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Noah Smith

The 0.01%? Another Wealth Gap Matters More

The upper 20% left everyone else behind in the '80s and '90s.
Don't be distracted by the toys.

Don't be distracted by the toys.

Photographer: Chris Ratcliffe/Bloomberg

Everyone knows by now that the U.S. has seen a substantial rise in economic inequality since the 1970s -- an increase that has been mirrored, to a lesser degree, in Europe and Japan. This inequality has manifested itself in both income, which matters for living standards, and wealth, which figures in financial security and political power. What’s less well-known is that this inequality run-up came in two distinct phases. The first, from the late 1970s to the late 1990s, represented the spreading-out of the American middle class. The second, starting in the 2000s, represented a tiny fraction of Americans whose wealth skyrocketed. Let’s call these Phase 1 and Phase 2 of the great inequality increase. 

Here are some numbers. To see Phase 1 in action, check out this Brookings Institution report on the divergence of the American middle class. To show this, the researchers measured the income shares of the top 20 percent, the middle 40 percent and the bottom 40 percent: