7.26.2014
In the United States the wealthiest 1 percent of the population owns roughly 34.3% of the nation’s net worth, and the wealthiest 10% owns over 71%. The bottom 60% of households possess only 4% of the nation’s wealth while they earn 26.8% of all income, and the bottom 40% of the population owns 0.2%. What do these statistics mean? It means that over half the families in America are living hand to mouth, week to week. No matter if their income comes from one or more paychecks, disability, welfare, unemployment or whatever, there is no extra money. There is no retirement fund, no emergency savings, no hope for paying for a better education for their children. It is absurd that this kind of wealth disparity exists in the greatest country in the world. The control of so much wealth by so few individuals gives them the power to control the government by controlling politicians, and consequently controlling the lives of the citizens. This can be economically destructive to any society and as dangerous to freedom as any form of terrorism or tyranny.
It is absurd that the wealthiest country on this planet has a disparity in income between its richest and poorest citizens that resembles a Third World nation. Income inequality is the major problem that prevents most Americans from achieving the elusive American dream. There was a time in this country when any hard-working citizen was able to earn a decent living for himself and his family, regardless of the job he did. In today’s global economy it has become more and more difficult for the average working American to achieve a middle-class standard of living. America is quickly losing its middle-class, and the growing problem of income inequality facilitates class separation in our society.
A large and prosperous middle class is necessary for America to support an active and growing economy. Without a prosperous middle-class the United States cannot create a large enough economy or generate enough taxes to maintain a secure and flourishing lifestyle for its citizens. Without a middle-class that is economically secure the United States will fail both as a country and as an economy.
Yet the rich continue to get wealthier as the rest of America gets poorer. The 400 richest Americans are now worth a combined $2 trillion, according to Forbes. It is more than the GDP of entire highly developed countries such as Canada, Mexico, Italy or others. $2 trillion is more than the combined net worth of half of all Americans. This means that the poorest 160 million people in America have less total combined resources than the richest 400 U.S. citizens. This is a wealth ratio of 400,000 to 1. This is beyond the wildest dreams of the robber baron industrialists of the middle 1800′s. This is what the American Revolution was fought over, the ownership of massive amounts of wealth by a few self appointed royal families. When there are 400 people that control more wealth than 160 million fellow human beings in the most prosperous country on earth, there is something drastically wrong. A country based on freedom, liberty and equality cannot continue to be economically strong if it does not have a prosperous working class, yet we continue to watch as an ever growing number of our citizens fall into poverty.
Yet the disparity in wealth does not stop there. Between 1978 and 2011 the average CEO’s pay went up 725 percent while the average worker pay rose just 5.7 percent, according to a study by the Economic Policy Institute. That means CEO pay grew 127 times faster than worker pay. Income inequality between CEO’s and workers has consequently exploded, with CEOs in 2012 earning 209 times more than workers, compared to just 26.5 times more in 1978.
Between 1971 and 2011, the proportion of middle class households declined from 61 to 51 percent, and their share of total income decline from 62 percent in 1970 to 45 percent in 2010. After accounting for inflation, right now 40 percent of all U.S. workers are making less than what a full-time minimum wage worker made back in 1968. In the 2 year period of 2011-2012, while America was recovering from the worst economic blow since the Great Depression, the average pay for a CEO went up over 40%, while inflation adjusted wages for the average worker has dropped over 4%, unemployment and underemployment have exploded and homelessness and dependency on government social welfare programs has skyrocketed.
Individual and corporate greed are not the only contributing factors to income inequality. In fact, they are almost a by-product of the underlying reasons. Other contributing factors are outsourcing of jobs, loss of jobs to technology and automation, lack of an educated work force for current technologies, an influx of cheap labor due to uninforced immigration laws and the global economy that facilitates the American consumer’s appetite for less expensive foreign-made merchandise. All of these factors have taken their toll on the American middle class and the earning ability of the American worker.
None of these trends are going to change. We’ve now created a global economy that facilitates the outsourcing of many jobs to developing countries where wages are much lower. Millions of manufacturing jobs that have not been replaced by robotics and technology have been outsourced to other countries. It appears that the day of the well-paying job for the unskilled worker is a thing of the past.
Thanks to technology, companies in the Standard & Poor’s 500 stock index reported one-third more profit the past year than they earned the year before the Great Recession. They’ve also expanded their businesses, but total employment has declined.
Worker Productivity v. Real Family Income
In the United States, half the 7.5 million jobs lost during the Great Recession were in industries that pay middle-class wages, ranging from $38,000 to $68,000. But only 2 percent of the 3.5 million jobs gained since the recession ended in June 2009 are in mid-pay industries. Nearly 70 percent are in low-pay industries, 29 percent in industries that pay well.
The Fast Food Industry and the Effect of Low Wages
Technology is taken as many or more jobs as outsourcing. Robots are more efficient and less expensive than human labor. To compound the problem unenforced immigration laws Have provided many industries with a labor force that will work for wages far lower than your average American worker can afford to live on. Add to that the general poor quality of a public education in America along with the high cost of a college education and the employment situation appears bleak for the average American worker.
