Since the 1970’s, one of the clearest, most consistent economic trends in the United States has been the increase in income inequality. Income inequality refers to the concentration of wealth among the richest members of society. Following postwar expansion in the United States, the American economy has seen a steady rise in income inequality. The only time period that has seen such a strong rise in economic inequality is the post-World War I period, which preceded the Great Depression.
The increase of more recent years, however, has lasted significantly longer, and shows no signs of stopping without government intervention. While some attribute this to things such as globalization, the rise of information technology, or sheer meritocratic reasons, this increase in income inequality threatens not only the survival of the middle class but the very stability of the American economy.
In recent years, the degree of income inequality in the United States has reached extreme levels. This began about three decades ago. As Paul Krugman put it, “In the 1980’s… economists began documenting a sharp rise in inequality. A small number of people were pulling ahead, while most Americans saw little or no economic progress” (Krugman 1). Currently, the richest 1% of Americans now own more wealth than the bottom 90% (Kristof 1). This degree of income inequality of staggering.
The free market gives more market power to those with more wealth. Thus, currently the richest 1% of Americans hold more power over the market than the bottom 90%. Elizabeth Hinson-Hasty identifies the seriousness of America’s economic inequality problem here: “Today, the U.S. is ranked 41st in terms of the distribution of family income (the 2007 CIA estimate of the U.S. Gini index was 45). Countries with comparable levels of inequalities in the distribution of family income include Cameroon, Madagascar, Rwanda, Uganda, and Ecuador” (Hinson-Hasty 1).
The fact that the United States is comparable to third world countries with regard to economic inequality is not only conducive of a weak economy which takes advantage of its poorest citizens, it is a national embarrassment. The system which the United States is currently operating under results in a market system which is skewed to favor a small minority of extremely rich individuals, rather than one that works for the majority of working people. And statistics show that this trend is only showing signs of worsening over the coming years.
The current trend of rising income inequality is likely to continue to get worse if action is not taken. Given how severe income inequality already is, the results of it getting worse would be massive. The strong likelihood of inequality worsening is represented by the way in which economic growth has been distributed in recent years. According to Nicholas Kristof, “in 2010, 93 percent of the additional income created in America went to the top 1 percent” (Kristof 1).
In contrast to the two decades before 1970, when the incomes of these three groups grew at virtually identical rates, economic growth over the next four decades failed to lift all boats. In 2010, family income at the 20th percentile was more than 25% lower than the inflation-adjusted corresponding family income in 1970. In contrast, the real incomes of families at the 80th percentile grew by 23% to $125,000 over these four decades, while the incomes of the richest 5% of families rose even more. (Duncan 1)
This shows that the majority of growth in the economy has gone to the richest. This also counters the common argument among skeptics that income inequality poses no problem, as rising economic growth will raise everyone’s standard of living. In fact, the vast majority goes to the wealthy, while most of society sees a relatively negligible share of the economic growth. Michael Nau comments on one possible explanation for the unequal distribution of economic growth here: “One driver of inequality that has been critical to the concentration of income among elites: income from investments. As they have turned to their investment portfolios for income, economic elites have become less reliant on the returns to labor” (Nau 1).
The extremely wealthy now see their incomes rise even without having to work. This shows that economic inequality is a problem having to do with the American economic system being skewed toward the rich rather than one which is caused through the labor of the rich being valued more highly by the market, as many of those who are skeptical of the problems with inequality would argue. As the rich see their incomes grow, the rest of society has seen their incomes stagnate, as cost of living and unemployment rise and the government programs on which they have come to rely are cut in favor of tax cuts for the very people benefiting most off of this system.
The effects of income inequality go beyond stagnating wages for the middle class and worsening plight for those living in poverty; income inequality threatens the very stability of our economy. The American economy is driven by consumer spending, and the majority of this spending is done by the middle class. The middle class and poor spend a considerably higher portion of their income on consumer goods, which stimulates the economy. This explains why the rampant income inequality which we see today has correlated with a particularly slow recovery period after the worst recession since the Great Depression.
Joseph Siglitz identifies the effects of income inequality on the recovery here: “There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth” (Stiglitz 1). Stiglitz’s comments address one of the main arguments of income inequality skeptics. The skeptics often argue that while the rich now own considerably more wealth than their less well off counterparts, increased economic growth lifts everyone’s standard of living. Stiglitz suggests that income inequality in fact slows the growth the skeptics believe will raise the incomes of all people across the socioeconomic spectrum.
