Tuesday, June 12, 2007


A Discussion Of Income Inequality

Here are links to an article in The New York Times about income inequality and to a rejoinder to that same article from Barbara Ehrenreich in The Nation. To be fair, the Times article is ambivalent at best. It cites the familiar figures. Real income has increased only 2 percent for those in the lowest fifth in income, 11 percent for the next lowest fifth, 15 percent for the middle fifth, 23 percent for the second fifth from the top - and 63 percent for the top fifth. In 1979 the top percentile earned 9 percent of all income - now it earns 16 percent. These are numbers that no one can afford to ignore.

The author acknowledges that income inequality between the rich and the non-rich has widened dramatically since the 1970's. Indeed, it is greater than at any time since the 1920's. However, he implies that what we consider a historical norm - the relative economic equality among the classes - was, in fact, caused by a confluence of historical forces that occurred by chance. The Great Depression, World War Two and the strong unions of the postwar period had the combined effect of wiping out many existing fortunes, creating a trade imbalance in America's favor, thus "floating all boats" economically, and safeguarding the welfare of American workers, many of whom had helped create the new world order by winning the war. Executive salaries remained reasonable during this period, due to old notions of propriety as well as to the influence of unions, tax codes and other institutional checks on excessive compensation.

Despite the relative income equality of the 1970's, the author contends that the economy was far from healthy. He likens the economic stagnation of America in the 1970's to the welfare states of Western Europe, like that of Belgium, in which the poor have far more of a safety net than they do in the United States, but where the average net income is 72 percent of what it is here. The 1970's were a period of high unemployment and stock market depression. Corporate boards began to offer stock options and other incentives to executives to help enhance performance. Downsizing and restructuring were also applied to rejuvenate corporate bottom lines at the expense of workers. The corporations and the stock market both became more profitable. Even unemployment was reduced. But wages stagnated and the economic security of ordinary people suffered nonetheless. Although the author admits that corporations have gone too far in providing incentives to its executives, he still concludes that excessive compensation for those at the top is irrelevant if at least some of the overall prosperity reaches the masses, however disproportionately. He ignores the fact that surplus wealth has to come from somewhere, usually from the pockets of others.

He closes the article by suggesting that Americans return their focus to getting a college education, as the highest increases in income have gone to graduates of colleges and professional schools. Ironically, this brings us back to the beginning of the article, where the author cited the devaluation of a college education in the job market of the 1970's, during which the real income of white collar workers began to drop and many college graduates went unemployed. Some economists of that period had hoped that the economic value of white collar workers would rebound over time, when in fact it has continued to plummet. The spectre of this trend undermines his closing argument. True enough, those with more degress earn more, but even their share of the pie is getting smaller and smaller. The plight of most Americans is like that of movie characters trapped in a tower that is quickly filling with water. You may not be able to escape, but at least you can put off your demise for a while by climbing higher up the ladder. Unfortunately, life is not a movie and rescue is not assured.

Read the Times article, then read Barbara Ehrenreich's response, and decide for yourself whose insights are the most urgent.

"The Inequality Conundrum" from The New York Times Magazine
"The Trouble With The Super-Rich" from The Nation

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