Rising American economic inequality has received attention
from Senator Jim Webb, presidential candidate John Edwards, CNN�s maverick, Lou
Dobbs, and others.
The middle class has not shared in rising national
prosperity, because the nation�s wealth has been siphoned off to the richest
Americans. Some elites are nervous. They have attacked what are pejoratively
called �neopopulists� -- people who say the middle class is under siege.
Surprisingly, the attacks and economic propaganda have come
from the relatively unknown Third Way group that is associated with the
Democratic Leadership Council. Why would self-proclaimed progressives and
centrists put out a report that says the whole economic inequality story is
They favor continuation of the free trade globalization
policies of recent Democratic and Republican administrations. They want no
restraints on international trade, despite mounting U.S. trade deficits and
loss of manufacturing and many professional jobs to low wage nations. Of Third
Way�s 18 board members, 14 are current or former CEOs or investors, including
several hedge fund managers and the co-head of global equity trading at Goldman
Third Way�s report �The New Rules Economy� uses sleazy
statistical tricks to create a false image of rising economic prosperity for
middle class Americans. You know the group is full of crap when the
intellectually bankrupt New York Times columnist David Brooks praises its
findings. Anyone who believes this report�s data and conclusions is either in
the upper class or is just plain gullible. The report argues that the middle
class is not stagnating, not drowning in debt, not being victimized by free
trade. Is this your reality?
Federal Reserve Chairman Ben Bernanke said recently that
incomes at all levels are rising; it�s just that incomes at the upper end are
rising much faster. Minor increases for the many are not the same as staggering
increases for the few. And that�s what economic inequality and injustice are
An expanding upper class does NOT mean that those below that
class are doing equally well. Between 1979 and 2005, the percentage of the
prime wage-earners ages 25 to 59 earning more than $100,000 in
inflation-adjusted dollars grew by nearly 13 percentage points. But the overall
population grew by more than 30 percent. So the lower class is expanding more
rapidly than the upper class and they are not getting the increases in wages
and benefits that they deserve.
Third Way removed lower and higher age Americans and
non-married households from their data to emphasize the median income of
married-couple households at more than $72,000, up 22 percent from 1979 to 2005
when adjusted for inflation (and not that impressive for 25 years). If both
work outside the home it is $81,000. Guess what? Fewer than half of American
households fit the married couple category, and even fewer in the prime
wage-earner class. If you include the many unmarried households in this age
range the median drops to $61,000. If all households are counted, the median
drops sharply to just over $46,000.
Note that median wages for men
are lower today than they were in 1973, and even total compensation, including
benefits, is lower than it was in the late 1970s. And median incomes of high
school graduates in general have declined a lot. For college graduates, median
hourly real wages are up just 10 percent over 30 years!
The report dismisses the staggering increases in household
debt by invoking higher home values. This of course ignores the housing bubble
effect that has created delusional home equity wealth.
There is another reality check. Local geographic or regional
economies determine whether a $72,000 or even $81,000 household income is
really that good. Compared to 25 years ago, for example, there are incredibly
higher housing costs in many places, high costs for two workers commuting long
distances between jobs and affordable homes, much higher health insurance and medical
costs, remarkably higher college costs, and other rising expenses that never
seem to be captured by the government�s official inflation figures.
Listen to Turley K. Hayes of Topeka, Kansas -- a relatively
low cost of living area: �I earn a gross income of $81,000 and support my
disabled domestic partner. My NET income from this (after taxes, insurance,
Social Security, Medicare, co-pays for medical) is down to $46,435. My partner
and I live paycheck to paycheck, as prices have risen. The �money� specialists
say we haven�t had inflation. Tell that to me after I go to JC Penney and buy a
new pair of work shoes, identical to the ones I bought last year, and pay
$21.34 more (and that was after a 10 percent discount coupon). There is
inequality, those at the low end can get help, those at the high end don�t need
it. Those of us in the middle are suffering because we make too much to get
help and not enough to save for anything.� But that schmuck David Brooks tells
the world that such household incomes are just fine. How many households below
the median income can afford to send a child to even a state college and also
save for retirement, because virtually no one gets a pension anymore?
