Let’s KISS the income inequality.

by Divorced one like Bush
(Updated to correct my decimal point. I’m bad.)

When I talk to others about why we’re in the mess we’re in from a position of income inequality using numbers like $1,025,000,000,000 per year from the 99% to the 1% does impress them, but as I posted a while ago it is hard to really comprehend such a large scale. I had to come up with a KISS model. This model had to also correct a problem many had when I would tell them that the share of income to the top 1% has increased to around 23%. Often they would equate the increase to the over all increase in the economy. That is, the 1% got 23% more because the economy was 23% bigger.

The solution: Scale it down. I used pennies! (Let’s not worry about the cost of a penny to mint being more than a penny is worth.)

100 pennies of income generated. 100 people.

In 1976, the share of income to the top 1% was 8.7% rounding up. You can see where I’m going with this? 1 person got 8.7 pennies and 99 received 0.92 pennies. Well, nobody gets a 0.X penny returned to them when they buy something at the store. Consequently, this just confused the issue some more.

1000 dollars of income generated. 100 people.

In 1976 1 person pocketed $87.00 and 99 people each pocketed $9.22. Cumulatively, the nation sees 1 group (the One) having $87.00 worth of purchasing power and the other (the Many) group having $913.00 of purchasing power. At this point some might say, so what, there is still a total of 1000 dollars of purchasing power. Yes, BUT… The One group may or may not spend it all, the Many will spend something in any given year. No matter what the percentage is of income spent, the Many still move more money into the demand side of the economic engine. For my gear head friends, more air flow. More dollars moving through the throttle body.

Ok Sherman, set the WABAC machine for 2005.

1000 dollars. 100 people

In 2005 the share of income to the One is 23%. (For those wanting a push against Obama I have noted that the fastest rise in income inequality was during the Clinton years. Obama has Clinton years people on staff.)

One pockets 230 dollars. Many pocket 7.77 dollars each. Are you feeling the kiss? The One has 230 dollars of purchasing power. The Many has 770 dollars of purchasing power. Being that we know Many will move more of it’s dollars into the demand side of the economy, with this change we have choked the air flow and flooded the fuel. The engine will not rev as high, will not produce as much power, and just like high altitudes where the air is thinner, it will not have the reserve to get you over the mountain. At the same time, the engine is pushing raw fuel out the exhaust. I’m confident the gear heads can explain the analogy.

I’ll use this web site to play with the numbers next.