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Twenty Years of Widening Inequality

The Internal Revenue Service tracks the incomes of Americans as recorded in their tax returns each year.  The latest numbers, covering 1986 to 2005, summarize one basic feature of this country’s evolving economy and politics: the sharply widening gap between haves and have-nots.  Consider the richest 1 per cent of Americans.  They filed 1.3 million tax returns in 2005 reporting an average of $1.2 million of “adjusted gross income” (AGI) per tax return for that year.  Together this 1 per cent of Americans took in 21.2 per cent of the total AGI earned by all Americans.  Back in 1986, the richest 1 per cent took in half as big a chunk of the nation’s income — “only” 11.3 per cent of total AGI.

The richest million Americans in the US got very much richer than everyone else over the last twenty years.  Their ballooning share of the nation’s income was both cause and result of downsizing many corporate and government payrolls, depressing real wages, deregulation, neo-liberalism, globalization, and the rest of the agenda shared by big business, most Republicans, and most Democrats.  The basic social deal had two sides.  The richest 1 per cent provide the big bucks for political campaigns and candidates: from their own pockets and from the profits of their businesses.  In return, federal, state, and local governments outdid one another in deregulating business (especially the biggest), helping US firms (especially the biggest) expand globally, and reducing taxes on business (especially the biggest) and the rich (especially the richest).  The two parties competed for contributions from the rich by promising, if elected, to secure or expand the laws and government practices that had made them rich.

At the other end of the income distribution, the bottom 75 per cent of households — the overwhelming majority — shared 37.5 per cent of the total national AGI in 2005.  The last twenty years were not good for them; in 1986 they together had 41 per cent.  While this majority got a smaller share of the total income to support its interests, the top 1 per cent nearly doubled the share it could use to support its interests.  Millions in the majority lost secure jobs with benefits and had to take multiple, precarious positions with less or no benefits.  Their real weekly wages fell.  Their families sent more members out to work more jobs, and they borrowed vast sums against their homes and on their credit cards.  The last twenty years strained their households, relationships, and family values with massive infusions of exhaustion, job stress, and debt anxiety.  They shifted consumption from Sears and Macys to Wal-Mart.  Many lost interest in civic participation, in following current events, in the Democrats, and even in the minimalist act of voting.  No-one seemed capable or willing to stop the developments that were putting them under such economic, social, and personal pressures.

Meanwhile, the super rich 1 per cent were having quite the opposite experience.  They took an increasing interest in politics.  Ever more millionaires and billionaires are running for offices.  Their contributions can often determine which candidates win party primaries.  Their potential enmity cautions every incumbent to serve their interests (or risk being replaced by those who will) and thereby receive their largesse.  In the economy, the top 1 per cent continue to enjoy the massive shift of production toward them.  The “high ends” of all markets grow as “high end” suppliers rake in profits from providing the most expensive housing, vacations, transportation, restaurants, and clothing.  The lavish spendings of the rich become ever more pervasive cultural icons.  As the masses shifted to Wal-Mart, the top 1 per cent’s stock portfolios loaded up on Wal-Mart shares.  Nothing better illustrates the linkages between the bottom and the top.  The mounting distresses of the former provide yet more profit opportunities for the latter.

Between the haves and the have-nots, there are always some “think they haves.”  Many of them exist among those with incomes lower than the top 1 per cent but higher than the bottom 75 per cent.  They are the upper echelons of those who serve the top.  This quarter of the population saw little change in the share of total national income flowing into their hands between 1986 and 2005.  Instead, with mounting nervousness they watch the decline of the bottom 75 per cent and with admiring envy the consumption orgies and political self-promotions of the super rich.  The “think-they-haves” borrow their way up to taste the lifestyles of the top 1 per cent, press their children to aspire to a “good hedge fund job,” and comfort one another with assurances that economic change is inherently positive from now on.

Rumbling ominously beneath the new century’s widening income inequalities are fissures likewise widening.  The hedge funds’ wild profits — which made so many of the top 1 per cent so rich — required pushing mortgages on those too squeezed at the bottom to make their monthly payments.  Global and US deregulations fostered rose-colored over-valuations by rating companies of the new securities backed by these questionable mortgages.  Thus, the new super rich in the US made billions by palming off unsafe securities on their counterparts across the globe.  Now, as the super rich everywhere seek to escape from the deluge of losses and recrimination as their unsafe investments collapse, the house of cards they constructed trembles.

The arrival of new aspirants (in China, India, and so on) — wanting entry to the top 1 per cent — also shakes the world.  It creates additional resource demands — from the world’s mines, lands, oil and gas wells, food and water supplies, and much else.  Discovery, exploitation, and competition for scarce resources become more urgent and desperate.  The new aspirants want to change or else disengage from and so undermine the old global economic arrangements built on existing markets, the World Bank, and the IMF and favoring above all the central role of the US economy and its currency.

Mounting pressures produce major social changes, major population movements, and major national and international conflicts.  Diverse groupings of people seek to cope with, survive, or profit from rapid as well as profound change.  What trend might the widening income inequality in the US portend in the global context?  A global top 1 per cent and its attendant top 25 per cent of upper echelon servants are emerging, seeking to get into a position like that of their counterparts in the US income distribution.  That may spell a relative decline of the lower 75 per cent of the US distribution.  Raising the top quarter of the global income distribution toward US standards may very well cost the bottom 75 per cent of the US income distribution a deterioration toward global standards.


Rick Wolff Rick Wolff is Professor of Economics at University of Massachusetts at Amherst. He is the author of many books and articles, including (with Stephen Resnick) Class Theory and History: Capitalism and Communism in the U.S.S.R. (Routledge, 2002) and (with Stephen Resnick) New Departures in Marxian Theory (Routledge, 2006).



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