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New York Times on Income Inequality: The Super-rich vs. the Rest of Us

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  • C.L. Mareydt
    PEERS: WantToKnow.info List ... http://select.nytimes.com/2006/07/19/opinion/19talkingpoints.html ... __________________________________________________ Do
    Message 1 of 1 , Aug 8, 2006
      "PEERS: WantToKnow.info List"
      <noreply2@...> wrote:

      >
      > This message is available online at
      > http://www.WantToKnow.info/060807incomeinequality
      >
      >
      > "The new figures show that from 2003 to 2004, the
      > latest year for which there is data, the richest
      > Americans pulled far ahead of everyone else. In the
      > space of that one year, real average income for the
      > top 1 percent of households — those making more than
      > $315,000 in 2004 — grew by nearly 17 percent. The
      > top one-tenth of 1 percent of households actually
      > received nearly half of the increased share going to
      > the top 1 percent. For the remaining 99 percent, the
      > average gain was less than 3 percent. The top 1
      > percent of households owned 57.5 percent of
      > corporate wealth."
      > -- New York Times, 7/19/06
      >
      >
      > Dear friends,
      >
      > The below New York Times article on income
      > inequality is an excellent discussion of how and why
      > the very richest top 1percent of the population
      > continues to grow even richer, while the income of
      > the rest of us stagnates or has even dropped.
      > Economic policies in recent years have clearly
      > favored the rich and big business while hardly
      > throwing any tidbits to the lower and middle
      > classes. Let us join together in calling on our
      > politicians to stop favoring the rich at the expense
      > of the rest of us. Thanks for caring, and you have a
      > great day.
      >
      > With best wishes,
      > Fred Burks for PEERS and the WantToKnow.info Team
      > Former language interpreter for Presidents Bush and
      > Clinton
      >
      >
      >
      http://select.nytimes.com/2006/07/19/opinion/19talkingpoints.html
      >
      > The Rise of the Super-Rich
      >
      > While the wealthiest Americans are reaping the
      > benefits of the Bush administration’s economic
      > policies, the rest of the nation is being left
      > behind.
      >
      > By TERESA TRITCH
      > Published: July 19, 2006
      >
      > The gap between rich and poor is unfortunately an
      > old story.
      >
      > It is the stuff of parables and literature. It is a
      > force in social history and political economy, from
      > electoral campaigns to reform movements and
      > revolutions.
      >
      > But in the United States today, there’s a new twist
      > to the familiar plot. Income inequality used to be
      > about rich versus poor, but now it’s increasingly a
      > matter of the ultra rich and everyone else. The
      > curious effect of the new divide is an economy that
      > appears to be charging ahead, until you realize that
      > the most of the people in it are being left in the
      > dust. President Bush has yet to acknowledge the true
      > state of affairs, though it’s at the root of his
      > failure to convince Americans that the good times
      > are rolling.
      >
      > The president’s lack of attention may be misplaced
      > optimism, or it could be political strategy.
      > Acknowledging what’s happening would mean having to
      > rethink his policies, not exactly his strong suit.
      >
      > But the growing income gap — and the rise of the
      > super-rich — demands attention. It is making America
      > a less fair society, and a less stable one.
      >
      > I. The Growing Divide
      >
      > Anyone who has driven through the new neighborhoods
      > filled with “McMansions” that have arisen near most
      > cities, or seen the brisk business that luxury
      > stores are doing, has an anecdotal sense that some
      > Americans are making a lot of money right now.
      >
      > But there is no need to rely on anecdotal evidence.
      >
      > Thomas Piketty, of the École Normale Supérieure in
      > Paris, and Emmanuel Saez of the University of
      > California at Berkeley recently updated their
      > groundbreaking study on income inequality(pdf), and
      > their findings are striking.
