Economic
Inequality Is Real (Bad)
By Joel S. Hirschhorn
27 February, 2007
Countercurrents.org
Rising
American economic inequality has received attention by Senator Jim Webb,
presidential candidate John Edwards, CNN’s maverick Lou Dobbs,
and others. The middle class has not shared in rising national prosperity,
because the nation’s wealth has been siphoned off to the richest
Americans. Some elites are nervous. They have attacked what are pejoratively
called “neopopulists” – people who say the middle
class is under siege.
Surprisingly, the attack
and economic propaganda have come from the relatively unknown Third
Way group that is associated with the Democratic Leadership Council.
Why would self-proclaimed progressives and centrists put out a report
that says the whole economic inequality story is bogus?
They favor continuation of
the free trade globalization policies of recent Democratic and Republican
administrations. They want no restraints on international trade, despite
mounting U.S. trade deficits and loss of manufacturing and many professional
jobs to low wage nations. Of Third Way’s 18 board members, 14
are current or former CEOs or investors, including several hedge fund
managers and the co-head of global equity trading at Goldman Sachs.
Third Way’s report
“The New Rules Economy” uses sleazy statistical tricks to
create a false image of rising economic prosperity for middle class
Americans. You know the group is full of crap when the intellectually
bankrupt New York Times columnist David Brooks praises its findings.
Anyone who believes this report’s data and conclusions is either
in the Upper Class or is just plain gullible. The report argues that
the middle class is not stagnating, not drowning in debt, not being
victimized by free trade. Is this your reality?
Federal Reserve chairman
Ben Bernanke said recently that incomes at all levels are rising; it's
just that incomes at the upper end are rising much faster. Minor increases
for the many are not the same as staggering increases for the few. And
that’s what economic inequality and injustice are all about.
An expanding Upper Class
does NOT mean that those below that class are doing equally well. Between
1979 and 2005, the percentage of the prime wage-earners aged 25 to 59
earning more than $100,000 in inflation-adjusted dollars grew by nearly
13 percentage points. But the overall population grew by more than 30
percent. So the Lower Class is expanding more rapidly than the Upper
Class and they are not getting the increases in wages and benefits that
they deserve.
Third Way removed lower and
higher age Americans and non-married households from their data to emphasize
the median income of married-couple households at more than $72,000,
up 22 percent from 1979 to 2005 when adjusted for inflation (and not
that impressive for 25 years). If both work outside the home it is $81,000.
Guess what? Less than half of American households fit the married couple
category, and even fewer in the prime wage-earner class. If you include
the many unmarried households in this age range the median drops to
$61,000. If all households are counted, the median drops sharply to
just over $46,000.
Note that median wages for
men are lower today than they were in 1973, and even total compensation,
including benefits, is lower than it was in the late 1970s. And median
incomes of high school graduates in general have declined a lot. For
college graduates, median hourly real wages are up just 10 percent over
thirty years!
The report dismisses the
staggering increases in household debt by invoking higher home values.
This of course ignores the housing bubble effect that has created delusional
home equity wealth.
There is another reality
check. Local geographic or regional economies determine whether a $72,000
or even $81,000 household income is really that good. Compared to 25
years ago, for example, there are incredibly higher housing costs in
many places, high costs for two workers commuting long distances between
jobs and affordable homes, much higher health insurance and medical
costs, remarkably higher college costs, and other rising expenses that
never seem to be captured by the government’s official inflation
figures.
Listen to Turley K. Hayes
of Topeka, Kansas – a relatively low cost of living area: “I
earn a gross income of $81,000 and support my disabled domestic partner.
My NET income from this (after taxes, insurance, Social Security, Medicare,
Co-Pays for medical) is down to $46,435. My partner and I live paycheck
to paycheck, as prices have risen. The ‘money’ specialists
say we haven't had inflation. Tell that to me after I go to JC Penney
and buy a new pair of workshoes, identical to the ones I bought last
year and pay $21.34 more (and that was after a 10% discount coupon).