So the next question is “are there any real answers to these problems?”. Unfortunately any solutions are very complex and may be very painful most Americans. The jobs we have lost to technology and automation are not coming back, and many more jobs will be lost in the coming decades. Outsourcing will continue as developing countries move into the 21st century and their workers become better educated and more technically able. The influx into the United States of cheap labor is not going to stop and the cost of education is going to continue to rise. As our disposable income continues to drop we will continue to purchase less expensive foreign-made goods.
One part of the solution may be to raise the minimum wage. The reason trickle down economics was marginally effective in the 1950’s through the 1970’s was because we had a prosperous and well-paid middle-class that was the conduit for wealth to trickle from rich individuals and prosperous corporations through the middle class and the service industry to the low wage workers. This allows many of the lower class to make more money and move into the middle class, and allows many of the middle class to improve their economic position as well. With the huge losses of middle-class wage earners we’ve lost the ability for money to trickle, so trickle-down is no longer a viable economic concept.
By contrast, wealth redistribution by taxation has never worked in any economy. Taxes are a necessary part of running any developed country, but are a poor means of bringing prosperity to the average working man. When you take money from one person and give it to another, neither one has an incentive to be productive. Anytime wealth is redistributed through taxation it requires either creating a new government bureaucracy or enlarging and existing one. This is counterproductive to the need to streamline government and spend money effectively. Another negative effect of wealth distribution through taxation is that it makes people dependent on the government. This is also counterproductive to the need to create and strengthen a prosperous and growing middle class.
Collective bargaining and Union participation in labor negotiations will need to play a critical part in bringing back the middle class. It is common knowledge that employees that are represented by unions generally have far better wages, better benefits and better working conditions than non-union workers. As union membership has decreased over the last century are middle-class has decreased as well. This is not a coincidence. Higher union wages forces non-union shops to raise their wages to compete for skills and talent. Good wages and benefits are necessary for the wealth of any society to be distributed fairly among the members of that society.
Another part of the solution would be to educate our existing workforce and the next generation so they have the skills to deal with tomorrows technologies. This will require affordable and easily accessible education and training. This may require that we as a society completely rethink our education system. At the very least we need to streamline our existing education facilities while increasing funding and tightening budgets simultaneously. This complex scenario will require raising taxes for funding, reducing costs through the use of technology and eliminating unnecessary expenditures within the budgets.
Corporate social responsibility will be a necessary part of any major economic recovery this country will make. Corporations exist primarily to make a profit for their shareholders, yet they must realize that this world and our society are not that simple. In order for this country to recover its economic greatness and generate an economy that can pay off our national debt and secure the future for our children it will be necessary for corporations to treat their employees as well as they treat their shareholders. Our CEO’s must realize that the American worker needs to make a good living wage if America is to prosper. The same should be said for all the extremely wealthy, those who have profited most from the greatest economy in the world. One term I have heard for this is “economic patriotism“. That is a logical term, as it implies that supporting the economy and government that you benefit from is the correct and patriotic thing to do. It sometimes amazes me that the same talking heads on conservative media that preach patriotism to the average American also continually preach the right of corporations and the wealthy to make as much money as possible with no social responsibility to their fellow Americans and no patriotic duty to their country.
Another possible part of the solution could be enforcing higher tariffs on foreign-made goods. America is the world’s greatest consumer and it only seems fair that we should protect our workers, jobs and wages. Access to the American consumer should be a privilege for other countries. Part of the reason for our trade deficit is that our tariffs are very low compared to most other countries. There was a time when America could afford this, but that time is past. We can no longer support the economies of most of the world at the expense of the American worker. If foreign manufacturers want access to our markets then they can pay a fair tariff for that right. This would protect jobs and raise badly needed funds to educate our workforce.
Perhaps the most complex part of this issue is the effect of illegal immigration on working-class wages. While the overall long-term effects of immigration benefit this country the negative effects of illegal immigration cannot be overlooked. One of the net effects of illegal immigration is the influx of a large workforce that is willing to, or perhaps forced to, work for wages that are lower than the existing norms of that society. This puts an overall downward pressure on wages that tends to result in reduced earning power for all jobs, and primarily the lower and medium skilled jobs. At the same time these under paid workers are forced to use government social services for basic needs. These programs are already unable to properly serve the existing citizens of this country, much less to fill the needs of millions of immigrants. There is no easy solution for this issue. The problems and possible solutions concerning illegal immigration are discussed on the illegal immigration page of this website.
If our Congress and our president can find a way to deal with these issues we can bring economic prosperity back to the American middle class. The answer does not come from either side of the aisle specifically but will require concessions by both parties. It will require that our lawmakers put aside their party differences and their obligations to entities other than the American people. To solve this problem it will require that all our lawmakers come to the middle and do what’s best for this country and for the American working class.