Today’s New York Times has an excellent article on how the distribution of income has shifted in this country has shifted over the last three decades. It is worth reading and can be found here. However, I covered most of the key points in the article in my post on 8/13/09. While the Times does some pretty good reporting, sometimes we scoop them here at Zacks.

The Times article does make some interesting additional points. It suggests that the recent decline in the share of income that the very top of the distribution is more likely to last than the one that followed the bust.  I have to say that I am skeptical about that. If we do have meaningful reform of the financial markets, that may happen.

However, with economic power comes political power, and the bank lobby is extraordinarily powerful. A huge amount of the increase in the relative incomes of the very rich have come from those in the financial sector. The article points out that in inflation-adjusted terms, the cut off to be in the top one percent of the top one percent (the top 1/1000) has increased from $2 million in the late 1970’s to $11.5 million in 2007.

Who makes that sort of cash?  People getting bonuses form Goldman Sachs (GS), Morgan Stanley (MS) and hedge fund managers for the most part. Keep in mind that in 2007, the average bonus was $600,000 per employee. That includes the people in the mail room and the receptionists in the denominator, although it is doubtful they got much in the way of a bonus.

While $600,000 does not put you into the top 1/1000th, it puts you comfortably in the top 1%. While the top tax rate is likely to rise from the current 35% (federal) to 39% as the Bush tax cuts expire, they will not come close to the 70% level they were at in the 1970’s. Raising them that high would probably prove to be counter-productive.

Still I would argue that the U.S. economy did more than OK in the 1950’s and 1960’s, which was a far more egalitarian era in terms of income distribution than we have now. The graphics below come from the Times article and shed a lot of light on the subject.

Read the full analyst report on “GS”
Read the full analyst report on “MS”
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