A recent article in the Chicago Tribune discusses study which looked into part of that effect. The study was looking into how income affects happiness. They concluded that income increases up to around $75,000 impacted happiness, but that income increases above that level did not significantly increase it. Of course, they are quick to state that there is a short term increase from any raise in income or windfall of cash, however, they found that non-income factors were the primary constrains on happiness above $75,000.
While happiness is just one aspect of quality of life, it is very interesting that the effective benefit of income to happiness is so low. I suspect that much of the reason for that due to the limits in the power of the dollar for higher prices items as I discussed in the previous post.
The largest impact on people is not the difference between rich and poor, but the difference between poor and middle class. No one, however would be willingly to openly state that they want to take money from the middle class and give it to the poor (though that is often a result of their attempts to take money from the rich as I discuss here).
So the question really should not be about the income gap between the rich and the poor. A far more valuable measure, though still not a wholly accurate one would be to measure the income gap between the poor and the middle class.
I have not been able to find a more recent graph, but this one shows that this gap is increasing very slowly even looking at purely dollar terms.
The article that accompanies the image is here. It, of course, focuses on the gap between the rich and the poor which shows a huge percentage change in income. Looking at the middle to bottom fifth shows very similar rates of change.
So again, while the rate of change in income is certainly widening at a very high rate, it is only rapidly widening at income levels which have a very diminished impact on quality of life. In the article it states that the top 1 percent in 2007 had an average income of $1.3 million and that the increase from the year before was an average of $88,800. How much of an impact does a salary increase from $1.21 million to $1.3 million really make in a person's quality of life? Is that change really greatly different in quality of life impact than the average increase of $800 from $16,900 to $17,700 that the bottom fifth attained? I know that when I was making under $20k a year, $800 was a lot of money which would allow me to have something like a much more reliable car. I could accept that some believe that $88k means as much to someone making $1.3 million as $800 dollars does to someone making under $18, but I hardly find it credible to believe that it means significantly more. I mean how do you even spend $1.3 million a year?
When looked at in those terms, doesn't the income comparison between the top 1% and the bottom fifth seem to be the wrong one to look at? Certainly it's draws attention, but it is a statistic that has very limited value and is used often to mislead people into the view that the poor in this country are worse off now then they were in the past. When the truth is nothing of the sort.
The above chart and article are discussion inflation adjusted dollars, so the poor have increased in wealth by 16% from 1979 to 2007. This is compared to the slightly higher increase of 25% for the middle and 23% for the second bottom fifth. That means that there is very little increase in the dollar income gap for roughly half the population. Even the next fifth showed only a 35% average increase. The only large gaps come into play with the top 20% of the country where you are talking about incomes over $200k per year. That is far above the 75k per year (over 40% of the country was at or above that income level in 2007), and it above the income level where you have very diminished increases of quality of life per dollar.
I'm not arguing that we should not have welfare programs and charity to help those in the bottom incomes. I believe we should. I even believe that the tax system should be a progressive one where the more wealthy pay a greater percentage share. What I don't believe is that things are getting worse, quite the contrary I think the numbers (when you look at the right ones) show that things are getting much better.
