Stubborn Facts




Germany's Der Spiegel has a short informative, if disturbing, article that looks at the widening gap between rich and poor in the United States that threatens to erode the 70 years of gains made by the American middle classes that will leave the country looking more a second tier developing country in terms of wealth distribution than an advanced economy. Here are some of the alarming statistics from the article.

Four out of 10 Americans who consider themselves part of this [middle] class believe that they will be unable to maintain their social status.

In its current annual report, the US Department of Agriculture notes that "food insecurity" is on the rise, and that 50 million Americans couldn't afford to buy enough food to stay healthy at some point last year. One in eight American adults and one in four children now survive on government food stamps. These are unbelievable numbers for the world's richest nation.

The boom in stocks and real estate, the country's wild borrowing spree and its excessive consumer spending have long masked the fact that the overwhelming majority of Americans derived almost no benefit from 30 years of economic growth. In 1978, the average per capita income for men in the United States was $45,879 (about €35,570). The same figure for 2007, adjusted for inflation, was $45,113 (€35,051).

Statistically, less affluent Americans stand a 4 percent chance of becoming part of the upper middle class -- a number that is lower than in almost every other industrialized nation. (among OECD countries, only in México and Turkey does someone born poor stand less of chance of escaping poverty than in the United States)

While 90 percent of Americans have seen only modest gains in their incomes since 1973, incomes have almost tripled for people at the upper end of the scale. In 1979, one third of the profits the country produced went to the richest 1 percent of American society. Today it's almost 60 percent. In 1950, the average corporate CEO earned 30 times as much as an ordinary worker. Today it's 300 times as much. And today 1 percent of Americans own 37 percent of the total national wealth.

Because they lacked savings, Americans began borrowing money to cover all of their other expenses, including education, healthcare and consumption. American consumer debt now totals about $13.5 trillion.

Many people threaten to suffocate under the burden of their debt. Some 61 percent of Americans have no financial reserves and are living from paycheck to paycheck.

All rather grim. The Der Spiegel article doesn't go into the causes of this decline but it should be clear that this massive redistribution wealth, a trickle up and then some, is a result of policies enacted by successive Republican Administrations beginning with the Reagan tax cuts. The Reagan Administration drastically altered the wealth distribution patterns by introducing tax legislation that favored the top one percent.

If the redistribution upwards since 1981 had not taken place, if the average American family in the bottom 90 percent were today getting the same share of the nation's income as the average bottom 90 percent family received in 1973 when income distribution was much more egalitarian, this average family would now be taking home in income over $10,000 more per year. Now how many of you can use an extra ten grand?

Still to put our wealth gap into perspective, top one percent controls more assets than the bottom 90 percent. Who makes up that bottom 90 percent? Well, it is all of the poor, all of the middle class and half of the upper middle class.

In 1984 presidential campaign, the Reagan campaign ran an ad that ran "It's morning again in America, and under the leadership of President Reagan, our country is prouder and stronger and better."

It was really twilight then for the American working poor and now the cold dark of night is falling on the American middle class. Reagan also loved to say that facts are stubborn things. Well, here are some rather stubborn facts about Reagan's America:

  • By 1984, Reagan's America had the greatest gap between rich and poor of any industrialized nation. Previously Italy, the United Kingdom, South Korea, Taiwan, Germany, and Australia were all more unequal.

  • Income inequality rose substantially over the business cycle of the 1980s whether measured by the 90/10 ratio (an increase of 23.67 percent) or by the Gini coefficient (an increase of 14.17 percent).

  • The number of millionaires more than doubled between 1980 and 1988 going from 574,000 to 1.3 million.

  • In 1981 there were no more than 10 billionaires in the US. By 1986, there were 26. By the end of Reagan's term in 1989, there were 52 billionaires.

  • The top 10 percent of US households controlled over 68 percent of the wealth in the country by 1988.

  • In 1987, real income levels for the average American family adjusted for inflation matched those in 1973. Only the top 20 percent of Americans saw an increase in family income between 1977 and 1988, with the top 10th gaining an increase of about $17,000, the top 5 percent seeing an extra $31,000, and the top 1 percent with a whopping $134,000 increase. Middle-class and working Americans, however, saw declines in real income from about $600 to $1,600 in the Reagan era.

  • The level of tax paid by the top 1 percent decreased from 31 percent to 23 percent between 1981 and 1984, while their income share rose from 41 percent to 44 percent.

  • Incomes of the top 5 percent rose more than 27 percent, to about $120,000, and the highest 20 percent went up about 25 percent, to around $70,000. The next 20 percent of income earners saw a nominal rise in wealth during the 1980s, while the rest, 60 percent of Americans, saw no rise at all or, in the case of the lowest two-fifths, actually saw a decline in income and savings. In fact, income inequality rose each year of the Reagan administration, while taxes were correspondingly lowered and the national debt grew. The last President to see income inequality rise each year during his term had been Herbert Hoover.

