What’s Caused America’s Widening Income Gap?
The super rich have never had it so good. At least not since the late 19th Century, a reprehensible period in American history known as the Guilded Age when wealthy robber barons in mansions and plantations treated the working class like farm animals, and government did next to nothing to help common people. In other words, unbridled capitalism and conservatism at its unapologetic worst.
It took the mass collectivization of workers and the formation of labor unions to mobilize enough power and pressure to achieve an unprecedented series of bold landmark legislative victories, several of which were enacted by President Theodore Roosevelt, the last true Republican progressive to embrace the working class. By today’s standards, “TR” would be Bernie Sanders. The 40-hour work week, mandatory overtime pay, the elimination of child labor, food and drug standards, workplace safety, and the right to unionize and bargain for fair wages and benefits without reprisals were but a few of the monumental triumphs that would never have come about without labor union activism and progressive politics.
So, you like having a middle class? Good. We agree. Thank liberals.
Let us never forget that it was conservatives — time and time again, over and over — who opposed the tremendous strides made by the middle and lower classes every single step of the way over the past 120 years, government policies which lifted tens of millions out of poverty and made America into the largest and most powerful economy in the world. Conservatives opposed virtually all of Teddy Roosevelt’s programs. Conservatives opposed the regulation of banks and Wall Street. Conservatives opposed virtually all of Franklin D. Roosevelt’s “New Deal” programs. Conservatives opposed the creation of Social Security. Conservatives opposed virtually all of LBJ’s “Great Society” programs. Conservatives opposed the creation of Medicare. Conservatives opposed consumer protection laws. Conservatives opposed environmental regulation. Conservatives opposed civil rights and gender equality laws. Conservatives opposed not only raising the minimum wage, but having a minimum wage at all! Thank goodness conservatives lost so many critical battles in the past. Otherwise, I’d probably be working my 15th shift in a row for $6.10 an hour in a coal line somewhere.
Trouble is, conservatives aren’t losing the major political battles anymore. They’re now winning them. The middle class has experienced a steady but severe reversal of fortune ever since “Reaganomics” and the “Laffer Curve” entered the contemporary political lexicon. The series of proud victories that used to be won by the working class and unions are gradually being dismantled, and it’s now big banks, giant corporations, wealthy stockholders, hedge-fund managers, and the super rich (most of whom inherited vast wealth) doing victory laps. That’s just one of many reasons the United States could be very well be tinkering on the fringes of economic disaster, with two divided economic sub-classes, more at odds than ever, separated by a gap which continues to widen and could ultimately threaten the very essence of democracy.
Indeed, this Labor Day seems like the ideal opportunity to discuss some of the things that caused America’s widening and worsening income gap. The evidence on this crisis isn’t just irrefutable. It’s overwhelming. And, it’s getting worse:
These statistics (above) were put out by the Congressional Budget Office (CBO), widely regarded and universally trusted as a bi-partisan source on American economic conditions. The chart above shows the various economic classes and what’s happened to their average income levels since 1979. Note that only two income classes have achieved significant gains — the top 1 percent which has enjoyed astronomical increases, and the top 20 percent, which has also enjoyed a steady, albeit slower rise. Essentially, the bottom 80 percent of wager earners have seen no gains within the past 35 years.
Put another way, take a look at the second chart (above) which essentially shows the same thing. However, these results are even more alarming for those concerned about the “bottom 80 percent,” since their share of the overall economic pie has been declining, while that rate of decrease is getting gravely worse. Pay particularly close attention to the period 2000-2006. Keep in mind this second chart shows all incomes after taxes, so essentially tax rates (then and now) pretty much reveal the same horror story for the working class.
Obviously, there’s something missing above. Note that the charts I presented end in the year 2007. Hmm, wonder what happened the following year, 2008? Does anyone remember?
Of course, the 2008 economic meltdown sent personal incomes into a tailspin. But no class was hurt more (percentage wise) than workers, and especially homeowners, who saw their greatest asset (their homes) plunge in value. Certainly the top 20 percent lost some income. But the bottom 80 percent lost a whole lot more — income, jobs, and in some cases, even their homes.
Here’s another look at income inequality in America from a different vantage point. This time, the data runs up through 2014. What’s important here are two things. First, notice the steady rise in GDP over the past 20 years. American economic productivity is doing fine. What’s alarming however, is the real household income average, which hasn’t just been stagnant. Now, it’s steadily decreasing. So, we have increasing productivity, but the average American is making less. Something’s wrong here. By the way, as to my second point — this data comes from the Federal Reserve Bank, hardly a bastion of liberalism. SEE SOURCE: FRED ECONOMIC DATA HERE
So, we all know the rich are getting richer. Richer faster. Much richer. The poorer are getting poorer, at least in relation to the overall percentages of growth. And, the middle class is struggling. The question is “why?” Let’s examine what I believe to be the major causes of worsening income inequality in America:
FREE TRADE AGREEMENTS / INCREASED GLOBALIZATION — The North American Free-Trade Agreement (NAFTA) was passed in 1994. Labor warned us against it. Conservatives argued for it. President Clinton abandoned the liberal position (as he did on many issues) and went along with the free
traitors traders. They accused us of protectionism, and promised that a giant North American free trade zone would create millions of new jobs. Well, it did — in Mexico. Corporations moved their factories south of the border, where the average pay is just one-third that of an American worker, plus they didn’t have to provide benefits or pay overtime. Factories across America closed down. Unemployment shot up. And since workers’ bargaining power declined, companies could then threaten to move operations overseas if workers’ demands were deemed excessive (in other words, if workers demand some of the crumbs hoarded by executives and shareholders, they were threatened with closing down and moving to Mexico, or elsewhere). Oh, and the U.S. also got hammered with a $181 billion trade deficit, just with Mexico alone (SOURCE HERE). Even more maddening, the Trans-Pacific Partnership (TPP) now threatens to do the same thing in Asia, only worse. The free-trade agreements are absolutely killing American jobs. Yes, unemployment has been decreasing. But the quantity of good jobs remains scarce. The bottom line — NAFTA has been a disaster for the working class and has most certainly contributed towards worsening income inequality.
