notes of growing u.s. income inequality

8/7/2019 Notes of Growing U.S. Income Inequality

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Notes by slide for Growing Income Inequality

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#1 This Power Point presentation is a lecture delivered at San Diego State

University on April 18th, 2011 to participants in the Osher Program. I am its

author, Denny Braun, Professor Emeritus of Sociology, Minnesota State

University (Mankato). I began my professional career as a

demographer/statistician at the U.S. Census Bureau in Washington, DC. After

joining the faculty at MSU in 1968 I remained teaching and doing research at

this university until my retirement 33 years later.

#2 Right from the start of my career, I had an interest concerning Income

Inequality. Inequality had become virulent by the early 1980s, when I began

research for a book on this problem. My 1st Ed. Of THE RICH GET RICHER

came out in 1991, and the 2

nd

Ed. was published in 1997. What follows is anupdate of facts uncovered in my prior research.

#3 Absolute income inequality (differences between households in actual, real

dollars) is increasing (the rich are “getting richer”!).

#4 The middle class is shrinking.

#5 Poverty has been increasing

#6 U.S. Multinational Corporations have caused much of this growing income

inequality--both in the United States and in the World. Unfortunately, I cannot

address this topic today because of time restraints, but it is thoroughly discussed

in my book.

#7 Huge disparities exist between U.S. locales on income inequality

#8 The growth of relative income inequality is not only continuous but has

become explosive

#9 Gross Domestic Product (GDP) per capita is the value of all final goods and

services produced within a nation in a given year divided by its mid-year

population, converted at market exchange rates to U.S. dollars. PPP means

“Purchasing Power Parity” which adjusts for differences of inflation, cost-of-




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living, taxes, etc. These and other concepts are more fully explained in the

accompanying Word document entitled “Suggested Further Sources on

Growing Income Inequality”. To begin with, The U.S. is NOT the richest

country in the world, ranking 9th behind such European countries as

Luxembourg (#1), Norway (#2), Switzerland, Denmark, etc. Two anomalies,

Qatar and the United Arab Emirates, are oil rich sheikdoms illustrating the

great wealth characteristic of oil exporting nations. The PPP column in the far

right of this table illustrates that the U.S., with its comparatively “light” tax

burden among nations, improves its world position to 6 th richest. But even

here, note that we are still 69% below second place Luxembourg

#10 When median household income is compared among U.S. states, one can

easily see the richest states (dark green) are on the Eastern seaboard and inNew England, together with Alaska and Hawaii. A second tier of well-off states

(medium green) form the Upper Midwest and a few western states

extending to the Pacific coast. Poor states (light yellow) are mostly in the

South. Median household income for the entire U.S. was $50,303 in 2008.

#11 Specifically, here are the top and bottom 6 states by median household

income. While Maryland is a “Southern” state, it contains wealthy suburbs

next to Washington, DC.

#12 By looking at household income in over 3000 U.S. counties, these regional

patterns still prevail. Note that even wealthy states have some counties that

are not affluent. One can also see richer, metropolitan counties that have

household income well above average: Dallas, Houston, Denver, Minneapolis-

St. Paul, Chicago, Seattle, San Francisco, Los Angeles/Orange County, and San

Diego.

#13 When median household income is adjusted for inflation, it is called“REAL MEDIAN INCOME” or “CONSTANT DOLLARS”. This allows us to compare

trends over a period of 42 years translated to today’s dollars (2009 in our

table). It is easy to see a flattening of income from the year 2000 to the

present for all racial groups. This occurred well before the Great Recession

which began in January of 2008. In constant 2009 dollars, median House Hold




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income peaked in 1999 at $52,301 for all households and has DECLINED ever

since—reaching a low of $49,777 in 2009 (-5% overall)!

#14 This bar chart indicates that the loss of income was not shared equally.

Looking at the red bars on the left, which describe the past decade, one can

see African American households lost 11% of their income, compared to minus

8% of Latinos and -5% for whites. The major point here, however, is that all

groups have been losing income within the past decade. Looking at the pink

bars on the right, which describe the 1991-2000 decade, it is obvious that all

racial groups made huge gains in real income prior to the start of this century.

