Translating David Leonhardt

A reader wrote to question this confusing passage from David Leonhardt's profile of Larry Summers in the Times Magazine:

Summers’s favorite statistic these days is that, since 1979, the share of pretax income going to the top 1 percent of American households has risen by 7 percentage points, to 16 percent. Over the same span, the share of income going to the bottom 80 percent has fallen by 7 percentage points. It’s as if every household in that bottom 80 percent is writing a check for $7,000 every year and sending it to the top 1 percent.

It sounds like Leonhardt is mistakenly assuming that a change of seven percentage points in share of national income translates directly to $7,000 per household. I don't think that's what he means, though the passage is so opaque it's hard to be sure. After some digging, I found that Summers mentioned these numbers in Senate testimony this year. His testimony included a table suggesting that the "net loss" in 2004 for the bottom 80% was $664 billion due to this 7 percentage point change in share of national income. If you divide that figure by the number of households in the US in the bottom 80% (approximately 90 million), you get approximately $7,000. I'll email Leonhardt to see if this is correct.

Comments

[Rob]

Summers' testimony is considerably more cogent than Leonhardt. Summers says that in order to return the income distribution to that which existed in 1979 would have required a transfer payment of $664 billion from the top 1% of households to the bottom 80%. To put that in Leonhardt terms, it's as if every one of the one million households in the top 1% would write a check for $664,000 every year to be sent to the bottom 80% of households.

That ignores, of course, the possibility that in absolute terms, the bottom 80% of households is living better now than it did in 1979. Summers' focus, and Leonhardt's, is entirely on share of national income. In other words, I don't care how much better I'm doing than I did before, it galls the hell out of me that there's someone over on the other side of town who's doing even better. It's a political and economic philosophy based on envy, a staple of the class warfare that populists love to trot out whenever possible.

It's worth asking why Leonhardt chose such a distorted and inapt analogy. Is this Yale-educated mathematician and weekly economics column writer for the Times a fool, or is he a knave?