Growing income disparity and its consequences

June 7, 2012 | By | 7 Replies More

Joseph Stiglitz has some shocking numbers:

Nowadays, these numbers show that the American dream is a myth. There is less equality of opportunity in the United States today than there is in Europe – or, indeed, in any advanced industrial country for which there are data. This is one of the reasons that America has the highest level of inequality of any of the advanced countries – and its gap with the rest has been widening. In the “recovery” of 2009-2010, the top 1% of US income earners captured 93% of the income growth. Other inequality indicators – like wealth, health, and life expectancy – are as bad or even worse. The clear trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom.

This is troubling, but not merely for a sense of mathematical equality or even gut level justice. This is bad news because income disparity hurts people in predictable and demonstrable ways.

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Category: Economy, income disparity, Quality of Life

About the Author ()

Erich Vieth is an attorney focusing on consumer law litigation and appellate practice. He is also a working musician and a writer, having founded Dangerous Intersection in 2006. Erich lives in the Shaw Neighborhood of St. Louis, Missouri, where he lives half-time with his two extraordinary daughters.

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  1. grumpypilgrim says:

    One of my biggest concern in this area is the increasing barriers to higher education. With tuition increasing at double the rate of inflation, and cuts to student financial aid a constant favorite of GOP lawmakers, access is less now than at any time since WWII. With U.S. job seekers competing on an ever more global scale, education is one of the few things that can help set them apart. Without education, they have to compete with cheap labor that is available for far less nearly anywhere else on the planet.

    Another aspect of the growing disparity of wealth is the seemingly unending trend of people seeking more upscale neighborhoods. In my grandparents’ and parents’ day, school teachers and postal workers lived in the same neighborhoods as doctors, dentists and lawyers. This forced elected officials to consider the needs of both rich and poor populations in their districts. Today, that level of diversity is increasingly hard to find. People (who can afford to) group themselves according to income, so their elected representatives now focus on a relatively narrower set of expectations and utterly ignore everyone else. Thus, the partisanship we see in elected officials in Congress and the statehouse merely reflects the fact that political districts are increasingly homogeneous. Not only financially, but also politically due to gerrymandering.

    One last point to mention is that the U.S. has probably reached a point where double-digit economic growth is no longer possible, due to environmental problems and lack of available natural resources. When the national economy grew at 10-12% (for example), there was plenty of new money to go around. Today, with growth barely hitting 2% in a good year, the pie isn’t getting bigger, so the economy is more like a zero-sum game; e.g., in order for Wall Street or the wealthy to win (which they tend to do because they make the rules), Main Street or the middle class are going to lose. Not only does this tend to concentrate wealth, it also tends to produce a bunker mentality in both groups that exacerbates the problem.

    • Erich Vieth says:

      Grumpy: On the topic of upscale neighborhoods, I just vacationed in San Francisco. I walked many miles through many neighborhoods. There is, with a few exceptions, a notable absence of children or evidence of children. A friend of mine who resides in San Francisco acknowledged that this is getting to be a big problem, that the houses are so incredibly expensive that many families can’t afford to live in SF. For those who seek a truly diverse place to live (meaning families with children mixed with families without), this is a drawback in a city that is otherwise incredibly diverse and open to difference.

  2. Adam Herman says:

    This is normal for a recovery. The only way to get the rising tide to lift all boats is for the economy to boom long enough, usually at least five years. We saw the same pattern during the Clinton boom. Once unemployment drops below 5% or so, labor costs start to rise and benefits even unskilled workers. But as long as there is a surplus of unskilled labor, the bottom has no chance.

    I would also note that there is a serious conflict in goals between closing the income gap and liberalized immigration policies. as Paul Krugman has said, you can have a welfare state or liberal immigration, you can’t have both.

  3. grumpypilgrim says:

    Erich, I had a similar experience in the Twin Cities in Minnesota. One friend of mine lives in a mixed-race, mixed-ethnicity, low-income community in St. Paul; another friend lives in the upscale, virtually all white community of Minnetonka. After visiting the friend in St.Paul, it is quite a shock to visit the other one.

  4. Adam Herman says:

    Matt Yglesias and Ryan Avent cover the issue of building regulations making it difficult for families to afford housing extensively. It’s interesting, because while those two are what conservatives would call big government liberals on federal issues, they really advocate for local governments to lay off on the micromanagement of building codes, zoning regulations, and business regulations. It really does serve just to keep poor people out, which contributes to gentrification.

  5. Adam Herman says:

    You can’t leave out the influence of race either. I dare say that the upscale whites were just fine and dandy living with downscale whites, but once more and more African-Americans and Hispanics started entering the middle class and housing discrimination was outlawed, these upscale whites weren’t about to live in mixed neighborhoods, so they left and created regulations which keep minorities out. And since politicians tend to live in these neighborhoods as well, this kind of discrimination is considered legal.

  6. Erich Vieth says:

    Joseph Stiglitz, as reported by the LA Times:

    “Countries with high inequality tend to underinvest in their collective well-being, spending too little on such things as education, technology and infrastructure. The wealthy don’t need public schools and parks. That’s another reason economies with high inequality grow more slowly. Indeed, the United States has grown much more slowly since the 1980s, while inequality has been growing more rapidly than it did in the decades after World War II, when the country grew together.”

    http://www.latimes.com/news/opinion/commentary/la-oe-stiglitz-inequality-20120722,0,4061042.story

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