Another negative effect high degrees of income inequality has on the economy at large is the worsening of financial crises. To see this, one need look no further than the economic trends of last hundred years in the United States. Stiglitz states, “It is no coincidence that the 1920s — the last time inequality of income and wealth in the United States was so high- ended with the Great Crash and the Depression” (Stiglitz 1). Clearly high degrees of income inequality tend to precede financial crises, as similarly high inequality preceded the 2008 recession. Furthermore, years of less extreme inequality have typically been the most economically stable; the 1950’s and 1960’s were characterized by relatively low income inequality, quite strong economic growth, and sustained financial stability in the United States.
As economic inequality has risen over the past four decades, the opportunity necessary for the less well off to climb the social ladder has also become more scarce. Americans tend to believe that everyone should have the opportunity to climb the social ladder, even if they are unsuccessful. One major factor contributing to the lack of opportunity we have seen in recent years is the education system. Along with income inequality, America is now seeing strong differences in the quality of education a child receives depending on their socioeconomic standing, even in public schools. This is, in part, caused by income inequality.
Duncan identifies this relationship here: “Rising income inequality has placed great strains on the decentralized American approach to public education” (Duncan 1). The American “decentralized” system of education puts most of the responsibility of funding schools on localities. As different localities become less economically diverse, the disparity in funding between these schools grows. Likewise, schools in rich neighborhoods afford students far more opportunities than those in poorer communities. The most important idea that this points out is that in this economic inequality is not only a result of lack of upward mobility, it fosters more upward mobility.
Increasing income inequality jeopardizes the upward socioeconomic mobility that has long held our pluralistic democracy together. Improving educational outcomes for children growing up in low-income families is therefore critical to the nation’s future and requires a combination of policies that support low-income families and measures to improve the quality of schools that low-income children attend (Duncan 1).
The policies Duncan proposes make sense; they would allow for those born into the bottom of the social ladder to climb up, and uphold the capitalist idea of meritocracy, often glorified by conservatives, at least in principle. But the policies advocated for by a large part of the political elites are inherently opposed to his goal of supporting the education of children from low income families.
Conservatives would certainly take issue with the idea that education should be expended for low income youth, as it would be a waste to spend valuable education funding on children who will likely drop out or never use the education they receive. This neglects the social reality that the reason drop out rates are so high among low income youth is that they’re schools are underfunded. Along with education, government assistance programs can help people living in poverty acquire the skills necessary to move up the social ladder.
Skeptics of both the moral and pragmatic problems with the levels of income inequality we see today will often cite the lack of work ethic amongst the poorest in society as the major factor driving their low standard of living. It has become common today to dismiss the plight of the poor as a just effect of the perfect meritocracy many claim we have today. This is not only insulting and prejudicial, it is ill-contrived.
In a study for the National Center for Policy Analysis, David Henderson found that there is a big difference between families in the top 20 percent and bottom 20 percent of the income distribution: Families at the top tend to be married and both partners work. Families at the bottom often have only one adult in the household and that person either works part-time or not at all. (Goodman 1)
The first problem with his argument is it assumes the common neoliberal idea that anyone who wants a job can find one. In fact, as I identified earlier, the rise in income inequality we have seen recently has resulted in a decrease in consumer demand, which in turn increases unemployment, especially among the minimally skilled workers living in poverty.
Furthermore, it ignores the fact that many people in poor neighborhoods often received a quality of education far worse than the well off, merely for being born into underfunded school districts. Ultimately, those in poverty are living in a society in which they are set up to fail, called “moochers” and “parasites” when they rely on government programs to feed their families, and watch their children enter the same broken education system that trapped them in their socioeconomic demographic, all while the investment portfolios of society’s wealthiest individuals get larger by the day.
America has, since its advent, been known as a Mecca for those who have been trapped in the endless cycle of poverty by social structures. A place where a government for the people and by the people would work toward the common good. In recent years, however, the common good has been brushed aside to make room for the market orthodoxy and cronyism advocated for by the landed gentry. Education for those who need it most, the poorest in society, has become a mere formality, as economic segregation causes schools in America’s poorest neighborhoods to be grossly underfunded.
The government assistance programs which previously helped individuals lift themselves up from poverty have been gutted. Instead, we’ve seen the funds allocated for education and government assistance used to provide massive tax breaks and exemptions for the wealthy. Beyond being objectively immoral, this is harmful to the American economy. The American economy thrives on an ever expanding middle class, lifting the least fortunate in society into it. Instead, the middle class is currently at a stand still, and the opportunity for the least fortunate to lift themselves into it seems nonexistent.
In this way, America has abandoned its most important ideal. America has always attracted those who were forgotten by their respective plutocracies. However, in recent years, America has become a plutocracy of its own. The evidence available shows that we are losing the opportunity that made us the wealthiest nation on Earth. And losing this opportunity not only means potentially catastrophic economic consequences, it means losing what we once knew as “The Land of Opportunity.”
