The Widening Income Gap

Anytime I read a statistic that says, "Metric X hasn't been this (largesmallhighlowetc.) since the years before the Great Depression," I start worrying. For example, the average savings rate - which is negative, by the way - is at its lowest levels since the Great Depression. Similarly, a new study reports that the incomes of the top 1% and of the top 10% of Americans are receiving their largest shares of the GDP since 1928.

From The New York Times's article Income Gap Is Widening, Data Shows:

Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows. The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.

...

The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.
The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.

Now, I am a capitalist and am not pro-wealth distribution, but I do think that a society has trouble functioning justly (and efficiently) if income distribution is too skewed. Part of the reason capitalism works is because those in lower socioeconomic positions honestly believe that they can better their position through hard work, industry, and ingenuity. But if the wealth gap grows too big, I worry that those on the lower and middle rungs will adopt a, "Screw it" mentality, figuring either that their are stuck in their position in life (and, then, why bust your butt?) or that the only way to success is through fame, the lottery, or some other flash in the pan that is based primarily on luck and does not encourage the aforementioned qualities.

Let me close with a completely unrelated comment: I have recently discovered - and highly recommend - Calculated Risk, which is an interesting and well-written blog from mortgage industry insiders. Of particular interest are entries dissecting the math and economics behind common mortgage concepts, like PMI, Neg-Am Loans, and mortgage servicing.