Rising economic inequality is threatening not only economic progress but also the democratic political system in the U.S.
Emerging from the 2008-09 financial crisis, the global economy is strengthening. Yet around the world, prosperity evades most people. Increasingly the biggest benefits of economic prosperity are being accrued by a tiny elite. We live in a world where small number of the richest people own the wealth of half of the world’s wealth.
In the United States, the increase in the income share of the top one per cent is at its highest level since the eve of the Great Depression. In India, the number of billionaires has increased tenfold in the past decade. In Europe, poor people struggle with post-recovery austerity policies while moneyed investors benefit from bank bailouts. Africa has had a resource boom in the last decade but most people there still struggle daily for food, clean water and health care.
Many economic and political experts have argued that extreme concentrations of wealth are not just morally questionable but that concentration in the hands of a few stunts long-term economic growth too, making it more difficult to reduce poverty. It’s clear also that increasing extreme income inequality What must now be admitted is that extreme income inequality also is undermining democracy.
Let’s take a look at the evidence for increasing income inequality and its negative impact in the United States:
- The poorest half of the Earth’s population owns 1% of the Earth’s wealth. The richest 1% of the Earth’s population owns 46%; The poorest half of the U.S. population owns 2.5% of the country’s wealth. The top 1% owns 35% of it;
- The United States is the most economically stratified society in the western world. As The Wall Street Journal reported, a recent study found that the top .01% or 14,000 American families hold 22.2% of wealth, and the bottom 90%, or over 133 million families, just 4% of the nation’s wealth;
- The U.S. Census Bureau and the World Wealth Report 2010 both report increases for the top 5% of households even during the recent recession. Based on Internal Revenue Service figures, the richest 1% has tripled their cut of America’s income pie in one generation;
- In 81 percent of American counties, the median family income, about $52,000, is less than it was 15 years ago. This is despite the fact that the economy has grown 83 % in the past quarter-century and corporate profits have doubled. American workers produce twice the amount of goods and services as 25 years ago, but get less of the pie;
- The amount of money that was given out in bonuses on Wall Street last year is twice the amount workers earned in the country combined;
- The wealthiest 85 people on the planet have more money that the poorest 3.5 billion people combined;
- The median wealth per adult number is only about $39,000, placing the U.S. about 27th among the world’s nations, behind Australia, most of Europe and even small countries like New Zealand, Ireland and Kuwait;
- The top 1% of America owns 50% of investment assets (stocks, bonds, mutual funds). The poorest half of America owns just .5% of the investments;
The poorest Americans do come out ahead in one statistic: the bottom 90% of America owns 73% of the debt;
- Since 1990, CEO compensation has increased by 300%. Corporate profits have doubled. The average worker’s salary has increased 4%. Adjusted for inflation, the minimum wage has actually decreased. CEOs in 1965 earned about 24 times the amount of the average worker. In 1980 they earned 42 times as much. Today, CEOs earn 325 times the average worker; (link is external)
- In a study of 34 developed countries, the United States had the second highest level of income inequality, ahead of only Chile;
- Young people in the U.S. are getting poorer. The median wealth of people under 35 has dropped 68% since 1984. The median wealth of older Americans has increased 42% in the same period;
- Four hundred Americans have wealth equal to the GDP of Russia.
In 1946, a child born into poverty had about a 50 percent chance of scaling the income ladder into the middle class. In 1980, the chances were 40 percent. A child born today has about a 33 percent chance;
- Twenty five of the largest corporationsin America in 2010 paid their CEOs more money than they paid in taxes that year;
- Some hedge fund mangers made $4 billion annually, enough to pay the salaries of every public school teacher in New York City, according to Paul Buchheit of DePaul University.
Robert Reich, former Secretary of Labor under President Bill Clinton recently cited a Forbes story that reported “only twice before in American history has so much been held by so few, and the gap between them and the great majority been a chasm–in the late 1920’s and in the era of the robber barons in the l880’s.”
Dominic Barton,Managing Director of McKinsey and Co., argues “ Few would disagree that unchecked increases in inequality will be costly for capitalism in the long-run–due to the divisions that it creates within society and the strain that it puts on social safety nets.”
