• U.S. Economic Inequality at Highest Levels in 100 years

    January 21, 2015 // 12 Comments »

    yellen


    Unless you are very, very rich, you are getting poorer. Federal Reserve chief Janet Yellen warned that the gap between the rich and poor in the United States is widening and has reached a near 100-year high.

    The One Percent of the One Percent

    Not sure? Between 1979 and 2007, income grew by 275 percent for the top one percent of households, compared to only 18 percent for the bottom twenty percent of us. Back in 1980, 0.01 percent of the population owned three percent of national wealth. Today that top 0.01 percent, only about 32,000 people, owns 11 percent of national wealth. That’s a staggering increase from an already high base. It suggests even the one percent no longer are that big of a deal in the economy. We need now to pay attention to the one percent of the one percent.

    “By some estimates, income and wealth inequality are near their highest levels in the past hundred years,” Yellen said, noting the gap has grown steadily over recent decades, despite a brief pause during the 2008 crisis when pretty much everyone got whacked.

    About the 2008 Recession

    “But widening inequality resumed in the recovery, as the stock market rebounded,” Yellen said, noting that “wage growth and the healing of the labor market have been slow, and the increase in home prices has not fully restored the housing wealth lost by the large majority of households for which it is their primary asset.”

    If you read that carefully, it means that the rich, who earn their money in significant part via capital, owning stock and things like multiple pieces of real estate, have done just fine recently.

    The rest of us, who work for wages as our primary income, are still in trouble. If your home, assuming you still own it post-2008 (and that’s a huge assumption. Some five million homes were lost to foreclosure between 2008 and 2013. 8.2 million more foreclosure starts took place in that same time period. Another three million homes in the next three or four years will face foreclosure), is not in a high-growth area, then the value of the one piece of capital you do have, then it does you little good.

    None of this is new or shocking. Economist Thomas Piketty in Capital in the Twenty-First Century laid out the very simple math: R > G. R is capital and G is wage growth, and the value of capital, stuff the rich own, always, always grows faster than wages. Thus the rich get richer and the poor stay poor.

    Student Loans

    The Fed chief also warned of the burden of student loan debt, which quadrupled between 2004 and 2014. In a bit of an understatement, she added “I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.”

    Americans owe over $1.2 trillion in college loans. Many students will work as essentially indebted servants for many years to pay them off. Or maybe their parents will. Or both. Yellen said that the trend in recent years in the United States has seen “stagnant or falling living standards for many families.”

    The One Percent of the One Percent of the One Percent

    Yellen offered no remedies for decreasing the rich-poor gap, because why should she. She works for the wealthy.

    With the concentration of wealth, 132 people in the U.S. essentially control elections. They do so by donating, just that handful of people, over 60 percent of the SuperPac money. Those 132 people represent 0.000042 percent of the total number of voters; most other contributions to candidates are small, many below $200. How much is your vote worth?

    Yellen went on to say two “cornerstones of opportunity” are resources available to children and access to higher education, and added that ownership of a family business and inherited wealth can also be important sources of economic opportunity.

    Let’s look at that. Poor people have no resources available to their children. Rich people can pass on robust inheritances. Result: kids of the rich get richer. Wouldn’t life be easier if you knew you’d be a billionaire once daddy kicked it? And as for that access to higher education, please refer back to Yellen’s earlier statement about student loan debt. Escalating tuition costs that have contributed to a dramatic increase in student loan debt — the outstanding balance quadrupled from $260 billion in 2004 to $1.2 trillion this year. Of course the rich pay cash for college, so this debt is disproportionately, and increasingly, affecting poorer families and may put college and graduate degrees out of reach.

    Global, But Worse in the U.S.

    Globally, the gap between the haves and have-nots has reached levels not seen since the 1820s, the OECD said earlier this month, in a report that looked at trends in health, education, inequality, the environment and personal security.

    The mathematical measure of wealth-inequality is called “Gini,” and the higher it is, the more extreme a nation’s wealth-inequality. The Gini for the U.S. is 85; Canada, 72; and Bangladesh, 64. Nations more unequal than the U.S. include Kazakhstan at 86 and the Ukraine at 90. The African continent tips in at just under 85.

    Odd company for the self-proclaimed most powerful nation on earth.



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