INCOME INEQUALITY

Income inequality is moving to the front burner as a political issue. Mentioned frequently at this time. Expected to be a primary issue in the 2016 Presidential election.

I am motivated at this time to write because of an article which appeared in the September/October edition of Foreign Affairs. Foreign Affairs is the publication of the policy setting Council on Foreign Relations. The Council is a widely respected non profit think tank.

The article was straight forward and to the point. Its message was to the Federal 
Reserve. The Council recommended that the Federal Reserve side step the banks when loaning/processing money out. Banks comprise a significant part of the 1 percent. The money instead should be directly processed to the 99 percent. Again, eliminating banking professionals. 

Main Street not Wall Street is in need of funding. To save the economy, money has to get into the hands of the people.

The reason suggested for the change was simple. The banks are not loaning money to the people. Instead, the banks are generally placing the money they receive in interest bearing Federal Reserve accounts. The profits go back to the 1 percent who then park the monies in offshore accounts to avoid taxes.

Life satisfaction has been in steady decline during the past several decades. The United States is increasingly becoming an early Patrician / Plebeian society.

Through the early 1970's, the economy was stable. Most had a place at  the table and were enjoying the fruits of their labor. Since that time, a change has occurred. The rich have gotten richer and the poor poorer. Today, one half of the American population lives in poverty or on low incomes.

Whereas, a select group has emerged earning incomprehensible sums of money. An example is hedge fund manager John Paulson who is reported to have earned $4.9 billion in in 2011. Note billion, not million.

What has caused our country to become a 1 percent / 99 percent society?

I wish to set forth briefly a number of items which have contributed from my perspective to the dilemma. 

Most income growth has gone to those at the top. The rarefied air of the CEOs and others at the highest levels of corporate and banking life.

The 1 percent / 99 percent gap which became clearly apparent in 2012 is the widest since the 1920's. In 2012, the incomes of the wealthy 1 percent rose 20 percent as opposed to the 99 percent whose incomes rose only 1 per cent.

Productivity has increased over the last 20 years. Average hourly earnings have not. They have remained essentially flat to down. 

Today's dollars equate to 1970 earnings.

Those living in poverty in the United States today number 46.2 million. At a time when corporate profits have reached the highest level in decades. One truth seems to escape attention. The profits in a majority of instances were as a result of reductions in wages and benefits.

From 1992-2007, the top 400 income earners saw their pay increase 392 percent. In addition to which they also experienced a tax rate reduction of 37 percent.

Since the 2008 recession, only the wealthy have received raises. The average American worker has seen no boost in his pay check.

Politics comes into play. Under Democratic Presidents starting with Truman, work men at the bottom of the scale experienced the greatest income gains which tapered off as income rose. Under Republican Presidents, income gains were concentrated at the top, tapering off on the way down the income scale.

The era of income inequality growth coincided with the decline in labor union membership. From 20 percent in 1983 to 12 percent in 2007.

An imbalance between rich and poor is the oldest and most fatal ailment of all republics. The United States is drifting towards a form of oligarchy. The increasing influence of corporations and the wealthy leads to a class system. Unless change occurs, the class system hardens into a permanent one.

Starting in 2000, corporations and businesses have employed thirty times as many Washington lobbyists as trade unions. They also employ sixteen times the lobbyists as labor, consumer and public interest groups combined.

From 1998-2010, business interests and trade groups spent $28.6 billion on lobbying. Labor, only $492 million. Giving business a 60-1 advantage.

Congress is owned by corporate and banking America. Former House Majority Leader Eric Cantor is a perfect example. He lost his primary. He resigned Congress. He has been hired by a banking boutique at $3.45 million the first year. While he was Majority Leader, his wife was on the payroll of Goldman Sachs and NY Private Bank & Trust.

The Federal Reserve reported that since the recession, rich families increased their fortunes while poor families experienced cuts in their incomes.

To stimulate an economy, money has to be spent. Since only the rich have money, they are the ones to do the stimulating. They are not. The rich are not spending their money, except on pleasure items such as planes, yachts and trips. An economy without spending stagnates, will not grow, and eventually will creep downward.

If the Republicans were to be believed, one of the evils screwing up the economy is the social welfare net government provides to those that are not in a position to afford, have less or are without. Things like Social Security, Medicare, food stamps, and breakfasts for children. 

Not so. Surprise. Today the United States has the weakest social safety net of all developed nations. Some where around 23 in number. Our poverty rate is the highest, Our child poverty rate also the highest (1 in 5). One reason for a high poverty rate is a low level of social expenditures.

The government is forced to pick up where corporate America fails. Walmart is an example. Walmart experienced a $15.7 billion profit last year. Their average pay was $10 an hour. A high percentage of Walmart employees are on public assistance. One Wisconsin store's employees received $900,000 in public assistance.

Banks likewise pay poorly their underlings. A significant number of bank employees receive some sort of public assistance.

While the 99 percent suffer, the Dow and S & P 500 hit their highest levels this year. Dow went over $17,000 and the S & P $2,000.

The average American net worth dropped 43 percent since 2007. Just as the recession was about to hit. Things are supposedly better today. However, the average net worth figure has neither improved nor moved significantly.

Of the full time employed, 40 percent receive some sort of welfare. Welfare includes Medicaid, food stamps, women and children programs, public housing subsidies and temporary assistance to needy families.

The Brookings Institute in a recent study reported that 4.3 percent of American families survive on less than $2 a day. A tiny percentage of the 4.3 percent survive on less. Less being described as negative income and benefits.The study was part of a Social Science Review which raised the question whether the United States was becoming a third world country

Half the workers in the United States earn less than $27,520 per year. Not enough to feed a family, make car payments, pay mortgages and health insurance, provide food and clothing. 

Corporate and banker CEO salaries are the highest ever. And yet corporations are opposed to raising the minimum wage to $10.10 over a period of years.

Labor force participation rates are at a 35 year low. There are not enough jobs for everyone. Forty four percent of college grads with bachelor degrees are not working in the area for which they were educated. And whatever the job, they are working at low wages.

Babysitters earn on average twice the minimum wage or more. In Key West, many babysitters are paid $20 an hour.

I could go on. The need for federal programs for highway, bridge and school repair and construction. The Republicans remain adamantly opposed. Somewhere along the line they forgot that a stimulated economy only occurs where both the rich and less than rich are working. Both then spend money which is the only way to get the economy going.

The wealthy's trip to the top of the economic ladder continues to zoom. Like there is no stopping It. In the meantime and as a result of the economy, tens of millions of Americans are dropping out of high school and college. A society requires educated persons to move it ahead.

People in general are unhappy and discouraged by the state of affairs reflected herein. A people will only tolerate being defecated upon for so long. Then they protest. Protests lead to demonstrations. Demonstrations to violence. Then what? I believe one of the reasons for the militarization of the police is to protect the status quo in the event the 99 percent become so unhappy that they won't take it any more.

I do not see things changing. I worry.