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The gap cannot be ignored

mckee

Personal income as a percentage of GDP is continuing to shrink, despite the general growth in the economy and employment.

What makes this decline particularly distressing is that during the same period, corporate profits have been burgeoning and executive compensation – particularly CEO compensation – has been skyrocketing. It does not take a CPA or math whiz to figure out who is getting squeezed.

As the graph in the margin demonstrates, only those within the top 20% have enjoyed any real increases in incomes in the years since 1979. The bottom four lines represent the four quintiles of the rest of the population. The actual average incomes within each of the four quintiles of this bottom 80%, when measured in actual buying power after consideration of inflation, are declining.

In the post WWII years from 1945 to 1980, incomes at all levels grew rapidly and at roughly the same rate up and down the income ladder. The recession of 1973-1975 marked the end of the post-war growth, and with the recovery from this recession, the disparity between the top 20% and the entire rest of the country began to widen.

With the advent of the Reagan era in 1980, government policies towards the economy changed. The government shifted from its reliance on Keynesian economic theories and turned to the so-called supply-side goals of maximizing production and profits. The theory was that if the owners and shareholders were recognizing maximum profits on maximum production, the gains realized would “trickle down” to the wages and salaries of the workers.

Unfortunately, it did not work that way. Where maximum profit is the goal, every cost becomes target, and with no disincentives to protect the labor class, their wages and salaries are on the block. Total incomes of the upper 20% of the workforce began to explode in the middle 1980’s and continues to skyrocket today. The bottom quintiles flat-lined and have enjoyed essentially no part of the economic growth sustained in the last 30 years. The only real beneficiaries of the tremendous growth in the U.S. economy have been essentially the professionals and highly talented, the owners and their top executives, and the shareholders. Everybody else is falling behind. Everybody.

The middle class, which at one time was the thriving bulwark of our society, is vanishing. We have reached the point now where fully half the population lives in a low-income status, many at or below the poverty line. And this trend is continuing to worsen. Since 1980, incomes within the middle and lower ranges slowed sharply or receded. The U.S. was ranked 6th from the bottom of the 173 countries in the free industrialized world in terms of income and wealth inequality.

The wealthiest 1% now own about 40% of the total wealth – a share higher than at any point since 1962. There is more wealth in this 1% than in the bottom 90% combined. And it is continuing to widen.

The owners, shareholders and consumers are well protected and taken care of, both by market forces and government regulation. Only the labor end of the economy is totally out in the cold economically. Market incentives are really available only for the well-educated, the highly skilled and the exceptionally talented. The ordinary worker has, in essence, been abandoned.

The Republicans have buried their heads in the sand to sing the praises of unfettered free-market capitalism. They view with disdain any efforts at government intervention, labeling such as “liberal” causes, which they equate to socialism, and insist that all such should be eradicated. Socialism is considered to be a form of totalitarianism, a failed experiment, unworkable in any society that values individual incentive and innovation. Any concept of rebalancing the wealth of the country is considered the pinnacle of liberalism and socialistic thought, meaning that any aspect of this concept is a complete anathema to the coveted ideal of free market capitalism. Compromise has become unthinkable.

Too many Democrats have also buried their heads in the sand to avoid any attempt to confront these issues head on. They have allowed the Republicans to define the term ‘liberal” and to then equate it to the equivalent of a nasty, four-letter word. The Democrats then run away from any attempt see such a label attached to their efforts or campaign beliefs.

Despite the fact that every other industrialized nation in the free world embraces some modified version of socialism, or at least utilizes socialistic devices to the benefit of their populations in some areas, too many Democrats seem to agree with the Republicans, and continue to act as if “socialism” at any level or in any form is a poisonous concept, not even to be discussed as an appropriate solution for any problem facing our world today.

This means that the concept of income or wealth redistribution cannot be mentioned in polite society today by anybody. The Republicans refuse to discuss it at all, and the Democrats are afraid of the liberal label that might be attached to any meaningful efforts if they bring it up. The result is an empty void over what may be the most crucial social and economic issue of our day.

What should be becoming painfully obvious is that some level of government intervention is going to be needed to reverse the trend of an economy that is rapidly transferring all wealth to the very rich. It is the essence of what is essential. The hands-off approach is only making it worse.

There are a variety of remedies to the issue of inequality of wealth, and plenty of room for debate on most of them. They run from steps to reinvigorate labor unions to increasing the availability of higher education and post-high school training to reactivating a national minimum wage to imposing maximum ratios on compensation to enacting various tax incentives to encourage diversity. There are undoubtedly more ideas that could be explored.

What must happen is recognition by both parties that (1) something must be done and (2) the solution is a legitimate area for government intervention or assistance. This should not be a partisan issue. This is the survival of the way of life as we have grown accustomed for everyone. Both sides must commit to a diligent search for acceptable and effective remedies if we are to reverse the distressing trends that are becoming increasingly obvious.
 

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