The rich are getting richer

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Occupy Wall Street is not known for the precision of its economic analysis, but new research on income distribution in the United States shows that the group’s sloganeering provides a stunningly accurate picture of the economy. In 2010, according to a study published this month by University of California economist Emmanuel Saez, 93 percent of income growth went to the wealthiest 1 percent of American households, while everyone else divvied up the 7 percent that was left over. Put another way: The most fundamental characteristic of the U.S. economy today is the divide between the 1 percent and the 99 percent.

It was not ever thus. In the recovery that followed the downturn of the early 1990s, the wealthiest 1 percent captured 45 percent of the nation’s income growth. In the recovery that followed the dot-com bust 10 years ago, Saez noted, 65 percent of the income growth went to the top 1 percent. This time around, it’s reached 93 percent — a level so high it shakes the foundations of the entire American project.

While never putting a premium on economic equality, America has always prided itself on being the preeminent land of economic opportunity. If all of this nation’s wealth is captured by a narrow stratum of the very rich, however, that claim is relegated to history’s dustbin. Research by Julia Isaacs of the Brookings Institution, as part of the Economic Mobility Project, has shown that intergenerational mobility in the United States has fallen far below the levels in Germany, Finland, Denmark and other more social democratic nations of Northern Europe. Now, Saez’s analysis of income data provides further evidence that mocks America’s self-image as a land where hard work yields rewards.

How has the top 1 percent been able to decouple itself from the nation beneath it? To begin, much of its income comes from investments in funds and firms that are raking in profits from overseas ventures in economies like China’s, which weathered the downturn better than ours. Much of those firms’ profits also derive from their reduced labor costs — the result of layoffs and paycuts. Finally, as Saez points out, there has been “an explosion of top wages and salaries” since 1970. In that year, 5.1 percent of all wages and salaries paid in the United States went to the wealthiest 1 percent. In 2007, the share going to the wealthiest 1 percent had more than doubled, to 12.4 percent.

The consequences of this concentration of wealth and income extend beyond the purely economic. A middle class enduring prolonged stagnation isn’t likely to fund projects the nation needs to undertake — such as rebuilding our infrastructure or increasing teacher pay — or, ultimately, to retain its faith in the efficacy of democracy. The rise of super PACs, the low rates of taxation on capital gains and hedge fund operators, the ability of the major banks to fend off reform — all testify to the power of a neo-plutocracy beyond democratic control.

Most proposals to restore a modicum of balance to the American economy focus on making the tax code more progressive. Raising the tax on investments to the level of the tax on wages, for instance, and increasing the inheritance tax would help start reconstruction of a more viable economy.

But changes to the tax code, indispensable though they would be, aren’t remotely sufficient to the challenge of restoring the broadly shared prosperity that Americans enjoyed in the mid-20th century. That would require changing some laws to give stockholders and other corporate stakeholders the power to diminish the share of corporate revenue routinely claimed these days by top executives — at the expense of everyone else. It would require revitalizing unions. David Madland and Nick Bunker of the Center for American Progress recently found that in 1968, when 28 percent of the workforce was unionized, 53 percent of the nation’s income went to the middle class. In 2010, when 11.9 percent of the nation’s workers were unionized, the share claimed by the middle class had fallen to 46.5 percent.

Capitalism can create prosperity, but left unfettered it doesn’t create broadly shared prosperity — and never will. If belief and participation in democracy are sustained by people’s conviction that democracy produces good economic outcomes, then the growing concentration of wealth and income in the United States is a long-term threat to everything we profess to stand for. A nation where 93 percent of income growth goes to the top 1 percent is not a nation that will embark on great projects, or long command the allegiance of its people.

I am baffled how a democracy can allow the current trends of income distribution. We must be very careful or we may find that our government has become something we teach our children is horrible.

Is this a wealth shift enhanced by inflation?

I'm curious how much of a difference there is between making $10 an hour today versus $10 an hour in the early 90s.

That video points to percentage of wealth and where it goes. Suppose the low earners have not only stagnate wages, but their dollars are diluted and lose buying power. Could the lower class's percentage of overall wealth be shrinking more because of the increased number of dollars in the system?

Income distribution is an issue, however the numbers are skewed by the fact that a lot of the income for the rich is not from American workers, it comes from overseas.

And that is any better because? Essentially all you are saying is that there is international exploitation as well as domestic.

Fact is, social mobility towards success, but also towards failure, is not a matter of working for, it's a matter of being set up for. That's my main issue.

In what way is it about being set up for it?

Statistically speaking, being born poor usually means dying not much richer.
For most families, it takes several generations to move from low-skilled labour to truly being part of the 'establishment'.
They don't have the means for Ivy League schools, meaning another generation - therefore another life - is spent making the money to do that.

Basically, you can make a fairly accurate prediction of current status in society for most people born twenty or thirty years ago, then look them up and confirm that.

Well, I think the millions of people in China and India that have been lifted from poverty are quite happy with it. I'm merely pointing out that if Chinese workers are doing the work, why should American workers be paid? Most people with this mindset tend to not understand business, if you make a product that sells for $10 how much of that can be attributed to your labor?

The Chinese and Indian workers are not being paid well. That's why we go through the expense of shipping stuff from China--because labour is so cheap there. Lifting them out of poverty is a rather inaccurate statement. A Chinese friend of mine has told me that most people in China are still poor. Those who are well off would not be the ones making our consumer products. My point is that the workers, whomever or wherever they may be, should be paid more and the ridiculous growth in pay of CEOs should be stopped.