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Economic Inequality Is Real (Bad)
Joel S. Hirschhorn
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.
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