#15 Who are the poor? What are their characteristics? Where do they live?

Have their numbers increased over time? How about the rate of poverty? Is

that unchanged?

#16 We can see that poverty contains a strong racial component: Blacks and

Hispanics are two and one-half times as likely to be poor than whites

(comprising one fourth of their entire populations). ). It is important to

remember, however, that Non-Hispanic Whites are the largest component of

poor people at 43% in 2010.

#17 The good news is that since the mid-1960s, when Social Securitypayments were indexed to inflation, the elderly are less likely to be poor. The

bad news is that one of every five American children lives under poverty.

#18 Many of those poor children live in female headed families, where nearly

one-third of families of this type are under poverty. Intact, married couple

families are quite low on poverty (about 1 in 16).

#19 This chart recounts the number and percent of those living under poverty

over the past 40 years. On the right side of the graph, one can see a rise in therate of poverty since the year 2000 AND a very steep increase in the number

of poor persons since that date as well.

#20 To begin with, how “poor” is poor? It depends on your family size and

your age. In 2009, were a single mom with 2 kids under 18, you were “poor” if




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your annual income was $17,285 or less. For a single person over 65 years old,

the cut off was $ 10,289.

#21 Within the past decade, the poverty rate has increased 27% for all

persons, and 30% for all families.

#22 Thus, the poor grew by 12 million in the past decade, totally obliterating

the 4 million reduction in poor persons that occurred in the 1990s.

#23 The number of Americans who are poor today, over 43 million, is at an all

time high and surpasses the population of most nations. One of every 7

persons in our country is poor!

#24 Many, many Americans have such low incomes that they are on the brink

of poverty at all times. In the four year period (2004-2007), just before the

onset of The Great Recession, nearly one in three Americans fell into poverty

for 2 or more months. The 2008-2011 figures will surely be even grimmer!

#25 Lastly, one of 11 elderly (65 and over) and 1 of every 5 children are living

under poverty today.

#26 These two innocent, vulnerable groups comprise 44% of poor people,approaching the 20 million mark.

#27 Unfortunately, the United States does not do a very good job protecting

our poor through social services and other governmental programs.

#28 The U.S. has an initial poverty rate lower than many of our industrial

peers (26.3%, compared to Sweden’s 26.7%, Germany’s 33.6%, U.K.’s 26.3%,

Japan’s 26.9%).

#29 After taxes and transfers, however, our poverty rate only declines to

17.1%. Of the 20 advanced countries, we are last in reduction.

#30 For example, Sweden goes down to 5.3%, Germany to 11%, U.K. to 8.3%,

and Japan to 14.9%.




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#31 Comparing poverty rates among U.S. states, it is easy to see that the South

leads the nation in the percentage of poor persons (dark blue states). Poverty is

least likely to exist along the northeastern coast (including New England) and in

Alaska and Hawaii (white states).

#32 Among the 6 best and 6 worst states on poverty rates, Wyoming is the only

state that stands out for its lack of poverty—and I am not sure why.

#33 Looking at poverty among all 3,140 counties, the poorest in 2010 are in dark

purple. Counties with the lowest poverty are white. Both poor whites and blacks

drive up poverty in the South, especially in rural counties. Lastly, even “rich” states

have pockets of poverty!

#34 About 15% of U.S. Households experienced “food insecurity” in 2009—which

translates to over 17 million American families

#35 These households were stalked by hunger and at times did not have enough

money to buy enough food at various times during the year.

#36 Nearly 7 million households (with one million children) had such severe financial

problems that they were forced to miss meals on a regular basis.

#37 Today, the number of households with hunger is at an all-time high since data

began to be gathered in 1995.

#38 The number of households experiencing hunger has tripled in the 3 years

between 2006 and 2009.

#39 So, what is the message we may hear from Wall Street Tycoons and the very

rich? Now that the stock market is making a rebound, and economists have declared

the Great Recession officially over, working Americans should “Get over it!”

#40 What about the “average” American? How is the proverbial American middle

class doing? In a word—“badly”!

