threshold. Kathryn: Yes. He's above the, 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 making based on reported income through public surveys. I have almost no idea what people in those same surveys, I have almost no idea what people above that top code 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? Robin: Or is invisible. Kathryn: It's, yeah, invisible to me, the researcher. What I do know is 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 'em all together. 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 'em together and, you know, if you're a rich person in my dataset, I have a top code for you. I'm gonna replace your top code with a value that I've imputed based on the distribution of income from the IRS tax data. And so I'm basically, if you are a rich person in my dataset and 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 that I know from the IRS. Robin: So there's a lot of little Sherlock Holmes inference here. Kathryn: Yeah. Robin: Okay. Well, let's get to what I actually think is the more interesting thing that you did, which is the counterfactual. This is like, you know, a movie where, what if the Nazis won World War II? 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. Kathryn: This is the other half of the challenge of studying income inequality. The, you know, it's, it's two problems: hard to measure, difficult to see. Hard to measure, we just talked about that. 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. Robin: 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… Kathryn: 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? Robin: Mm-hmm. Kathryn: Who is it leaving behind? So I think that this, 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 a million dollars like back to homeless shelters, right? It's just, 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 decided 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. You know, I understand the appeal 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 special. 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 around the late 1970s. What would've happened if it had kept going? Robin: Mm-hmm. Kathryn: I think this 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 prime earning years. They're 25 to 54. If you look at the middle person and they made $42,000 in annual income in 1975 in inflation adjusted dollars. If that had grown with the economy, at 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. 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. 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? Robin: I want to see if I can, I'm going to try to, I'm going to try to say this for regular people. Kathryn: Okay. Robin: 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 Kathryn'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've been making $92,000. I mean, to me, more than the abstract $79 trillion, like 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. Kathryn: No, it's not, it's not, and I think it's, maybe it's not as big. I mean, this is the difference between $50k and $90,000 a year. This penalty adds up over time in a real way. But if you take that difference of, you know, 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, Robin: And years and years. Kathryn: 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 we updated it later, it was around, um, 80. Yeah, $80 trillion. So, but I think it was just a way to try to make clear what was lost over this era. Robin: I do just want to talk about this, you know, 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've been making $61,000 instead of $33,000. And at the 90th percentile, in the top 10% would've been making $168,000 instead of $133,000. Kathryn: 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 don't 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've changed. And so it's not as simple as we just would've 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, I think, is 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. Probably a lot less resentment if there was more progress for everyone as opposed to a stall. And my other kind of economist hat would be to point out is that someone's listening 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 have had, Robin: A lot of money… Kathryn: 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 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, a hundred million dollars 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 at all. There's so much that would be different about the world if people made more money at the bottom. Price is least of which. Robin: Yeah. You know, 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 I, Kathryn: Oh, I'm sorry. I thought you fell asleep this time because you did. You did Robin: In the morning after I woke up. Kathryn: Okay. After you woke up from the very deep Robin: From the nine-hour nap. Yeah. Um, 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 over time measurement of inequality and income. And then 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? Kathryn: We did urbanicity, Robin: There's a word I love, urbanicity. Kathryn: Urbanicity. It comes right like, it's like it just falls right off the tongue, but still crisp in its own way. Urbanicity. Um, and 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. Robin: One of the things that you found that, you know, 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 earners in rural areas as opposed to suburban and urban areas. You did see kind of 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, but I Kathryn: 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 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. You do say, you know, in 2018, like for that year, the overall gap is $2.5 trillion. Right. Yeah. Robin: And in 2023, when Carter updated it, it was $3.9 trillion, five years later. You know, 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, I thought, remarkable income growth, but in fact income, and this is income, this isn't wealth, this is what people are actually earning. Income inequality got worse. Kathryn: Yeah, that's because, you know, you think of income and most people think of income as their paycheck, Robin: Mm-hmm. Kathryn: 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, and. Robin: All taxable, all sorts of taxable income, not just payroll income. Kathryn: 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 a better picture in terms of income inequality than pre-tax income, because 