Income inequality hurts everyone

Income inequality has always been a fact of life. Over the last 30 years, however, the income gap between the rich and everyone else in the United States has widened. Today, income inequality is at an all-time high, higher than before the stock market crash of 1929.

Emmanuel Saez of the University of California reports that, as of 2007, the top 10 percent of Americans earned 49.7 percent of all wages and the top 1 percent took home half of all income growth during 1993-2007. We need a well-paid middle class in order to generate the aggregate demand that drives economic growth.

Just who are the top 1 percent of earners in the country? For the most part, they are successful entrepreneurs, financiers, chief executive officers, entertainers and athletes. The top earning CEO in 2011 was Tim Cook, the new head of Apple Computers. His 2011 compensation was $1 million plus a million shares of Apple, valued at that time at $378 million. At the income pinnacle were the top 25 hedge fund managers who took home an average of $576 million each in 2011, according to Money magazine.

Wealth distribution is even more skewed. According to Forbes magazine, four members of the Walton (Wal-Mart) family have a combined wealth of $107 billion – equal to the combined wealth of the poorest 30 percent of Americans. Forbes reports that the combined wealth of the 400 richest Americans was $1.7 trillion in 2012.

The Economic Policy Institute reports that median household wealth declined from $73,000 in 1983 to $57,000 in 2010. Meanwhile, the median wealth of the top 1 percent grew from $9.6 million per household in 1983 to $16.4 million in 2010.

Internationally, one might think income inequality in the United States would be comparable to other developed countries, but that is not the case. According to United Nations and CIA data, compared with other developed countries, the U.S. distribution favors the rich. The top 10 percent of Americans receives 15.9 times the income of the poorest 10 percent. This compares with a ratio in Japan of 4.5 and Finland of 5.6. By the same measure, the United States is bracketed by Nepal at 15.8 and Uganda at 16.6.

Maldistribution of income has multiple causes:

Unemployment: Unemployment compensation seldom equals wages lost.

Stagnating wages: The value of wages has been eroded by inflation.

Foreclosed and underwater mortgages: Each lead to wealth loss.

Declining influence of unions: Membership has fallen from 30 to 12 percent of the workforce and unionized jobs pay about 30 percent more than non-union jobs.

Information technology: High-tech jobs go unfilled while the unskilled are unemployed.

Education: The well-educated earn up to 2.5 times more than high school dropouts.

Offshoring: Contributes modestly to lower domestic wages.

Immigration: Weak explanation as migrants return home when jobs are scarce.

Global audience: Entertainment and professional sports are now global.

Growing CEO pay: In 1965, it was 24 times the average workers pay, today it is 185 times.

Taxation: During World War II, the top marginal rate was 94 percent; in 1960, it was 91 percent. Today is 35 percent.

According to epidemiologists Richard Wilkinson and Kate Pickett, a number of detrimental social and health effects are related to income inequality. Effects include women’s social status (highest in Scandinavia and lowest in Italy). Japan has the world’s most equitable income distribution. When data for all industrialized nations are compared with social measures such as the mental illness, obesity or teen births, Japan comes out at the top and the U.S. at the bottom.

A common American belief is that with hard work anyone can reach the top. Unfortunately, the data do not support that notion. Basically, in the United States, if you are born to a poor family you are likely to remain poor while the rich families beget rich children. Norway has the highest level of social mobility while the U.S. is at the bottom.

Is it ethical for a person to take home millions or even billions in compensation in a single year? Does growing income inequality facilitate or harm economic growth? Is a multi-million-dollar political contribution searching for truth? Does owning a private jet harm the environment?

We will never achieve a perfectly equal distribution of income and I am not advocating that. But a mounting body of evidence shows that it is bad for everyone, including the well off. Joe Stiglitz, Nobel Laureate in economics, in a recent New York Times op-ed, writes that income inequality is “no longer just a moral issue, (it is) a question of social justice.”

Ron Garst, a resident of La Plata County for the past seven years, is provost emeritus of the National Intelligence University in Washington, D.C. Reach him at rdgarst@durango.net.

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Ron Garst

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