      >
      > The new figures show that from 2003 to 2004, the
      > latest year for which there is data, the richest
      > Americans pulled far ahead of everyone else. In the
      > space of that one year, real average income for the
      > top 1 percent of households — those making more than
      > $315,000 in 2004 — grew by nearly 17 percent. For
      > the remaining 99 percent, the average gain was less
      > than 3 percent, and that probably makes things look
      > better than they really are, since other data, most
      > notably from the Census Bureau, indicate that the
      > average is bolstered by large gains among the top 20
      > percent of households. In all, the top 1 percent of
      > households enjoyed 36 percent of all income gains in
      > 2004, on top of an already stunning 30 percent in
      > 2003.
      >
      > Some of the gains at the top reflect capitalism’s
      > robust reward for the founders of companies like
      > Microsoft, Google and Dell. But most of it is due to
      > the unprecedented largesse being heaped on
      > executives and professionals, in the form of salary,
      > bonuses and stock options. A recent study done for
      > the Business Roundtable(pdf), a lobbying group for
      > chief executives, shows that median executive pay at
      > 350 large public companies was $6.8 million in 2005.
      > According to the Wall Street Journal, that’s 179
      > times the pay of the average American worker. The
      > study is intended to rebut much higher estimates
      > made by other researchers, but it does little to
      > quell the sense that executive pay is out of whack.
      > As the Journal's Alan Murray pointed out recently,
      > the study’s calculation of executive pay is widely
      > criticized as an understatement because, as a
      > measurement of the median, it is largely unaffected
      > by the eight or nine-digit pay packages that have
      > dominated the headlines of late.
      >
      > Rich people are also being made richer, recent
      > government data shows, by strong returns on
      > investment income. In 2003, the latest year for
      > which figures are available, the top 1 percent of
      > households owned 57.5 percent of corporate wealth,
      > generally dividends and capital gains, up from 53.4
      > percent a year earlier.
      >
      > The Center on Budget and Policy Priorities, a
      > Washington think tank, compared the latest data from
      > Mr. Piketty and Mr. Saez to comprehensive reports on
      > income trends from the Congressional Budget Office.
      > Every way it sliced the data, it found a striking
      > share of total income concentrated at the top(pdf)
      > of the income ladder as of 2004.
      >
      > • The top 10 percent of households had 46 percent of
      > the nation’s income, their biggest share in all but
      > two of the last 70 years.
      >
      > • The top 1 percent of households had 19.5 percent
      > (see graph).
      >
      > • The top one-tenth of 1 percent of households
      > actually received nearly half of the increased share
      > going to the top 1 percent.
      >
      > These disparaties seem large, and they are. (Though
      > the latest availabe data is from 2004, there are
      > virtually no signs that the basic trend has changed
      > since then.) The top 1 percent held a bigger share
      > of total income than at any time since 1929, except
      > for 1999 and 2000 during the tech stock bubble. But
      > what makes today's disparities particularly brutal
      > is that unlike the last bull market of the late
      > 1990's — when a proverbial rising tide was lifting
      > all boats — the rich have been the only winners
      > lately. According to an analysis by Goldman Sachs,
      > for most American households — the bottom 60 percent
      > — average income grew by less than 20 percent from
      > 1979 to 2004, with virtually all of those gains
      > occurring from the mid- to late 1990's. Before and
      > since, real incomes for that group have basically
      > flatlined.
      >
      > The best-off Americans are not only winning by an
      > extraordinary margin right now. They are the only
      > ones who are winning at all.
      >
      > The result has been, as Andrew Hacker, a political
      > science professor at Queens College, has observed in
      > a recent article in the New York Review of Books,
      > “more billionaires, more millionaires and more
      > six-figure families.”
      >
      > As income has become more concentrated at the top,
      > overall wealth has also become more skewed.
      > According to the latest installation of a
      > survey(pdf) that the Federal Reserve has conducted
      > every three years since 1989, the wealthiest 1
      > percent of Americans accounted for 33.4 percent of
      > total net worth in 2004, compared to 30.1 percent in
      > 1989. Over the same period, the other Americans in
      > the top 10 percent saw their share of the nation’s
      > net worth basically stagnate, at about 36 percent,
      > while the bottom 50 percent accounted for just 2.5
      > percent of the wealth in 2004, compared to 3.0
      > percent in 1989.
