Income Gap in the United States

There is a growing divide between the rich and the poor in the United States.

Timothy Noah wrote a ten-part series on titled The United States of Inequality.

NPR radio’s Talk of the Nation had a show titled Climbing the Economic Ladder Getting Harder where Timothy Noah was one of the guest talking about income inequality.

In the program, the guest talked about the United States’ social mobility. It is true that anyone can become whatever they want if they work hard. But this is rarer than one might expect. There are actually other countries in Europe and Canada that has greater social mobility than the United States.

Here is another view from YouTube…

Wealth a Zero-Sum Game

Economist Robert Reich talked with Fresh Air radio in September 2010. The title of the program explains it all: “Reich Blames Economy’s Woes On Income Disparity” (which you can listen to in the link provided.) He compares this recession with the Great Depression and says that just prior to both there was a great concentration of income in the hands of the very rich.

Robert Reich is professor of public policy at the University of California Berkeley and wrote a book called Aftershock: The Next Economy and America’s Future about all this. In his book, he says “By 2007, the richest 1 percent took in 23.5 percent of total national income.”

Some people believe that wealth of a nation is a “zero sum game” (see link here for example). That just means that there is a fixed amount of wealth to go around. So if one person increases his or her wealth, another person’s wealth decreases by the same amount. Think of it as apple pie, where everyone can have a share of it. If one person takes more, the rest have to take less.

in this case, the 1% of the people took more than 1/5 of the pie.

Reich says that this income inequality is why recovery is so anemic. When the rich is taking in a lot of the income, the middle class no longer had enough money to keep the economy going. The middle-class can not longer work longer hours. Their work hours per week had already increased a lot in the past three decades and women has fully moved into the workplace in the past three decades. The middle class is working more than ever before. So there is not more mechanisms left for the middle class to make more money. And in fact, in order to maintain their standards of living, some are going into debt. This is why he calls the debt bubble of the middle class. Now with the rich taking in so much money. They probably have more money than what they know to do with. So they start speculating and using their excess money on speculative investments. So now you have the combination of the bursting of both the debt bubble of the middle class with the speculative bubble of the rich.

Book: “Crunch: Why Do I Feel So Squeezed”

Economist Jared Bernstein video “Crunch: Why Do I Feel So Squeezed” on also talks about the wealth imbalances. The video was dated April 2008 (just when the global recession just took hold). He tells us why he thinks the economy is broken. He has a book of the same name.

Income Gap is Increasing

This picture shows the US incomes between the rich and the poor over the period from 1947 to 2007 (taking into account inflation and normalizing the dollar values to 2007 dollars).

From WikiMedia Commons


The top blue line is the rich. And the bottom red line is the poor. See how the graph of the rich increases steeper than the graph of the poor. See how the gap between the two lines is relatively modest in 1947. See how the gap between the two lines is relatively large in year 2007. That is the reason why back in 1947, the average family can live on a single income. But as of 2011, the average family typically needs two income in order to live.

Articles on Income Inequality in the United States

Others are saying similarly.

Early in 2010, the article says ..

“The U.S. already had the highest inequality of wealth in the industrialized world prior to the financial crisis — and it’s gotten even worse.”

And in summer 2010, article on Center of Budget and Policy Priority says …

“The gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007”

The article has a couple of illustrative charts that highlights this growing divergence between the rich and the middle class.

Back in 2009, HuffingtonPost said “Income Inequality Is at An All-Time High”[ref]

Even back in 2006, University of California Santa Cruz website has article saying “the richest 1% of people in the world receives as much as the bottom 57%”[ref]

Income Inequality Mentioned in Books

Page 108 of the book 23 Things They Don’t Tell You About Capitalismsays that the United States has one of the most unequal distribution of income among the wealthy countries:

“Given that the US has by far the most unequal distribution of income among the rich countries, we can safely guess that the US per capita income overstates the actual living standards of more of its citizens than in other countries.”

And on page 257:

“executive pay in the US has gone into the strotosphere in the last few decades. US managers have increased their relative pay by at least ten times bewteen the 1950s and today (an average CEO used to get paid thirty-five times an average worker’s salary then, while today he is paid 300-400 times that) … Even excluding stock options, US managers are paid two and a half times what their Dutch counterparts are or four time what their Japanese counterparts are, despite no apparent superiority in their productivity.”