“If poor people knew how rich rich people are, there would be riots in the streets”, entertainer and comedian Chris Rock told New York Magazine writer Frank Rich.
The wealthiest 20 individuals in the United States — a group small enough to fly together on a Gulfstream jet — have as much wealth as the 152 million people who comprise the bottom half of the U.S. population, The Institute for Policy Studies reports in “Billionaire Bonanza: The Forbes 400 and the Rest of Us“.
But what’s really driving the widening gulf between the haves and the have nots in America?
Among the more widely appreciated reasons for declining economic growth is the advance of automation. But other factors have begun to collide with technology to launch what may be a Perfect Storm: reshaping the economy to a “new normal” marked by economic uncertainty.
Another culprit is the rise of lopsided trade deals in the 1980s and ’90s, which have provided greater incentive to offshore jobs. The late billionaire and financier Sir James Goldsmith in his book “The Trap” predicted that poorly crafted free trade deals would produce a “net job loss”. In the early 1990s, Goldsmith testified before Congress advising against entry into another globalization deal known as GATT. Goldsmith also called out the Clinton administration on the Charlie Rose show in opposition to NAFTA, again predicting an outflow of jobs and capital.
If the wage stagnation of the late 1970s had not persisted to the present — some four decades! — the average American would earn $92,000 per year, reports Forbes in “Average America vs the One Percent“. In today’s dollars, those who identify as middle class are less secure than families that relied upon on a single breadwinner in the 1960s and earlier. We have gone from a society that can pay its bills and raise a family on a single income — and often a blue-collar income at that — to one in which the norm is for two able-bodied adults to work full time to support a family. (And because this is the new normal, illness and divorce are now the leading causes of child poverty and personal bankruptcy, according to the book “The Two-Income Trap“.) During this same period household debts have grown and savings diminished.
While cynics use these economic indicators to berate Americans — promoting the simplistic conclusion that Americans are eager to live beyond their means — reality is far more nuanced. In recent years recessions have gone deeper, last longer and recoveries are that much weaker. In part this is because our economy is nearly 70 percent dependent upon consumer spending for its health. Economic growth has instead remained tenuous in ways that economists typically ascribe to “lack of consumer confidence”. Behind the euphemism lies the unsettling reality that fewer Americans have the discretionary income necessary to stimulate the economy. More than 2/3 of Americans struggle to come up with $400 in an emergency.
Economic recoveries are indeed hampered by weak consumer demand. What is lesser appreciated is that job growth and wage growth face similar constraints. This traps the American economy in a self-reinforcing cycle in which GDP remains weak largely because the American middle class is poorer than the middle class of decades past. For many households, fixed expenses consume a higher percentage of Americans’ take-home pay. In some of the nation’s strongest job markets, for example, housing costs exceed a third of median income earners’ monthly take-home pay. For other households, tax burdens combined with rising healthcare costs consume nearly half of their incomes. Food, housing and childcare costs are also up.
America’s broken bookkeeping also helps explain why we’re headed for a Perfect Storm. We rely upon inflationary measures that do not account for many of the unavoidable fixed expenses all Americans, at every income segment, incur. We calculate the federal poverty line to account for the cost to feed a family of three for a year — with no provision in the formula for energy and shelter! As long as our government insists on papering over its public policy failures with misleading federal statistics, economists will continue to fret over equally misleading economic indicators. A primary concern among economists, for example, is how to promote greater levels of inflation to counter the risk of deflation when, in fact, the rising cost for healthcare, food, childcare, housing and higher education amount to significant inflationary pressures on American families.
The final and least appreciated aspect of this Perfect Storm, which deserves a much broader discussion among voters, is the dysfunctional relationships between career politicians and their leading campaign contributors. Although we hear it time and time again, it is difficult to wrap our minds around how lopsided the playing field really is. Democrats and Republicans alike have failed to commit to closing tax loopholes that allow companies like GE, Verizon and Google to pay zero — even negative! — federal taxes. Influence buying will undoubtedly continue as long as Citizens United, and Supreme Court decisions like it, continue to give Corporate Citizens a bigger megaphone with which to petition elected leaders. Continue Reading »