      >
      > II. A Brief History of Income Inequality
      >
      > While it has long been the case that the rich do
      > better than everyone else, it has not always been
      > true that, in the process, the poor get poorer and
      > the middle class gets squeezed. In post-World War II
      > America, between 1947 and the early 1970’s, all
      > income groups shared in the nation’s economic
      > growth. Poor families actually had a higher growth
      > in real annual income than other groups.
      >
      > Part of the reason was a sharp rise in labor
      > productivity. As workers produced more, the economy
      > grew and so did compensation — wages, salaries and
      > benefits (see graph). This link between productivity
      > gains and income gains was not automatic. Government
      > policies worked to ensure that productivity gains
      > translated into more pay for Americans at all
      > levels, including regular increases in the minimum
      > wage and greater investment in the social safety
      > net. Full employment was also a government priority.
      > And, of course, unions were strong back then, giving
      > workers bargaining power.
      >
      > From the mid-1970’s until 1995, the trend reversed.
      > The gap between the rich and poor widened at a rapid
      > clip. The upper echelons — generally the top 20
      > percent of American households — experienced steady
      > gains, while families in the bottom 40 percent were
      > faced with declining or stagnating incomes.
      >
      > The growing divide coincided with a slowdown in
      > productivity growth and a reversal in the government
      > policies that had been promoting income equality.
      > Legislators balked at raising the minimum wage and
      > the earned income tax credit, a feature of the tax
      > code that rewards the working poor by ensuring that
      > work pays better than welfare. During the “supply
      > side” era in the 1980’s, fostered by the policies of
      > Ronald Reagan, taxes became less progressive. The
      > goal of full employment was eclipsed by a focus on
      > inflation fighting that remains to this day.
      >
      > As trade began to play an ever bigger role in the
      > American economy, manufacturing jobs diminished and
      > labor unions declined, reducing workers’ clout in
      > setting compensation. Regulatory laxness reached its
      > apex in the fiscal disaster of the savings and loan
      > meltdown, which drained public resources from
      > socially and economically useful programs and
      > polices.
      >
      > The trend toward increasing inequality was
      > interrupted, briefly, in the late 1990’s.
      > Productivity growth rebounded, and for a half
      > decade, all income groups participated in the
      > prosperity. Even then, the richest Americans had the
      > best run, propelled largely by stock market gains.
      > In fact, when the stock market hit its all time high
      > in 2000, post-war income concentration also peaked.
      >
      > But government policies of the day helped to ensure
      > that the lower rungs also had a boost. Clinton-era
      > welfare reforms are often cast as a success story of
      > market-based incentives. But in fact, they were
      > supported by a big increase in the earned income tax
      > credit to help solidify the transition from welfare
      > to work. At the same time, budget deficits were
      > conquered by shared sacrifice — a mix of tax
      > increases and spending cuts affecting all groups.
      > The combination of economic growth and fiscal
      > discipline spurred robust hiring and, if it had
      > endured, could also have strengthened the Social
      > Security safety net by allowing the government to
      > pay down its debts.
      >
      > That seems like ancient history now. Nearly
      > everyone’s income fell in 2001 and 2002, due to the
      > bursting of the Internet bubble in 2000, recession
      > in 2001 and the ensuing jobless recovery.
      >
      > In the last few years, though, the trend toward
      > inequality has reasserted itself — with a vengeance.
      >
      > III. Inequality During the Bush Years
      >
      > For the last few years, the tide has been rising
      > again, but most boats have been staying where they
      > are, or sinking. One key reason is that the link
      > between rising productivity and broad economic
      > prosperity has been severed. Take another look at
      > this graph. During the years that George W. Bush has
      > been in the White House, productivity growth has
      > been stronger than ever. But the real compensation
      > of all but the top 20 percent of income earners has
      > been flat or falling. Gains in wages, salaries and
      > benefits have been increasingly concentrated at the
      > uppermost rungs of the income ladder.
