The ultra-rich, the rich and the rest of us

What ought to be the biggest issue in American politics is how to stop redistribution of income – redistribution upward, which has been going on for more than 30 years.

The average working man earns less today (adjusted for inflation) than a working man of 30 years ago. But from 1979 to 2007, the share of national income going to the rich – the highest 1 percent of income earners – has more than doubled, and the share going to the ultra-rich – the highest 1/10 of 1 percent – has quadrupled.  An estimated 80 percent of gains in income by Americans from 1980 to 2005 went into the pockets of the rich.  The rich are doing more than moving ahead faster than the rest of us.  They are moving ahead at our expense.

This process goes on through Democratic and Republican administrations, and it is still going on.  There is no limit on how concentrated wealth will become if things go on as they are.

Economists have done many studies of this.  Their figures are all slightly different because they draw data from different sources and use different starting and ending points, but the broad story is the same.  The most recent is a series of articles that Timothy Noah wrote in Slate magazine.

He polled economists as to the reasons.  They told him computerization has no measurable effect on inequality.  Neither do racial inequality or the gender gap.  There is a gap between what black Americans get and white Americans get, but it isn’t growing and therefore is not a factor in the growth of inequality.  There also is a gap between what American women get and American men get, but it is narrowing.

Globalization of trade, immigration and tax policy are minor factors.

The main reasons for growing inequality, he concluded, are Wall Street and corporate boards catering to the ultra-rich, various failures in our educational system, and the decline of organized labor.

I would blame the lack of a full employment economy, which we now call a “tight labor market.”

All of these things, as Noah notes, are affected by government policy.  Immigration is regulated, at least in theory, by the federal government. Tax policy is determined by the federal government. The decline of labor is in large part the doing of the federal government.  Federal law tightly regulates activities of labor unions, while corporate executives are given free rein.  Trade levels are regulated by the federal government. Government rules concerning finance and executive compensation help determine the quantity of cash that the ultra-rich take home. Education is affected by government at the local, state, and (increasingly) federal levels.  And the federal government and the Federal Reserve System have decided reducing unemployment is less important than controlling inflation.

Why, then, is this not a political issue?  Why are we instead debating whether a Muslim community center should be opened in lower Manhattan, or what a Republican senatorial candidate once said about masturbation?  I doubt if 1 in 100 Americans, certainly not 1 in 10, knows the facts presented in the graph above.  How could they?  Who is telling them?

I don’t envy people who are richer than me.  I see nothing wrong with the fact that J.K. Rowling, author of the Harry Potter books, is a billionaire, although I’m not sure she is happier than she would be as a mere millionaire.  I think people who create value, including great industrialists such as Henry Ford, George Westinghouse, Thomas Watson of IBM or Alfred P. Sloan of GM, deserve to be richly rewarded.

But I don’t think that is what is going on today – at least not unless you believe that the last 10 years produced a greatest generation of entrepreneurs in American history.

Since 2000, most of us have failed to keep pace with inflation while the top 1/100th of 1 percent of income earners - 14,000 families - leave the rest of us behind.

Instead I think the divergence in income – not all of it, but much of it – comes from people at the top being willing and able to milk the system for their own benefit.

This is not limited to business corporations. Hospitals, colleges and other “non-profit” institutions are increasing executive salaries while squeezing compensation at the lower levels.

The same is true in journalism.  Newspapers and TV stations are laying off staff, but among the Washington press corps, six-figure and seven-figure incomes are regarded as normal.

I think that people in that world lose touch with what ordinary Americans are struggling with.  I think they get a distorted idea of what is normal. In the 2008 election, Charles Gibson of ABC, whose income was $8 million a year, opined that $200,000 a year was “middle class” income.  He himself is middle-class compared to Rush Limbaugh, Glenn Beck and Sean Hannity, who all take in well over $20 million a year.

The same is true of elected officials. President Barack Obama’s income in 2009 was $5.5 million.  Senator John McCain, his opponent in the 2008 election, is married to a multi-millionaire heiress and couldn’t remember how many houses he owned.  In the 2004 election, the candidates for President and Vice President were all millionaires.

By way of comparison, an income of $100,000 or more puts you in the top 10 percent.  An income of $368,000 or more puts you in the top 1 percent.  An income of $1 million or more puts you in the top 1/10th of 1 percent. If you are in that ultra-rich 1/10th of 1 percent, it is hard to imagine what life is like for a perma-temp working for Microsoft or a clerk for Wal-Mart.

Click on The Best Inequality Graph for background information on statistical charts of inequality.

Click on The Great Divergence series for Timothy Noah’s articles on income inequality.

Click on The Great Divergence single-page for a PDF version of Timothy Noah’s articles.

Click on Who Rules America for more data on the distribution of U.S. wealth and income.

Click on A Recovery’s Long Odds for comment on economic inequality by Bob Herbert of the New York Times.

Click on Income Inequality and Financial Crisis for a New York Times article on economists’ views of economic inequality.

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