New York Times on Income Inequality: The Super-rich vs. the Rest of Us
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> "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
> The Rise of the Super-Rich
> While the wealthiest Americans are reaping the
> benefits of the Bush administrations economic
> policies, the rest of the nation is being left
> 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
> But in the United States today, theres a new twist
> to the familiar plot. Income inequality used to be
> about rich versus poor, but now its 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 its at the root of his
> failure to convince Americans that the good times
> are rolling.
> The presidents lack of attention may be misplaced
> optimism, or it could be political strategy.
> Acknowledging whats 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
> Some of the gains at the top reflect capitalisms
> 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, thats 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 studys 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 nations 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
> 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 nations
> 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 1970s, all
> income groups shared in the nations 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-1970s 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 1980s, 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
> The trend toward increasing inequality was
> interrupted, briefly, in the late 1990s.
> 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
> everyones 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 administrations
> 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 wont 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
> 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
> 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. Thats
> considerably higher than the 5 percent boost
> garnered by the top 1 percent. Its 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 Americas 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
> B. The Assault on Programs for the Poor and Middle
> 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. Thats 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
> 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 dont."
> 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 cant 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 societys 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 youre on your own, or
> YOYO, and has written a book calling for a new way,
> dubbed were 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 its 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,
> were 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
> A 2002 New York Times Magazine article by Op-Ed
> columnist Paul Krugman on the ever-expanding income
> "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
> Note: For two other excellent articles on income
> inequality from the New York Times and Los Angeles
> Times, see
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