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. In some ways I hope people just use this to like look to the future to say, okay, we've got two eras in our past. One in which everyone got to have high income and grow quickly. Not, sorry, one era in which all incomes grew, we call this the picket fence era, not just because of like the 1950s idealized nuclear family in the home with a picket fence. But because if you look 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 the same height as opposed to, you know, the eighties and nineties 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 the point of the pandemic actually, and 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 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. Robin: Mm-hmm. Kathryn: 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 was felt by the top more. And so we actually had like a little bit of progress in terms of income inequality through a massive and horrible recession. So, um, that's not the way to do it. Yeah. Um, you know, talking about income inequality can be tough to find that optimist bent. Robin: I'm sure you've been meditating on that since I told you we should talk about your paper. Kathryn: 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. Um, 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. Robin: Hmm. Kathryn: I think the fact that we talk about it so clearly Robin: Mm-hmm. Kathryn: It is something that even people would casually say that income inequality is a problem. People in 1985 didn't talk like this. Um, and so the reason why I think that we're, you know, 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, you Robin: …get bigger. If we just grow the economy… a rising tide lifts all boats. Kathryn: 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, that 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 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. Robin: Yeah, yeah. Kathryn: It is optimistic to me to be like, to have that clarity, right? You cannot adequately, 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. Robin: Yeah. Yeah. Great. Kathryn: Anyway, for further information, download my published works! Robin: We will put a link to the paper in the show notes and to Carter's update from 2023. MIDROLL 2 Robin: It's time for executive orders. I'm looking at her outline. It's just fucking blank. Kathryn: So, uh, we like to end the show with executive orders. For you new listeners, this is where we come up with rules for our economy and society that come from Robin and I. And I think looking Robin: Wait a minute. Come from you too. Kathryn: 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. Robin: Totally true. Kathryn: But Robin: However, listeners send us really great executive orders that I do love to share, which Kathryn: Yeah. Like ours are so petty and theirs are like, just put the gas part of the car on the same part of every car. I'm like, that's Robin: That was yours. Yeah. That Kathryn: That wasn't mine though. That was a listener's. Robin: Yeah. Kathryn: Yeah. 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 bullshit. 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 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 I only, I got it. And also appointments start when they start. That's it. Robin: That's good. Uh, I'm going to share an executive order we got from Natania 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 and it's like we have to throw t-shirts over it because it's so bright. It's like daylight. Kathryn: Yes. Uh, well, 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. Robin: No idea. Exactly. Kathryn: Ask the International Space Station, because that's how bright it is. Um, 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. Robin, do you have a, who's your spiritual sponsor this week? Robin: My spiritual sponsor was, is the movie “Will and Harper,” which is 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, how eventually the change isn't the thing anymore. I think that movie captures it really, really well. Kathryn: I think my favorite part of that movie was when Harper explains that she sent a letter to 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 like burst out laughing. He said, he's like, I wrote back. This is hilarious. Which like that Robin: It does help to have some of the funniest people in the country as your friends. The song that Kristen Wiig does at the end, chef's kiss, just brilliant. Kathryn: Um, so I have a lot of spiritual sponsors since we last recorded, you know, I, um, 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. Robin: To explain that? Like it's, it's as if we're having a fight at the dinner table. Kathryn: Yeah, it was a fake fight. Like she asked me a Robin: At the dinner table. Kathryn: Yeah. And I'm giving my sassy response and so I, at the end I kind of say sarcastically, 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. Um, 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 it, I mean, when we say this took off, like, uh, Laverne Cox posted this video, Robin: Mm-hmm. Kathryn: Um, 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, and so we're just going to roll it. All right. Ken Burns, the American Revolution, the movie watch list inspired by Ken Burns, the American Revolution, including Last of the Mohicans, John Adams, Turn, and 1776. Friends whom you can text, "I am the long Caribou" who texts 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've called 911 for child abuse because she hadn't given them a yogurt packet yet. Toddlers in capes, especially when the capes billow behind them as they walk away. Tobias Menzies as Edwin Stanton in Manhunt, sassy responses from Carolyn Hax's 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. Robin: Excellent, excellent list. Kathryn: Our show is edited by Sofi LaLonde. Our video production for social media is by Andy Robinson of Andy Robinson Video Consulting. I'm so excited. We're back. Robin: Support from listeners like you helps keep our podcast going. If you have the means to contribute, you can do so at optimisteconomy.com. Kathryn: Oh, that's right. Robin: And I think we're supposed to say our show is distributed by PRX. Kathryn: Newly distributed by PRX. We are now part of the PRX family. And if you ever have any questions, comments, responses, Robin: Email them to PRX. Kathryn: Email, yeah, email them to somebody else. If you just want to tell us how much you love the show, email optimist.economy@gmail.com.