      >
      > The Bush administration would like you to believe
      > that the situation will correct itself. Most
      > recently, the new Treasury secretary, Henry M.
      > Paulson, Jr., reiterated the administration’s
      > viewpoint at his confirmation hearing in June when
      > he said that “economic growth, job growth,
      > productivity growth, hopefully will be followed by
      > increases in wage income.”
      >
      > Well, hoping certainly won’t make it so.
      >
      > Neither will growth alone. As the post-World War II
      > history of income inequality illustrates,
      > productivity improvement is only one piece of the
      > prosperity puzzle. The economic health of most
      > American families also depends greatly on what
      > government does. If it merely “gets out of the way,”
      > inequality is bound to persist and — if recent
      > results are any indication of future performance —
      > worsen.
      >
      > The Bush administration, though, has not even done
      > anything as benign as get out of the way. The
      > policies it has pursued — affirmatively and
      > aggressively — have widened the gap between rich and
      > poor.
      >
      > A. The Tax Wedge
      >
      > Tax cuts are the most obvious example. The Urban
      > Institute-Brookings Institution Tax Policy Center
      > computed the combined effects of tax cut legislation
      > from 2001, 2003 and 2006. The tax cuts’ contribution
      > to the income gap was significant.
      >
      > In 2006, the average tax cut for households with
      > incomes of more than $1 million — the top two-tenths
      > of 1 percent — is $112,000 which works out to a
      > boost of 5.7 percent in after tax income. That’s
      > considerably higher than the 5 percent boost
      > garnered by the top 1 percent. It’s far greater than
      > the 2.5 percent increase of the middle fifth of
      > households, and fully 19 times greater than the 0.3
      > percent gain of the poorest fifth of households.
      >
      > The disparities are driven by tax cuts that
      > overwhelmingly benefit the most affluent. In 2006,
      > for instance, a tax cut took effect that allows high
      > income households — those with incomes above
      > $200,000 — to take bigger write offs for their
      > children and other expenses, like mortgage interest
      > on a second home. And increasingly, tax cuts are
      > aimed at allowing America’s wealthiest families to
      > amass dynastic wealth — estates to transfer from one
      > generation to the next virtually untouched by taxes.
      > The most obvious example is the gradual reduction in
      > the estate tax that is scheduled through 2010 (and
      > regular attempts to abolish the estate tax
      > altogether). Another huge, though lesser noted
      > example, is the law passed last May allowing all
      > Americans to shelter money in a tax-favored Roth
      > I.R.A. Under previous law, Roths had been off limits
      > to wealthy Americans, precisely because the
      > government did not want to help people amass big
      > estates under the guise of saving for retirement.
      > That sound principle has now been turned on its
      > head.
      >
      > B. The Assault on Programs for the Poor and Middle
      > Class
      >
      > Tax cuts are not the only policies widening the gap
      > between the rich and other Americans. Earlier this
      > year, President Bush signed into law a measure that
      > will cut $39 billion over the next five years from
      > domestic programs like Medicaid and food stamps, and
      > $99.3 billion from 2006 to 2015.
      >
      > The president and the Republican Congress have also
      > done harm to the finances of the poorest Americans —
      > and to the notion of basic fairness — by not
      > increasing the federal minimum wage — it has been
      > $5.15 since 1997 While C.E.O. salaries have been
      > soaring, the take-home pay of waitresses and
      > janitors has been hit hard by inflation.
      >
      > The Bush administration has also been trying, with
      > mixed success so far, to pursue other policies that
      > would have the effect of shifting money to the rich.
      > The most ominous is its often-repeated desire to
      > “address our long-term unfunded entitlement
      > obligations.” That’s code for making tax cuts for
      > the wealthy permanent while cutting Social Security,
      > which has for 70 years been a major factor in
      > keeping Americans financially secure in their old
      > age.
