Eight Facts About American Inequality

Economics
United States
Equality
2014-10-30-US-inequality.jpg

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The American Dream has been defined many ways by writers of both poetic and prosaic bent, but its essentials tend to involve life, liberty and the pursuit of happiness (or property, depending on your source).

The Declaration of Independence, upon which an entire nation was radically brought into existence, asserts that not only are all men created equal but that this is a ‘self-evident’ truth.

By this ‘unanimous Declaration of the thirteen united States of America,’ a contract was agreed to, that their union would be founded on this principle. Thus, America was endowed with its dream at the moment of its conception: the freedom to succeed.  

The United States has promoted a self-congratulating exceptionalism for decades, waving its Declaration and Constitution in the faces of other sovereign nations as if the latter had never considered such concepts.

Our capital F ‘Freedom’ sets us apart from the rest of the world, as the political rhetoric has repeated ad nauseam, no matter the freedoms enjoyed by democracies on almost every continent. And yet our basic freedom, the freedom to succeed, America’s contractual promise, has been shrinking for thirty years.

The freedom to succeed transcends economic systems, but it is most potently expressed by capitalist gains. The ability to go ‘from rags to riches’ is ingrained in this nation’s ethos and there is nothing intrinsically immoral about that goal.

However, the current state of American inequality reveals a very real and expanding gap between the rich and the poor, which betrays the foundational endowment of this Union. When the freedom to succeed is denied every citizen, their equality is equally denied. 

Recently, the Pew Research Center released a poll on what international citizens consider the greatest threat to the planet. Conducted between 17 March and 5 June of this year, the survey received answers from 48,643 respondents in 44 countries.

In the US and Europe, the growing gap between the rich and the poor was overwhelmingly considered the greatest danger to world prosperity.

Over a quarter of Americans ranked ‘Inequality’ as the number one threat, above Religious & ethnic hatred, Pollution, Nuclear weapons and Infectious diseases.

This is hardly startling news considering that the median net worth of American households fell by 35 per cent ($106,591 to $68,839) between 2005 and 2011, according to the US Census Bureau. It is, however, disturbing that inequality remains so prevalent five years after the Great Recession.

Capitalism is not the problem. The problem is that we have let inequality advance in this country so gradually that its obviousness is masked by its familiarity. Below, I outline eight facts about inequality in America that every American should know.

1. 400 Americans have more wealth than half of all Americans combined.

This ratio has been verified by Politifact and former Labor Secretary Robert Reich. To put it into context, last year, the US Census Bureau estimated that there were over 316 million people living in the United States. That means 400 Americans have more money than over 158 million of their fellow citizens. Their net worth is over $2 trillion, which is approximate to the Gross Domestic Product (GDP) of Russia.

One explanation for the vast discrepancy in wealth is the definition of ‘worth’, which includes everything a person or household owns. This means savings and property but also mortgages, bills and debt. Poorer households can owe so much in debt that they possess a negative net worth.

2. America has the second-highest level of income inequality, after Chile.

The Organization for Economic Cooperation and Development studies thirty-four developed countries and ranks them both before and after taxes and government transfers take effect (government transfers include Social Security, income tax credit and unemployment insurance). Before taxes and government transfers, America ranks tenth in income inequality. After taxes and transfers, it ranks second. Whereas its developed peers reduce inequality through government programs, the United States’ government exacerbates it. 

3. The current state of inequality can be traced back to 1979.

After the Stock Market Crash of 1929, the gap between the rich and the poor began to narrow. For fifty years, wages differed between the upper- and working-classes, but a robust middle-class took shape and there remained ample opportunity for working-class individuals to ascend.

In his book, The Great Divergence, journalist Timothy Noah traced today’s inequality to the beginning of the 1980s and the widening gap between the middle- and upper-classes. This gap was influenced by the following factors: the failure of American schools to prepare students for new technology; poor immigration policies that favor unskilled workers and drive down the price of already low-income labor; federally-mandated minimum wage that has failed to keep pace with inflation; and the decline of labor unions.

4. Non-union wages are also affected by the decline of unions.

The Economic Policy Institute claims that 20 percent of the growth in the wage gap between high-school-educated and college-educated men can be attributed to de-unionization.

Between 1978 and 2011, union representation for blue-collar and high-school educated workers declined by more than half. This has also diminished the ‘union wage effect,’ whereby the existence of unions (more than 40 percent of blue-collar workers were union members in 1978) was enough to boost wages in non-union jobs - in high school graduates by as much as 8.2 percent.