#41 As a reminder, in all income comparisons from year-to-year and decade-to-

decade, the effect of inflation has been factored out (called “constant dollars” or




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“real dollars”). Since peaking in 1999 (at $38,720), median earnings for male

workers had sank 6% lower eleven years later ($36,331 in 2009).

#42 Female workers have done slightly better, going from $23,738 to

$26,030 in the same period—a 9.7% increase

#43 Thus, in a two-earner, husband/wife family, this means that earnings have

been stagnant for 10 years.

#44 Even more threatening is anemic job growth. Only 7 million new jobs

were created in 2002-2007 (before the crash)—compared to 20 million

created in the same 5-year period in the 1990s.

#45 The Bottom Line: Fewer Americans are employed today than a decade

ago, despite our population growing by 25 million.

#46 With an unemployment rate that recently peaked at 10%, the collapse of

the housing market, upside down mortgages where millions now owe more

than their homes are worth, and a foreclosure epidemic—we have witnessed a

new wave of homelessness hitting the middle class.

#47 Now that we’ve briefly looked at the poor and middle class in America,we can ask how the very rich have been doing?

#48 In 2007, just before the Great Recession hit us, the top 25 CEOs of

investment houses “earned” $22 billion (about the GDP of Costa Rica). The

top 5 managers each got over $1 billion in that year! (Page and Jacobs)

#49 In 2007, America’s top 1% of earners received 23% of the nation’s total

income (almost triple the 8% share they got in 1980). (Robert Reich).

#50 In the 1960s, CEOs of major American companies earned 25 times the

wages of their typical workers; by 1980 40 times; by 1990 100 times; by 2007

350 times. (Robert Reich). As of 2009, Michael Hiltzik (LA TIMES) reported a

Harvard study putting this ratio at 411 to 1.




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#51 The combined wealth in 2005 of Sam Walton’s family at $90 billion

(Walmart ), Bill Gates (Microsoft) at $46 billion, and Warren Buffet at $44

billion is much more than the $95 billion combined wealth of the bottom 40%

in the U.S. In short, 3 families own as much as 120 million Americans. (Robert

Reich)

#52 This bar chart documents the pay (in constant 2009 dollars) of the CEOs in

charge of our largest 500 corporations. Ignore the colors (separate salary

sources) and focus on the height of the bars. Even with a recession dip, they

are making 5 times their 1990 salaries.

#53 Most Americans are woefully Ignorant about how exorbitant CEO

corporate pay actually is. When asked how much they believe typicalcorporate CEOs “earn” in a year, Americans estimate their pay at $500,000 (20

times that of unskilled workers or sales clerks

#54 In reality, the CEOs of the largest Standard and Poors 500 corporations

make $14 million per year. (See Jacobs and Page, CLASS WAR).

#55 This is 700 times more than the average factory worker and 540 times the

salary of the average sales clerk! . This nearly tripled CEO pay (in “real” or

“constant” dollars) compared to 1989!

#56 Hacker and Pierson (in their book WINNER TAKE ALL POLITICS) assert that

these CEOs form the bulk of the top 0.1% of income recipients in the United

States.

#57 This top 0.1% (1 in every 1,000) increased their share of all income in the

U.S. from 2.7% in 1974 to 12.3% in 2007.

#58 When the capital gains of this richest 1-in-1000 is counted, this equals $1trillion per year.

#59 Looking at the data over the past 60 years, it is obvious that the

stupendous growth of income for the top 1% took off in 1980 (red line), after

the election of Ronald Reagan and the introduction of “trickle down”




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economics, tax cuts for the very rich, and de-regulation of businesses, banks,

and Wall Street firms. Again, while increases for persons in the 95th to 99th

percentile were gradual (gray line), they were not that substantial in

comparison to the top 1%.

#60 This cartoon portrays the relentless march of CEO pay into the

stratosphere. Nearly all studies indicate that CEO pay in the U.S. is quite

unrelated to how well their companies perform—there is a severe

disconnect—CEOs are paid exorbitant salaries even when their companies do

poorly. See especially graefcrystal.com. The cartoon also illustrates how

ineffective efforts have been by various groups to reign in these excessive

salaries.