  • Weekly per worker income dropped substantially during the Reagan years. The average American take home paycheque was $366 in 1972, by 1987 that paycheque was only $312, a 14.8 percent decline. Where the median pay for working men in 1973 was a little over $10 an hour in 1973, it fell to $8.85 by 1987. The average worker without an advanced degree might have made about $24,000 a year in the early 1970s, but by the end of the Reagan years, that was down to around $18,000.

  • Americans leisure time declined 37 percent between 1973 and 1987 from 26.2 hours per week to 16.6 hours as Americans were forced to work longer hours to maintain their living standards.

  • Another of Reagan’s enduring legacies is the steep increase in the number of homeless people, which by the late 1980s had swollen to 600,000 on any given night – and 1.2 million over the course of a year. 

  • The urban poor were the hardest hit by Reagan's fiscal policies. In 1980 Federal dollars accounted for 22 percent of big city budgets. By the end of Reagan’s second term, Federal aid was only 6 percent. In the 1980s the proportion of the eligible poor who received federal housing subsidies declined. In 1970 there were 300,000 more low-cost rental units (6.5 million) than low-income renter households (6.2 million). By 1985 the number of low-cost units had fallen to 5.6 million, and the number of low-income renter households had grown to 8.9 million, a disparity of 3.3 million units.

  • Reagan and his supply-side advisers believed that big tax cuts would pay for themselves by generating higher tax revenues through greater economic growth. It never happened. Under Reagan, the national debt more than tripled from $900 billion dollars to $2.8 trillion.

This, course of, only points to the genesis of the assault on the American middle class. The full frontal assault came during the George W. Bush era which reversed the modest gains made under the Clinton Administration. Between 2002 and 2006, an astounding three-quarters of all the growth in the US economy was captured by the top 1 percent.

One line in the Der Spiegel article did give me us trouble: "the country seems to have recognized that it is struggling with a deep-seated, structural crisis that has been building for years." I wish this were true but I don't believe that it is. If the country had recognized this fact then I don't think that they would be embracing the Republicans and preparing to return them to power.

Now here's the rub. Academic research has shown that lower levels of income inequality cause higher levels of democracy, and vice versa in a simultaneous relationship. Societies that are unequal in economic terms have a propensity to become undemocratic. As income inequality rises, the power of a wealthy elite to control the political process increases. At the moment we have just one billionaire serving as an elected official. But this cycle, we have billionaires running for office in California, Connecticut, and Florida. In the Congress, 44.3 percent are millionaires. Of the 535 voting members of Congress, 237 are millionaires. Five of these have fortunes of over $200 million.

It shouldn't surprise that we now live in political environment were unlimited amounts of money can be spent to influence the outcomes of election. In California, Meg Whitman has spend over $104 million dollars of her own money in an effort to win the governorship. With ten weeks to go, she likely top $150 million when all is said and done. In Connecticut, Linda McMahon spent $22 million to win the GOP primary. She's prepared to spend another $30 million to win the Senate seat in a small media market state. In Florida billionaire investor Jeff Greene, a Democrat, has spent $26 million in effort to win the Senate primary. In the GOP gubernatorial primary in Florida, healthcare CEO Rick Scott has spend $38.7 million so far. In August alone, he has averaged $4.7 million a week in media buys.

The other part of this equation is that as income inequality rises, the voting public becomes disenchanted with democratic governance. Over time they begin to withdraw from electoral participation. In 1968, Colombia had a more equitable distribution of income than it does today. Voter participation was over 70 percent. Today with the income inequality rising the voter participation rate in this year's presidential election was just 45 percent. In the United Kingdom, voter turnout in the egalitarian 1950s averaged almost 85 percent. Post Thatcher, voter turnout in the UK dropped under 70 percent and as inequality continued to rise voter participation rates fell to under 60 percent in 2001. They rebounded slightly this May to 65.1 percent. In the US, 1964 marked the zenith of egalitarianism. The voter turnout that year was 61.9 percent. By 2008, only 56.8 turned out to vote and that was actually the highest turnout since 1968. In 1996, less half of Americans of voting age bothered to vote. 


Sources on Reagan Data
Reality Behind Lofty Rhetoric on Reagan Legacy by Dr. Bob Buzzanco, Associate Professor of History at the University of Houston.

Tax Reform and Inequality by Dr. Emmanuel Saez, Professor of Economics at the University of California at Berkeley.

The Politics of Rich and Poor: Wealth and Electorate in the Reagan Aftermath by Kevin Phillips.

A Brief History of Neoliberalism by Dr. David Harvey, Professor of Geography at CUNY.

"The Richest 1% Have Captured America's Wealth -- What's It Going to Take to Get It Back?" by David DeGraw.

"Democracy, Capitalism, Income Inequality: Seeking Causal Directions"> by Dr. Ross Burkhart, Professor of Political Science at Boise State University.

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1 Comment

Great facts!

Ad idea: "Republican policies since the Reagan Revolution in 1981 have taken $10,000 out of your pocket each year and given it to super-rich people."

by RandomNonviolence 2010-08-23 02:19PM | 0 recs


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