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Challenge of the 'Wealth Gap'

Treating Pigs Like Swine

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Across the Great Divide
The Wealth Gap Challenges
American Ideals

by Molly Lanzarotta
art/Eachean Edmundson

Is an outdated self-image keeping Americans in denial about the growing economic divide in the United States? Even though President Bush's tax cuts will leave greater numbers of us peering across a chasm-like wealth gap, some of our ideas about America--the land of equality and the "level playing field," self-made wealth and meritocracy--can keep us from recognizing changes in the landscape.

I'm not saying we're naïve. Sure, we noticed over the past couple of decades that the economic equation of the American dream seemed to be changing‹but not to what extent. The final years of the twentieth century saw the fortunes of Americans grow apart, in dramatic contrast to the three decades following World War II, when families in every income bracket saw their incomes double. But in the years from 1979 to 1998, those in the top fifth of income gained 38 percent while the bottom fifth lost five percent of real income. Today, the financial wealth of the top one percent of households in America exceeds the combined wealth of the bottom 95 percent.

We've responded to record-breaking income disparities by enacting a tax cut that will increase the wealth gap. The richest 1% of taxpayers will receive 38% of $1.34 trillion over ten years, while 34 million Americans will receive nothing. In the gilded era of the 1920s, the last time the richest 1% of Americans owned over 40% of the wealth, U.S. Supreme Court Justice Louis Brandeis warned,

"We can have democracy in this country or great wealth concentrated in the hands of a few, but we can't have both."

The current reality is that the wealth is ending up in fewer and fewer hands. For the majority of U.S. households, the real story of the 1990s was not an expanding stock portfolio, but the plummeting of personal savings, stagnating wages, longer work hours, and the escalation of consumer debt. Stock ownership remained confined to half of American households, with most of the benefits of the soaring stock market going to those in the top ten percent of wealth. Economist Robert Frank reports that the top one percent captured 70 percent of all earnings growth since the mid-1970's.

Meanwhile, most of us saw our savings and incomes erode even as our debt and work hours increased. For the first time since the Great Depression, the national savings rate turned negative in 1999. Total consumer debt hit a record $1.54 trillion in January, 2001. The after-tax income flowing to the middle 60 percent of households in 1999 was the lowest recorded since 1977. Even so, the work year expanded by 184 hours over the past three decades, an additional four and a half weeks on the job for the same or less pay, according to the Economic Policy Institute.

An extreme example of the growth of the wealth gap is found in the wage gap between executives and workers. While the average worker's pay in 2000 was lower than in 1980, adjusting for inflation, CEO pay was 10 times higher.

In 1999, CEOs made 458 times as much as production and non-supervisory workers. If minimum wage had risen during the 1990s as rapidly as CEO pay, it would have been $24.13 an hour by 1999 instead of $5.15. Less in the realm of fantasy, if wages had at least kept pace with productivity, which rose 46.5 percent from 1973 to 1998, the median wage would have risen to $17.27 an hour, rather than $11.29, giving $12,438 more a year to full-time workers.

So why are we complacent or in denial about what is no longer just a gap between rich and poor, but rather an ever-widening gap between the mega-rich and everyone else? While we condemn welfare and cut social programs, why isn't there more outrage about corporate welfare and excesses? During the tax debates in Congress, a Wall Street Journal reporter called the offices of Responsible Wealth, which led the fight against repealing the estate tax. The reporter's question: "Why is blocking repeal of the estate tax such a hard sell? It would only benefit the top 2% of the most wealthy people. This is a no brainer!" The fact that this 2% and their money wield an enormous amount of power is key in understanding how policies with such a narrow constituency get sold to the general public. The voice and perspective of wealthy individuals have become dominant, while the concerns of ordinary working Americans have been drowned out.

Still, there are signs of growing awareness of the discrepancies between the widely heralded prosperity of the nineties and a less-than-prosperous reality among groups who didn't gain from the boom. Four in ten people interviewed for a June 2001 Pew Research Center poll believe that we are a have/have not society, compared to just 26% who felt that way in 1988 when the previous decade's boom was coming to a close. The poll also indicated that women and minorities are leading a trend of rising dissatisfaction with the country's direction. This is not surprising since the income gap between Caucasians on the one hand and African Americans and Latinos on the other has actually increased since 1947. And while the wage/gender gap has narrowed over the past 20 years, about 60% of that change is due to the decline in men's wages. "Aside from their income," the poll reports, "there is one defining characteristic which unifies financially strapped Americans, and that is their recognition of the precariousness of their position." Inadvertently, the new tax cuts, with their undisguised benefits for the wealthy, may further raise public awareness of the wealth gap.

Some economists, however, question the wisdom of letting extremes take their course. Lester Thurow, an economist at the Massachusetts Institute of Technology, wonders:

"How does one put together a democracy based on the concept of equality while running an economy with ever greater degrees of economic inequality?"
In light of the current priorities in Washington, it seems our society may move much farther along the continuum toward inequality. But, as Thurow points out, "It is a stupid society that runs an experiment to see where its breaking points are."

It has been dangerous to hold on to our thoroughly American idea that people's economic circumstances directly reflect their character and industriousness. We have not wanted to acknowledge that the American experiment may be failing; however, the rules of the economy have changed. There has been a clear power shift as corporations and large asset owners have influenced tax laws and trade, monetary, and labor policies to benefit investors rather than workers and consumers. Simultaneously, the decline of organized labor and other community organizations has led to a loss of clout, and a loss of money, for ordinary working people.

If we are to continue to take pride in historically American ideals, then we need to be sure those ideals correspond to the present reality. Most of our beliefs about what makes America unique will be relegated to memory if the trends of growing economic inequality aren't faced and challenged. "My grandfathers fled European serfdom to become self-employed farmers," Iowa farmer Robert Rohwer told reporters in Washington, D.C., during the recent Senate debate on the Bush tax cut. "Their achievement is threatened far more by concentration of wealth than by the estate tax."

The dangerous polarization of the American economy needs to be countered by shared prosperity policies that will reduce wage and wealth inequalities. Raising the minimum wage, expanding home ownership opportunity and establishing universal savings programs would help to close the wealth gap. Unfortunately, President Bush's tax plan heads in the opposite direction and will only widen our country's economic divide. During another era of disparity, Franklin Roosevelt's views about economic justice were considered so central to his presidency that they are carved in stone on his monument in Washington, D.C.:

"The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little."
What words will we carve on George W. Bush's monument?

Molly Lanzarotta is a writer for United for a Fair Economy.

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