Economix: Income of Rulers vs. the Ruled

Washington is frequently accused of being elite and out of touch with ordinary Americans. Certainly the economic confidence numbers inside versus outside the Beltway support this charge.

But is the socioeconomic gap between American politicians and their constituents really unusually wide?

That's partly a quantitative question, and partly a philosophical one. Standards of living have obviously improved greatly over generations, making then-and-now comparisons difficult.

I tried to answer this question using a principle from Adam Smith, the granddaddy of economics: that a person "must be rich or poor according to the quantity of labor which he can command." In other words, I did a back-of-the-envelope calculation for how many workers (or households) today's political leaders can employ with their income each year. This is the same metric Branko Milanovic used in his book "The Haves and the Have-Nots" in a chapter about identifying the richest person who ever lived.

In 2011, the Obamas received a total income of $844,585, according to tax returns they released on Friday (that includes his presidential salary of $400,000).

That's looking pretty good compared to the rest of American households, whose tax returns were also due on Tuesday.

We don't yet have median total income data for all American households in 2011.  The Tax Policy Center has estimated that the median tax unit had total cash income of $42,327 in 2011. "Cash income" is not exactly equivalent to "total income" as reported on your (or President Obama's) 1040; the latter doesn't include employer-paid health insurance premiums or the employer's share of payroll taxes, for example.

That means the Obamas' cash income is probably even higher than $844,585. So by a relatively conservative estimate, the Obama family made about 20 times more than the typical American family last year. (Mitt Romney has filed for an extension on his 2011 tax returns; earlier this year the campaign estimated that he had a total income of $20,908,880 in 2011, or nearly 500 times the median American household's cash income. )

If that sounds like a lot, consider that the leaders of plenty of other countries earn significantly higher salaries alone.

Two years ago The Economist looked at how salaries of presidents from around the world compared to their countries' gross domestic product per capita (which is similar to the average, rather than median, income per person).

In 2010, the American president's base salary of $400,000 was about eight times the country's gross domestic product per capita. The top political leaders in China and India received salaries that were less than five times their countries' per capita income, while Singapore's president received a salary that was more than 40 times that country's gross domestic product per capita.

Now consider what the differential was in earlier eras.

The Global Price and History Group at the University of California, Davis, has postedincome distribution data going back all the way to the Roman Empire. The numbers are far from comprehensive, and are generally snapshots from a single country in a single year.

A few highlights:

• In France in 1788 — just before the French Revolution and the resulting insistence on égalité — the nobility and clergy earned about five times the mean per capita income. That's much lower than I'd expected, given that the country's social unrest grew out of its infamous lack of égalité. Of course, the mean per capita income doesn't capture the condition of the very poorest Frenchmen.
• In England and Wales in 1759, the highest titled classes earned 67 times the mean per capita income.
• In Byzantium in the year 1000, the nobility earned 56 times the mean income per capita.
• In Rome in the year 14 C.E., senators earned a full 100 times (!) the mean income per capita.

Some individual Roman leaders did even better, according to the data on Rome (which also are cited in Mr. Milanovic's book).

The rich triumvir Crassus, who lived in the first century B.C., received an income of 12 million sesterces per year, whereas the mean annual income at the time is estimated to be 380 sesterces. That indicates Crassus received an income equal to that of about 32,000 average Romans.

Now of course, these calculations look at income only, and not the wealth accumulated by rulers versus those they rule.

For a more contemporary look at the socioeconomic gap between leaders and constituents using a wealth metric, check out this article by my colleague Eric Lichtblau about how the net worth of members of Congress and ordinary Americans changed from 2004 to 2011.