The Pew Foundation study, reported in the New York Times , concluded, “The chance that children of the poor or middle class will climb up the income ladder, has not changed significantly over the last three decades.” The Economist’s special report, Inequality in America, concluded, “The fruits of productivity gains have been skewed towards the highest earners and towards companies whose profits have reached record levels as a share of GDP.”
A joint effort by the Russell Sage Foundation, the Carnegie Corporation and the Lyle Spencer Foundation has released several reports based on research on the issue of income inequality. They have concluded that over the past three decades, the U.S. has experienced a slow rise in economic inequality and as a result, the fruits of economic growth have gone largely to the wealthy; median incomes have stagnated; and the poor have increasingly been left behind.
In their book, Winner-Take-All Politics: How Washington Made The Rich Richer-And Turned Its Back On The Middle Class , Jacob Hacker and Paul Pearson argue that since the late 1970’s, an intense campaign of anti-democracy policy changes have resulted in an intense concentration of wealth and income to the very few individuals and corporations in the U.S.
Many people believe it is only the recession that has had a negative impact on the economic welfare of people in the U.S., but wealthy individuals and corporations have faired well during tough economic times.
According to Richard Wolff , professor of Economics at the University of Massachusetts, U.S. corporations, particularly the large ones, “have avoided taxes as effectively as they have controlled government expenditures to benefit them.” Wolff points out that during the Depression and WWII, federal income tax receipts from individuals and corporations were fairly equal, but by 1980, individual income taxes were four times higher than corporate taxes. “Since WWII, corporations have shifted much of the federal tax burden for themselves to the public-and especially onto the middle class,” Wolff says.
The most comprehensive recent study of corporate taxes by professors at Duke, MIT and the University of California concluded “we find a significant percent of firms that appear to be successfully avoiding large portions of the corporate income over a sustained period of time.” For example, The New York Times reported that GE’s total tax was 14.3% over the last 5 years, while in 2009 receiving a $140 billion bailout guarantee of its debt from the federal government.
What happens to societies where there are large and growing gaps in wealth? Significant social problems, and declining indicators of well being and happiness, recent research seems to suggest.
British epidemiologists Richard Wilkinson and Kate Pickett, authors of The Spirit Level: Why Greater Equality Makes Societies Stronger, argue that almost every indicator of social health in wealthy societies is related to its level of economic equality. The authors, using data from the U.S. and other developed nations, contend that GDP and overall wealth are less significant that the gap between the rich and the poor, which is the worst in the U.S. among developed nations. “In more unequal societies, people are more out for themselves, their involvement in community life drops away, “Wilkinson says. If you live in a state or country where level of income is more equal, “you will be less likely to have mental illness and other social problems,” he argues.
A University of Leicester psychologist, Adrian White, has produced the first ever “world map of happiness,” based on over 100 studies of more than 80,000 people and by analyzing data from the CIA, UNESCO, The New Economics Foundation, the World Health Organization and European databases. The well being index that was produced was based on the prediction variables of health, wealth and education. According to this study, Denmark was ranked first, Switzerland second, Canada 10th and the U.S. 23rd.
A study, published in Psychological Science by Mike Morrison, Louis Tay and Ed Diener, which is based on the Gallup World Poll of 128 countries and 130,000 people, found that the more satisfied people are with their country, the better the feel about themselves. Recent surveys in the U.S. show a significant percentage of Americans who are unhappy about their country. According to the World Values Survey of over 80 countries, the U.S. ranks only 16th, behind such countries such as Switzerland, the Netherlands, Sweden and Canada, with Denmark ranked first.
Linda McQuaig and Neil Brooks, authors of The Trouble with Billionaires, argue that increasing poverty due to economic inequality in the U.S. and Canada has detrimental effects on health and social conditions and undermines democracy. They cite the fact that while the U.S. has the most billionaires in the world; it ranks poorly in the Western world in terms of infant mortality, life expectancy, crime levels-particularly violent crime-and electoral participation.
Between 1983 and 1999, men’s life expectancy decreased in more than 50 U.S. counties, according to a study by Majid Ezzati, associate professor of international health at the Harvard School of Public Health. For women, the news was even worse: life expectancy decreased in more than 900 counties-more than a quarter of the total. The United States no longer boasts anywhere near the world’s longest life expectancy. It doesn’t even make the top 40. In this and many other ways, the richest nation on earth is not the healthiest.