As to economic inequality: Adjusted for inflation, wages
rose about 11.5 percent from 1979 to 2006 for those at the median. Those near
the bottom of the wage scale saw their pay rise just 4 percent during that
time, while the incomes of those at the top rose 34 percent. That�s unfair
distributional economics. If you are in the upper class, you could care less.
But most Americans feel economic anxiety, because direct experience tells them
that they are close to -- or moving closer to -- economic disaster. They are
just one serious illness or job loss away from requiring government welfare
assistance, losing their homes, and going bankrupt.
It pays to be rich. In 2004, just about 25,000 taxpayers
took home over $5 million. They paid an average 21.9 percent of their incomes
in federal income tax. Back in 1952, at the height of the Korean War, the
comparable federal tax bite on America�s richest 25,000 averaged 51.9 percent.
About a decade earlier, in the middle of World War II, the 25,000
highest-income taxpayers paid 68.4 percent of their incomes in federal income
tax. Public policy has helped the rich because the rich have shaped public
True, Americans generally have many more possessions than in
the past. But that results from all household adults working -- and usually
longer hours on the job and at home -- than in the past. Is this progress?
Economic data say little about quality of life. American insanity is that
people are driven by advertising, easy credit and pop culture to consume
compulsively even if it means increasing personal risk through excessive
borrowing. The visibility of the upper class causes 80 percent of the
population to fantasize that they, too, can become rich. But the odds are
against that. More realistic is sinking into poverty during their work years or
when they retire without a good pension and with uncertain Social Security.
The Third Way�s report and status quo power elites love to
say that more education is the solution. Is this another lie? Americans have
become more educated. In 1970, the National Center for Education Statistics
reports that only 75 percent ages 25-29 had completed high school. In 2004,
that increased to nearly 90 percent. Similarly, in 1970, only 16 percent of
Americans in their late 20s held a four-year college degree. By 2004, that
nearly doubled to 29 percent.
Something else doubled since 1970: the share of national
income that goes to America�s richest 1 percent. The share going to average
Americans, by contrast, has dropped. Average Americans in the bottom 90 percent
of the nation�s income distribution took home 67 percent of U.S. income in
1970. This dropped to only 53 percent in 2004, despite higher education levels!
It continues to drop. Education does not necessarily work. Why?
Education doesn�t determine how income and wealth get
distributed. What does? Politics -- or more correctly corrupt politics -- does.
Many political decisions -- taxes, trade, labor rights, health care,
regulations, banking, privatization, farm subsidies � have tilted income and
wealth to the top. And not just during Republican administrations. More
Americans must understand the linkage between a delusional democracy based on
corrupt politics and delusional prosperity for the masses.
The trends are clear. There really is a war on the middle
class. �We�re creating tomorrow�s poor, people who once saw themselves as part
of the middle class but financially can no longer make it there,� said
Elizabeth Warren of the Harvard Law School.
The power elites running and ruining our country have no
interest in closing the bipartisan economic inequality gap. Want to do
something? Stop voting for Democrats and Republicans that support free trade
globalization and illegal immigration. Vote for anyone in favor of increasing
taxes on the wealthy and eliminating corporate handouts and welfare. Trust true
populists. Use your consumer power: Stop pissing away your money on consuming
more unnecessary �must have� (and probably imported) crap that keeps our debt
ridden economy afloat and makes the rich richer. Start saving for that rainy
day. It�s coming for most of us. Because national prosperity is not personal
prosperity for most of us.Joel
S. Hirschhorn�s new book is Delusional
Democracy -- Fixing the Republic Without Overthrowing the
Government. He can be reached through www.delusionaldemocracy.com.