Are you working harder just to stay in the same place economically? If so, welcome to the crowd.
Among prosperous nations, America is unique in favoring the rich and slamming the middle class. The ratio of the average income of our richest 10 percent to that of our poorest 10 percent is higher in the U.S. than in any other prosperous nation. The same is true of the richest and poorest 20 percent. As measured by these ratios, the income disparity of most other advanced nations is about half of ours. And the U.S. finishes last among prosperous nations in the United Nations’ index of income equality.
This disparity has widened recently. The richest 1 percent took home 9 percent of the national income in 1976, but now take home 24 percent. As documented in Nobelprize-winning economist Paul Krugman’s excellent book “The Conscience of a Liberal,” inequality is now back to where it was during the Roaring ’20s, heyday of the rich and powerful.
By 2007 our wealthiest 10 percent pulled in 50 percent of total U.S.
wages, a level that even surpasses the 1928 peak of the 1920s stock market bubble.
The fortunes of most Americans improved enormously during 1950 to 1980, when the average income of the bottom 90 percent improved from about $18,000 to $31,000 (in constant 2008 dollars), essentially creating America’s middle class. But then it stopped. Since 1980 the economy has continued its steady growth, but only a small rich fraction of Americans has benefited.
The real income of the bottom 90 percent has remained essentially levelduring the 28 years from 1980 to 2008. The only group whose income has increased since 1980 is the top 1 percent. The top 0.1 percent saw a fivefold income rise.
What caused these dramatic turns of events for the middle class, from economic improvement from 1950 to 1980 to stasis and widening dominance of the rich from 1980 to 2010? As Krugman shows in detail, it’s mostly about taxes. During the 1920s, the top income tax rate was only 20 percent.
During 1932 to 1940, under Franklin Delano Roosevelt, this rose to 79 percent. Lest you conclude that such rates prevailed only during Democratic presidencies, the top rate reached 91 percent in 1955, during the Eisenhower years, and remained at 70 percent or higher until 1980 - through the Nixon and Ford administrations. This caused wealth to become less concentrated: The richest 0.1 percent owned 20 percent of the wealth in 1929, but only 10 percent in 1955. No wonder FDR was viewed as a hero by workers, but as a traitor by many of his own rich class.
The Barry Goldwater candidacy in 1964, while dismally failing to elect Goldwater, ignited a new breed of “movement conservatives” that eventually led to the 1980 election of Ronald Reagan, followed by Bush the first and, later, by Bush the second. A major goal of this movement has alwaysbeen to reduce taxes on the rich, a goal that was achieved in spades by 2006 when the top tax on income had dropped to 35 percent (from 70 percent in 1980).
We see the consequences all around us, for example in the relative incomes of CEOs versus workers in the nation’s leading industries.
In 1969, for example, General Motors’ CEO earned $4.3 million (in 2008 dollars), while GM’s production workers earned an average of $40,000 - a ratio of more than 100 to 1. That might seem like a lot, but consider today’s Walmart, whose CEO received $23 million in 2005 versus an average $18,000 for non-supervisory employees, a ratio of nearly 1,300 to 1. According to a Federal Reserve study of 50 top U.S. corporations, CEOs earned 40 times more than their averageworkers in the 1930s, but 370 times more than their average workers in the early 2000s.
With the lion’s share of the nation’s economic growth since 1980 going to a wealthy minority, it should be a no-brainer for Congress now to rescind the tax cuts conferred by Bush the second on couples earning over $250,000 per year in order to help pay down our national debt. But thanks to extreme conservatives, Republicans are insisting on preserving tax cuts for the rich in return for allowing an increase in the national debt ceiling.
Since 1980, cutting taxes and then exploiting the resulting deficits to demand cuts in social spending has been the Republican strategy for shrinking social services and enriching the already rich. Since 1980, middle Americans have gotten a raw deal. It’s time they wised up.
ART HOBSON IS A PROFESSOR EMERITUS OF PHYSICS AT THE UNIVERSITY OF ARKANSAS.
Opinion, Pages 15 on 07/24/2011