      >
      > In 2004, over the objections of Congress, the
      > administration overturned time-and-a-half regulation
      > for overtime. For a brief period after Hurricane
      > Katrina, the president suspended by executive
      > proclamation the law that requires federal
      > contractors to pay workers the locally prevailing
      > wage, until Congress objected. For three months
      > after Katrina, the Labor Department suspended the
      > law requiring federal contractors to have an
      > affirmative action hiring plan — an invitation to
      > discrimination and, as such, to income inequality.
      >
      > C. The Too-Easy Answer
      >
      > When confronted with evidence of growing income
      > inequality, Bush administration officials invariably
      > say the answer is more and better education. “We are
      > starting to see that the income gap is largely an
      > education gap,” said Trent Duffy, a White House
      > spokesman, in a typical retort last January when tax
      > data showed an increasing concentration of wealth
      > among the highest-income Americans.
      >
      > Education is critically important to individuals,
      > society, the economy and democracy itself, and
      > deserves strong government support. But it is
      > neither a satisfactory explanation, nor a remedy,
      > for today's income inequality.
      >
      > There is a strong correlation between one's level of
      > education and one's earning power. The Bush
      > administration is assuming that the correlation will
      > continue to hold in an ever more globalized economy.
      > Writing in the March/April issue of Foreign Affairs,
      > Princeton economist Alan S. Blinder, a former
      > vice-chairman of the Federal Reserve, explains why
      > that view may be mistaken:
      >
      > "Other things being equal, education and skills are,
      > of course, good things; education yields higher
      > returns in advanced societies, and more schooling
      > probably makes workers more flexible and more
      > adaptable to change. But the problem with relying on
      > education as the remedy for job losses is that
      > 'other things' are not remotely close to equal. The
      > critical divide in the future may instead be between
      > those types of work that are easily deliverable
      > through a wire (or via a wireless connection) with
      > little or no diminution in quality and those that
      > are not. And this unconventional divide does not
      > correspond well to traditional distinctions between
      > jobs that require high levels of education and jobs
      > that don’t."
      >
      > There is already evidence that the benefits of
      > education are not as straightforward as many people
      > seem to believe they are. In his review of
      > "Inequality Matters," a collection essays
      > commissioned by Demos, a public policy research and
      > advocacy organization, Mr. Hacker, the Queens
      > College political science professor, cited findings
      > from the Bureau of Labor Statistics to show that
      > many college graduates now hold jobs that once
      > required only a high school diploma. Today,
      > according to the bureau, 37 percent of flight
      > attendants have completed college, as have 35
      > percent of tour escorts, 21 percent of embalmers,
      > and 13 percent of both security guards and casino
      > dealers. Mr. Hacker notes that more people are
      > expected to earn college degrees in preparation for
      > well-paying professions. “But we cannot expect the
      > economy will automatically create better-paid
      > positions to match the cohort acquiring higher
      > education,” he writes.
      >
      > Underscoring the point, the Bush administration's
      > own Economic Report of the President in 2006 shows
      > that average annual earnings of college graduates
      > fell by 5 percent from 2000 to 2004. In those four
      > years, the difference between the average yearly pay
      > of a college graduate and a high school graduate
      > shrank from 93 percent to 80 percent.
      >
      > Education is vital. But as Mr. Blinder put it, it
      > “is far from a panacea.”
      >
      > IV. The Future of Income Inequality
      >
      > The fast-growing gap between the rich and poor and
      > middle-class Americans is not something that has
      > just happened. The Bush policies are an attempt to
      > dismantle the institutions and norms that have long
      > worked to ameliorate inequities — progressive
      > taxation, the minimum wage, Social Security,
      > Medicaid and so on. The aims that can’t be
      > accomplished outright — like cuts in Social Security
      > — are being teed up by running deficits that could
      > force the shrinkage of government programs, even
      > though the public would not likely condone many such
      > cuts unless compelled to by a fiscal crisis.