THE DEMISE OF LABOR UNIONS — For close to a century, unions were a much-needed balance to the potential (and actual) excesses of big business, inherently determined to increase its profits by any means necessary, including diminishing workers’ share and suppressing collectivization. Unions were once an effective counterweight, which asked to be compensated in line with increased productivity and profits. Well, productivity continues to increase in most sectors as do profits, but wages have not. Meanwhile, executive pay has skyrocketed to unprecedented levels of disproportion and arrogance. Consider two alarming stats: The percentage of unionized workers has fallen from 30 percent in the mid-1970’s to about 12 percent today. However, executive compensation has escalated from about 40 times that of the average worker, to more than 350 times the average salary of subordinates within the same time frame [SOURCE HERE]. Critics often point to the excesses and occasional corruption of unions, a point conceded. However, this pales in comparison to all the legalized graft and backscratching taking place at the corporate level the expense of the working class.
LACK OF UNIVERSAL HEALTH CARE — The United States is one of the few industrialized nations in the world without a single-payer health care system. While rabid critics rail against the Affordable Care Act (so-called “Obamacare”), this nation remains entrenched to profit-squeezing health insurance companies (which take their 35 percent in expenses and profits right off the top, without contributing a thing to better health for Americans) as well as a thoroughly corrupt medical establishment (including the American Medical Association) which severely limits the number of doctors and other medical professionals in the industry, incentivizes quantity over quality, and has entered into what are clearly incestuous business relationships with partner pharmaceuticals triggering an excessive over-prescription of meds, creating what’s become a basket nation of pill-popping drug addicts (Ritalin, anyone?). Most shameful of all, the U.S spends far more than any nation on earth on health care, and gets some of the worst results in return. The exploding cost of health care (which doesn’t seem to be a problem in the rest of the world — go figure) has spawned millions of personal bankruptcies. The number one cause of bankruptcy in America today is health problems. The working class has been forced to pay a larger percentage of income just to stay healthy, which results in less disposable income for other things, and no money for savings. Again, using other developed counties for comparison — nations with single-payer, government run health care don’t have anywhere near the level of income inequality as the United States. There is a clear cause and effect relationship going on here.
EXCESSIVE COST OF HIGH EDUCATION AND LACK OF UPWARD MOBILITY — Going to college and earning a university degree used to all but guarantee a good-paying job, a steady career, upward mobility, and a strong sense of self-worth. Today, a college degree more than likely means massive student indebtedness. The banks and lending institutions are getting filthy rich, not the kids. Averages are about $30,000 of debt per college graduate, and as high as six-figures for those
snookered who were accepted to private, rather than (cheaper) state schools. No doubt, college is a wonderful opportunity to learn and experience new things. But it’s not a training academy for guaranteed employment. Plenty of waiters and waitresses have college degrees. Several contributing factors are at work here: First, the cost of college education has far outpaced the rate of inflation. Second, going to college has been marketed deceptively since the availability of entry-level jobs simply can no longer meet expectations. Sorry folks, we just don’t need another 55,000 lawyers in America graduating every year. What we do need are more trade schools and low-cost institutions of higher learning which serve as a front line for the betterment of local communities. In so far as tearing down the middle class, parents who pay the high cost of tuition are getting screwed, as are the graduates who come out of college massively in debt. Naturally, the top 1 percent of wage earners, often given preferential treatment in admissions, don’t suffer these economic hardships.
Obviously, there are other factors. Several in fact. This is just a short, and somewhat abbreviated list. Each of these causes could constitute more than enough material for a major research project.
On this Labor Day, it’s vital and very much in our self-interest to remember and also to honor what this date is really intended to commemorate, which have been the many sacrifices of the American labor movement who have largely been responsible for the emergence of what once was a prosperous middle class. Unfortunately, advances over the past century made by labor and proactive government policies which help to uplift workers are now being reversed by dangerous forces which are clearly depressing wages and destroying the American dream.
I’ll close with a semi-apology by the disgraced former Fed Chairman, and champion of free market capitalism, Alan Greenspan, who testified in front of a congressional committee during the ugly aftermath of the 2008 economic collapse. His comments were as follows:
Congressman Henry Waxman: “My question is simple. Were you wrong?”
Alan Greenspan: “Partially…I made a mistake in presuming that the self-interest of organizations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms…..I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works. I had been going for 40 years with considerable evidence that it was working exceptionally well. The overall view I take of regulation is, I took an oath of office when I became Federal Reserve Chairman. I’m here to uphold the laws of the land passed by Congress, not my own predilections.”