7 Charts Show What Free Market Economics Have Really Brought on America


In 1974, an obscure economist scribbled some thoughts on a napkin that served as the engine for the most influential presidency of the past three and a half decades and the most unequal economy America has experienced since the Great Depression. 

The napkin notes, written by Arthur Laffer and later embraced by Ronald Reagan, contained a figure illustrating the logic of "supply-side" economics, which translates to lowering taxes and regulations on corporations and the affluent in order to stimulate growth and have wealth "trickle down" to the rest of society.

That theory, which came to be known as Reaganomics, turned out to be wrong. Despite grand promises of widespread prosperity, only the elite benefited from the tide that has risen since the Reagan era. 

Here are seven charts illustrating what free-market fundamentalism hath wrought:

1. The richest 0.1% has almost as much wealth as the bottom 90%.

In the early 1980s, the top 0.1% owned about a quarter of what the bottom 90% of Americans did. Now, the top 0.1% has almost the same wealth as the bottom 90%. This convergence hasn't happened for over half a century. Furthermore, the richest 0.01% of Americans control approximately 11.2% of total wealth, the highest share on record since 1916. 

2. After recessions, recoveries now only benefit the wealthy.

Levy Institute

This chart shows a huge swing in the distribution of income growth since World War II. When the economy was expanding, the top 10% of society received a significantly smaller portion of income growth until the 1980s, after which they began to take larger chunks of it. 

During the recovery from the most recent recession, 116% of income growth went to the best-off 10% -- with the top 1% alone claiming 95% of the gains -- while the bottom 90% of the population saw their incomes fall, on average, during that period.

3. Social mobility is a myth and has remained stagnant for 30 years.

The Washington Post

Even poor children who perform well don't fare much better than affluent children who perform poorly. Poor college graduates and rich high school dropouts are likely to end up earning the same amount as they enter middle age. Rich high school dropouts retain their status at the top as often as poor college grads stay stuck in the bottom -- 14% versus 16%, respectively. 

Another study from the National Bureau of Economic Research showed that economic mobility in the U.S. has remained stagnant for the better part of 30 years.

What meritocracy?

4. The top 1% of society derives an increasing share of income from existing wealth.

Economic Policy Institute

This chart is based on income from return on capital and the distribution of capital. The share of income from wealth -- such as rent, capital gains, interest, dividends -- going to the top 1% has risen sharply in the last few decades, rising from 33.5% of all income from wealth in 1979 to 54% in 2010. 

Why does this matter? The rich are rapidly pulling away from the general population based on skewed ownership of wealth, not necessarily because they're working harder or are brilliant at getting returns on their investments. 

5. The super-rich are increasingly politically influential.

Journal of Economic Perspectives

In 1980, the top 0.01% accounted for 10% of total campaign contributions to elections. In 2012, donations from the top 0.01% gave over 40% of all campaign contributions.

6. Inequality in the U.S. has gotten worse than in the rest of the world.

Source: F. Alvaredo, A. B. Atkinson, T. Piketty and E. Saez, (2013) 'The World Top Incomes Database', http://topincomes.g-mond.parisschoolofeconomics.eu/ Only includes countries with data in 1980 and later than 2008.

The percentage of the national income going to the richest 1% in the U.S. is unrivaled among affluent nations, and the split has only gotten worse since 1980. 

7. Tax cuts don't even guarantee growth.

New York Times

One of the fundamental assumptions of the trickle-down philosophy is that cutting taxes is crucial to stimulating growth, which in turn increases opportunity for all. But look at the chart above and consider that throughout the 1990s, taxes were raised and the GDP grew impressively, and then how after George W. Bush's tax cuts' growth dropped, the economy eventually hit a recession. Raising and lowering taxes don't correspond directly with the prospect of growth.

Reaganomics is not the only factor that explains skyrocketing inequality, but it is a major contributing factor,  one that could have been easily prevented. Much higher taxes on the rich and on wealth is a straightforward way to make our democracy more equal and invest in the resources needed to help ordinary Americans get their due.