30 September 2009

Income Gap Widens

The problem of wage and wealth gap has been a concern of mine here. It indicates the problems our economy and society have in allowing upward mobility and educational and economic opportunity.

A large gap between rich and poor is detrimental not just to individuals, but to our society as a whole and is deadly to our politics. Our republic relies on a broad middle class, imbibed with the virtues of civic involvement, self-reliance, moderation, and opposition to corruption and dependency. That this middle class is under pressure is not a welcome development.

And as is typical, this issue is not even on the radar of our political elite. To the contrary, both parties have consistently pursued polities that have contributed to this gap in wealth and income.

Income gap widens as poor take hit in recession
Census: Income falls for all groups, but those at bottom feel worst effect

The recession has hit middle-income and poor families hardest, widening the economic gap between the richest and poorest Americans as rippling job layoffs ravaged household budgets.

The wealthiest 10 percent of Americans — those making more than $138,000 each year — earned 11.4 times the roughly $12,000 made by those living near or below the poverty line in 2008, according to newly released census figures. That ratio was an increase from 11.2 in 2007 and the previous high of 11.22 in 2003.

Household income declined across all groups, but at sharper percentage levels for middle-income and poor Americans. Median income fell last year from $52,163 to $50,303, wiping out a decade's worth of gains to hit the lowest level since 1997.

"No one should be surprised at the increased disparity," said Richard Freeman, an economist at Harvard University. "Unemployment hurts normal workers who do not have the golden parachutes the folks at the top have."

It's unclear whether income inequality will continue to worsen in major cities, said William H. Frey, a demographer at the Brookings Institution. Many Americans are staying put for now in traditional cities to look for jobs and because of frozen lines of credit.

"During the years of the housing bubble, there was middle-class movement from unaffordable metros with high-income inequality," Frey said. "Now that the bubble burst, more of the population may be headed back to the high-inequality areas, stemming their middle-class losses."

Among other findings:

Income at the top 5 percent of households — those making $180,000 or more — was 3.58 times the median income, the highest since 2006.

Between 2007 and 2008, income at the 50th percentile (median) and the 10th percentile fell by 3.6 percent and 3.7 percent, respectively, compared with a 2.1 percent decline at the 90th percentile.

Between 1999 and 2008, income at the 50th and 10th percentiles decreased 4.3 percent and 9 percent, respectively, while income at the 90th percentile was statistically unchanged.

Previous posts on this topic:

11Sep09: Study Shows Wealth Inequality Greatest Since 1928

11Apr09: Republicans and Democrats Engage in Silly Debates, While the Modern Whigs Propose Real Solution to Inequality

29Oct08: Spreading Opportunity

11May08: In Praise of Competition


Anonymous said...

Reality is that we who support the Modern Whig Party must get the word out to our countrymen. This issue is a ticking time bomb. The GOP and Dems are aware but unconcerned as they are too beholden to the lobbyists and special interest groups. Our country could, could experience violence in the future if something is not done.

Greg said...

I just joined the MWP and I have thoughts on this matter. I see two ways to begin to address this matter: one is to promote a negative income tax system similar to what the late Milton Friedman proposed combined with a simplified tax system (to encourage economic growth). The second is to look at the ideas of binary economics which advocates creating capital accounts for all as a way of expanding popular ownership of the economy--and by consequence, popular power. There are other benefits to a society which does not have a large income gap: one unforeseen consequence is the health and longevity of those society's populations is much better--and the violent crime rate is lower--than those who don't. Hmmm, worth a discussion, eh?