There is inequality, those at the low end can get help, those at the
high end don't need it. Those of us in the middle are suffering because
we make too much to get help and not enough to save for anything.”
But that schmuck David Brooks tells the world that such household incomes
are just fine. How many households below the median can afford to send
a child to even a state college and also save for retirement, because
virtually no one gets a pension anymore?
As to economic inequality:
Adjusted for inflation, wages rose about 11.5 percent from 1979 to 2006
for those at the median. Those near the bottom of the wage scale saw
their pay rise just 4% during that time, while the incomes of those
at the top rose 34%. That’s unfair distributional economics. If
you are in the Upper Class, you could care less. But most Americans
feel economic anxiety, because direct experience tells them that they
are close to – or moving closer to – economic disaster.
They are just one serious illness or job loss away from requiring government
welfare assistance, losing their home, and going bankrupt.
It pays to be rich. In 2004,
just about 25,000 taxpayers took home over $5 million. They paid an
average 21.9 percent of their incomes in federal income tax. Back in
1952, at the height of the Korean War, the comparable federal tax bite
on America’s richest 25,000 averaged 51.9 percent. About a decade
earlier, in the middle of World War II, the 25,000 highest-income taxpayers
paid 68.4 percent of their incomes in federal income tax. Public policy
has helped the rich because the rich have shaped public policy.
True, Americans generally
have many more possessions than in the past. But that results from all
household adults working – and usually longer hours on the job
and at home – than in the past. Is this progress? Economic data
say little about quality of life. American insanity is that people are
driven by advertising, easy credit and pop culture to consume compulsively
even if it means increasing personal risk through excessive borrowing.
The visibility of the Upper Class causes 80 percent of the population
to fantasize that they too can become rich. But the odds are against
that. More realistic is sinking into poverty during their work years
or when they retire without a good pension and with uncertain Social
Security.
The Third Way’s report
and status quo power elites love to say that more education is the solution.
Is this another lie? Americans have become more educated. In 1970, the
National Center for Education Statistics reports that only 75 percent
aged 25-29 had completed high school. In 2004, that increased to nearly
90 percent. Similarly, in 1970, only 16 percent of Americans in their
late 20s held a four-year college degree. By 2004, that nearly doubled
to 29 percent.
Something else doubled since
1970: the share of national income that goes to America's richest 1
percent. The share going to average Americans, by contrast, has dropped.
Average Americans in the bottom 90 percent of the nation's income distribution
took home 67 percent of U.S. income in 1970. This dropped to only 53
percent in 2004, despite higher education levels! It continues to drop.
Education does not necessarily work. Why?
Education doesn’t determine
how income and wealth get distributed. What does? Politics – or
more correctly corrupt politics – does. Many political decisions
— taxes, trade, labor rights, health care, regulations, banking,
privatization, farm subsidies — have tilted income and wealth
to the top. And not just during Republican administrations. More Americans
must understand the linkage between a delusional democracy based on
corrupt politics and delusional prosperity for the masses.
The trends are clear. There
really is a war on the middle class. "We're creating tomorrow's
poor, people who once saw themselves as part of the middle class but
financially can no longer make it there,” said Elizabeth Warren
of the Harvard Law School.
The power elites running
and ruining our country have no interest in closing the bipartisan economic
inequality gap. Want to do something? Stop voting for Democrats and
Republicans that support free trade globalization and illegal immigration.
Vote for anyone in favor of increasing taxes on the wealthy and eliminating
corporate handouts and welfare. Trust true populists. Use your consumer
power: Stop pissing away your money on consuming more unnecessary “must
have” (and probably imported) crap that keeps our debt ridden
economy afloat and makes the rich richer. Start saving for that rainy
day. It’s coming for most of us. Because national prosperity is
not personal prosperity for most of us.
[For details on the author’s
new book and political reforms see www.delusionaldemocracy.com.]