Not only did unions protect lower- and middle-class workers from unfair wages, they also established norms and practices that were then adopted by non-union employers. Two prime examples are employee pensions and healthcare.

Today, about 13 per cent of workers belong to unions, which has reduced their bargaining power and influence. 

5. There is less opportunity for inter-generational mobility.

In December 2011, President Obama spoke at Osawatomie High School in Kansas. He was very clear about the prospects of the poor in today’s United States:

‘Over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. You know, a few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult. By 1980, that chance had fallen to around 40 percent. And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a one-in-three chance of making it to the middle class - 33 percent.’

As refreshing as that honesty is, Obama promised no fix beyond $1 trillion in spending cuts and a need to work toward an ‘innovation economy.’ 

In a speech one month later, Obama’s Chairman of Economic Advisers, Alan Krueger, elaborated on the dire state of America’s shrinking middle-class.

The contraction, he stated, could partially be attributed to ‘skill-biased technical change’: work activities that have become automated over time, reducing the need for unskilled labor and favoring those with analytical training.

He also highlighted the 50 year decline in tax rates for the top 0.1 percent, increased competition from overseas workers, and a lack of educational equality for children. Poor children are denied the private tutors, college prep and business networks of family and friends available to their wealthier peers, which locks them into the class they are born into.

6. Tax cuts to the wealthiest have not improved the economy or created more jobs.

Krueger also revealed that the tax cuts of the 2000s for top earners did not improve the economy any better than they did in the 1990s (meanwhile, income growth was stronger for lower- and middle-class families in the 1990s than in the last forty years).

Tax rates for the top income earners in America peaked in 1945 at 66.4 per cent. Following decades of gradual reductions, they have since been cut in half. During the same time, the payroll tax has increased since the 1950s and individual income tax has bounced between 40-50 per cent through the present day. Conversely, corporate tax declined from above 30 per cent in the 1950s to under 10 per cent in 2011.

All of these tax cuts are made ostensibly to improve the economy and create jobs. However, the National Bureau of Economic Research has concluded that it is young companies, ‘regardless of their size,’ that are the real job creators in America. Tax cuts to the wealthiest do not create jobs

7. Incomes for the top 1 per cent have increased (but the top 0.01 per cent make even more).

Between 1979 and 2007, the average incomes of the 1 per cent increased 241 per cent. Compare that to 19 per cent growth for the middle fifth of America and 11 per cent for the bottom fifth.

Put another way, in 1980, the average American CEO earned forty-two times as much as his average worker. In 2001, he earned 531 times as much

Average income across the 1 per cent is actually stratified into widely disparate echelons. Compare the $29,840 average income for the bottom 90 per cent to the $161,139 of the top 10 per cent. Compare the $1 million average income of the top 1 per cent to the $2.8 million of the top 0.1 per cent. Yet both still pale beside the $23 million average income of the top 0.01 per cent. 

If those numbers seem a bit overwhelming, Politizane has created a video that illustrates this staggering inequality:

8. The majority of Congress does not feel your pain.

Empowered by the Constitution to represent their constituents, United States Congress members are, for the first time in history, mostly millionaires. The 2012 financial disclosure information of the 534 current Congress men and women reveals that over half of them have a net worth of $1 million or more.

After the past seven facts it is difficult to read this last one and believe that these 268 legislators have the best interests of the remaining 99 per cent at heart. But if that is too presumptuous a leap, it is not too bold to say that wealthier donors, lobbyists and special interest groups enjoy greater access to these lawmakers than the average American. 

In January, Congress failed to extend emergency benefits for unemployment, leaving 1.3 million people without federal aid. Congress then went on a weeklong recess that kept them from debating the issue until the end of the month. The bill was too divisive for Republicans and Democrats to reach an agreement on, though unemployment was then above 7 per cent nationally. 

Thankfully, the unemployed have their Congress working for them. And at $174,000 annual pay, those representatives are sure to return from their vacations committed to fresh solutions. 

Pierce Nahigyan is the editor-in-chief of Planet Experts. His work has appeared in several publications, including Foreign Policy Journal, Intrepid Report, SHK Magazine and the LA Post-Examiner. A version of this article originally appeared in Nation of Change. It has been republished here with permission.