Under Reagan, rich got richer, but the poor have gained, too
UNDER Reaganomics, at least one-half of an old saying has come true: The rich got richer. With the deep recession at the start of President Reagan's first term, the other half of the saying, the poor get poorer, was also the case for a few years. But as the recovery stretches into its sixth year and unemployment falls to low levels, it may well be that the poor have recovered lost ground and maybe even gained some.
The latest data on concentration of wealth in the United States relate to the early part of 1983, not halfway through Mr. Reagan's years in office.
Using these data, F. Thomas Juster, a professor of economics at the University of Michigan, calculates that the top 1 percent of wealth-holders own a little more than 30 percent of total household wealth. Almost two-thirds is owned by the top 10 percent. The rest is owned by the bottom 90 percent.
That distribution of wealth is not much different from similar estimates for earlier decades. But it probably underestimates the portion of wealth owned by the upper 1 percent, because of the inadequacy of the government data. The largest figure for wealth in Dr. Juster's study is not nearly large enough to represent the wealth holdings of the wealthiest US households.
Each year Forbes magazine estimates the wealth of the 400 wealthiest Americans. Juster notes that the ``poorest'' of these 400 is several times as rich as the wealthiest person in his study based on government data.
Juster holds that the rich have become richer since 1983. This is because of the increase in price of assets especially concentrated in their hands, such as corporate stocks and investment property.
Despite last October's market plunge, prices are far above their 1983 levels. Those with annual household incomes over $100,000 own 68 percent of common stock and bonds. They also own 80 percent of trust accounts. But the over-$100,000 group makes up only 2 percent of American households.
The Reagan administration argued that cutting income taxes for the rich would boost savings and thus provide more funds for investment. Juster sees no evidence yet of a higher personal savings rate.
``However, you have made a fair number of well-off people better off,'' he says.
Many of the rich like to believe that their wealth has been earned, reflecting personal virtues. That may well be true in some cases.
Juster, though, guesses that perhaps 90 percent of wealth is due to good fortune and not special abilities. The rich obtain most of their wealth by gifts or inheritances. Or they are fortunate enough to be born into a family in which the parents provide the money and atmosphere to enable them to get a good education and, eventually, lucrative jobs.
There is some economic evidence for this. Several years ago two economists, Laurence Kotlikoff at Boston University and Lawrence Summers at Harvard University, did a study showing that 80 percent of wealth results from inter-generational transfers - gifts, inheritances, or educational benefits. The two are now offering some advice to Democratic presidential candidate Michael Dukakis.
Whether the government should change policies to redistribute income and wealth more equally is a complicated economic issue. But if Mr. Dukakis chooses a populist path by attacking the Republican administration - and by implication George Bush - for fattening the wallets of the wealthy, he will have a point.