Ezzati’s results are one example. There is also evidence that living in a society with wide disparities-in health, in wealth, in education-is worse for all the society’s members, even the well off. Life-expectancy statistics hint at this. People at the top of the U.S. income spectrum “live a very long time,” says Lisa Berkman, Director of Harvard University’s Center Population and Development Studies, “but people at the top in some other countries live a lot longer.”
A meta-analysis published by the British Medical Journal shows a link between income inequality and mortality and health. The researchers concluded that people living in regions with high-income inequality had an increased risk of premature death, independent of their individual socioeconomic status, age or gender. While it is logical to assume the lowest income citizens would be at grater health risk, the study concluded that income inequality is “detrimental to the more affluent members of society, since these citizens experience psychosocial stress from the inequality and loss of social cohesion.”
Often popular media portrays the image of everyone favoring and wanting to be wealthy, but that may be deceiving.
Recent neuroscience search reveals that the brain rejects inequality and prefers equitable balance-physiological, emotional, social and psychological. E. Tricomi and colleagues advanced this argument, published in the journal, Nature They contend the human brain dislikes inequality when it comes to money. And other behavioral and anthropological evidence shows that humans dislike social inequality and unfair distribution of outcomes. Researchers at the California Institute of Technology and Trinity College in Ireland have identified reward centers in the brain that are sensitive to inequality. This research shows a dislike of fairness and inequality is more than just a social convention. On a physiological level, people may not be as selfish as once believed. Other studies have shown that many wealthy people want to restore equality and balance by charitable donations to assuage their guilt and decrease their own discomfort over having more than other people.
Research indicates that high inequality reverberates through societies on multiple levels, correlating with, if not causing, more crime, less happiness, poorer mental and physical health, less racial harmony, and less civic and political participation. Tax policy and social-welfare programs, then, take on importance far beyond determining how much income people hold onto.
In their report, Building A Better America–One Wealth Quintile At A Time , Dan Ariely of Duke University and Michael I. Norton of Harvard Business School, showed that across ideological, economic and gender groups, Americans thought the richest 20% of American society controlled about 59% of the country’s wealth, while the real number is actually 84%. At the same time, the survey respondents believed that the top 20% should own only 32% of the wealth. In contrast, in Sweden, a country with significantly greater economic equality, 20% of the richest people there control only 36% of the wealth of the country. In the American survey, 92% of the respondents said they’d rather live in a country with Sweden’s wealth distribution. They concluded that a majority of Americans they surveyed “dramatically underestimated the current level of inequality,” and “respondents constructed ideal wealth distributions that were far more equitable even than their immensely low estimates of the actual distribution.” They contend that all demographic groups including conservatives like Republicans and the wealthy “desired more equal distribution of wealth than the status quo.”
In an article in the New York Times Eduardo Porter argues “Comparisons across countries suggest a fairly strong, negative link between the level of inequality and the odds of advancement across the generations. And the United States appears at extreme ends along both of these dimensions — with some of the highest inequality and lowest mobility in the industrial world.” He goes on to say “If the very rich can use the political system to slow or stop the ascent of the rest, the United States could become a hereditary plutocracy under the trappings of liberal democracy.
One doesn’t have to believe in equality to be concerned about these trends. Once inequality becomes very acute, it breeds resentment and political instability, eroding the legitimacy of democratic institutions. It can produce political polarization and gridlock, splitting the political system between haves and have-nots, making it more difficult for governments to address imbalances and respond to brewing crises. That too can undermine economic growth, let alone democracy.””
Frederick Soft, writing in the American Journal of Political Science incomeprovides an analysis of economic inequality and democratic political engagement, concluding “higher levels of income inequality powerfully depress political interest, the frequency of political discussion and participation in elections among all but the ost affluent citizens, providing compelling evidence that greater economic inequality yields greeter political inequality.”
So while income inequality is a growing serious problem for the economic and social health of the U.S. population, it’s fair to say it’s also a threat to its democratic system.