      >
      > Such policies are grounded in an ideology that began
      > taking shape some 30 years ago, when economic policy
      > makers began to disdain the notion of harnessing and
      > protecting society’s collective potential in favor
      > of crafting incentives to align individuals’
      > interests with those of the market. This campaign
      > has gone by many names — “starve the beast,” or
      > “repeal the New Deal.” Economist Jared Bernstein of
      > the Economic Policy Institute, a Washington think
      > tank, calls that approach “you’re on your own,” or
      > YOYO, and has written a book calling for a new way,
      > dubbed “we’re in this together,” or WITT. (Click
      > here for excerpts from “All Together Now: Common
      > Sense for a Fair Economy,” by Jared Bernstein.)
      >
      > At issue, in economic terms, is the tradeoff between
      > equality and efficiency: It can be difficult to
      > divide the economic pie more equally without
      > reducing the size of the pie. But it’s not
      > impossible, and doing so is crucial for widespread
      > prosperity. A fair and well-functioning economy will
      > always involve some inequality, which acts a
      > motivator and can be explained by differences in
      > risk-taking, ability and work intensity. But
      > inequality is generally deemed to be dangerous —
      > socially, economically, (and, perhaps, politically)
      > — when it becomes so extreme as to be
      > self-reinforcing, as many researchers suggest is
      > currently the case.
      >
      > The problem now is that most any attempt to reduce
      > inequality — even a measly increase in the minimum
      > wage — is rejected as misguided. And policies that
      > under one set of economic conditions might allow for
      > a justifiable modicum of inequality are pursued
      > beyond all reason. For instance, the rationale for
      > the tax cuts in 2001 was to return the budget
      > surplus that Mr. Bush inherited from President
      > Clinton. The rationale for the tax cuts in 2002 and
      > 2003 and 2006 was to stimulate the economy. The
      > surplus has long since been replaced by big
      > deficits, the jobless recovery ended three years ago
      > and inequality is on the rise. But tax cutting that
      > overwhelmingly benefits the rich continues because,
      > we’re told, failure to keep cutting taxes would,
      > somehow, shrink the pie. As Mr. Bernstein of the
      > Economic Policy Institute has put it: “Economics,
      > once an elegant and sensible set of ideas and
      > principles devoted to shaping outcomes for the
      > betterment of society, has been reduced to a
      > restrictive set of ideologically inspired rules
      > devoted to an explanation of why we cannot take the
      > necessary steps to meet the challenges we face.”
      >
      > Hear, hear.
      >
      >
      > Additional Reading
      >
      >
      > Study by the Center on Budget and Policy Priorities
      > regarding the concentration of capital income among
      > the top one percent of the population.
      >
      > “Inequality,”(pdf) a study by Edward L. Glaser of
      > the Harvard Institute for Economic Research.
      >
      > “Intergenerational Economic Mobility in the U.S.,
      > 1940 to 2000,”(pdf) by Daniel Aaronson and Bhashkar
      > Mazumder, Federal Reserve Bank of Chicago, Dec 2005.
      >
      >
      > “Understanding Mobility in America,” by Tom Hertz,
      > American University, April 2006, Center for American
      > Progress.
      >
      > A 2002 New York Times Magazine article by Op-Ed
      > columnist Paul Krugman on the ever-expanding income
      > gap.
      >
      > "Were the Good Old Days That Good?," an article by
      > The Times's Louis Uchitelle on Americans’
      > expectations of ever-increasing prosperity.
      >
      > Times Op-Ed columnist Bob Herbert talks about impact
      > of Republicans' refusal to raise the federal minimum
      > wage.
      >
      >
      > Note: For two other excellent articles on income
      > inequality from the New York Times and Los Angeles
      > Times, see
      > http://www.WantToKnow.info/050608richgetricher
      >
      >
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