#61 Most of these corporations that lavish pay on their CEOs are household

names. Take note of Mark Hurd, at California firm Hewlett Packard. He

resigned in August over a personal relationship with a marketing contractor,

but was awarded $53 million in severance pay by the HP Board of Directors

just to get him out the door. Shareholders are now suing in the San Jose

Federal Court in an attempt to get the money back.

#62 While CEO pay remained in the tens of millions, many Americans have

experienced a nosedive in their retirement portfolios, mortgages that haveturned upside down so that they owe much more than their home is worth ,

outright foreclosures or short sales, and an unemployment rate near 10%--the

highest rate in nearly a third of a century.

#63 For the remainder of my talk we will shift gears. Rather than speaking of

absolute dollar differences, we will now look at how income is “shared” in the

United States. We will examine “relative” income inequality, in the sense that

we can say the poor have only a third of the income of the middle class —and

so on. Why this is very important will be discussed as we go along.

#64 It was President John Kennedy who termed the phrase—”A Rising Tide

Lifts All Boats”—meaning the poor also benefit from economic growth.




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#65 It is true that our Real GDP doubled between 1983-2007 while our

population increased only by one-third, i.e., per capita real GDP actually did

grow over this past quarter century.

#66 On average, then, Americans should be better off —but this is definitely

not the case.

#67 To get a better idea of who benefits vs. those who do not, researchers

often divide income recipients into fifths (called Quintiles, or 20% segments).

#68 If income were even, each pie slice would be the same size. There would

be 5 equal slices.

#69 This is far from the case! For the last year of available data, in 2009, we

can see that the top 5th gets half the pie! In fact, the richest 5% of American

households received nearly one-fourth of ALL U.S. income. The bottom 3

slices—60% of all Americans—can be described as “not getting their fair

share”. The poorest 5th

received less than 4% of all income!

#70 Since 1947, at the end of WW II, every segment of American society

benefitted from economic growth until 1973. (top 3rd of graph). The bottom

third of this histogram shows that such sharing of income among all segmentsof our society ended by the year 2000. The middle segment of bar charts

shows a sharp developing of income inequality starting in 1973 up to the year

2000. While all segments are still gaining income, note that the top 5th has

increased its income at six times the rate as the poorest 5th. Since the richest

20% of families have much more income than the poorest 20%, this means the

absolute dollar increase would be very high for the wealthiest families. Lastly,

the bottom level of bar charts traces what has happened since the start of this

century. The great majority of American families (the bottom 60%) are now

losing money, while there is only slight growth in the richest two quintiles. Toreiterate: about two-thirds of American families have seen their incomes slide

down over the past decade. Moreover, since the impact of the Great

Recession is not accounted for in this data, this loss will be even more severe

in the future when data become available. (Source: Economic Policy Institute

using Census data)




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#71 This bar chart captures what has happened in the past few years. The

Great Recession has made everyone less well-off, but there has been much

less income decline at the top than at the bottom. And, as a reminder, the top

1% has likely become ever richer despite the Great Recession.

#72 Between 1945 and 1980, incomes increased on average by $19,000.

While the richest 10% of our population captured over 1/3 of this growth in

real dollars, the bottom 90% still received the other 2/3rds of the income

increase.

#73 Real income rose another $12,000 in the 27 years between 1981 and

2008. BUT—the richest 10% got almost all of this increase of income (96%),

while the bottom 90% received only 4% of the growth. In short, the very greatmajority of Americans have simply been totally shut out of any increase in

living standards.

#74 How much are these differences between groups in real dollars? In 2009,

the mean income of top 5% of households was over $295,000. For the bottom

5th, mean income stood at $11,552. This graph shows that this disparity has

been growing relentlessly over the past 40 years.

#75 The degree of relative income inequality can be graphed in what is calleda “Lorenz Curve”. The green line in this graph indicates perfect equality,

where everyone receives exactly the same income. The red line indicates

reality, because no society is perfectly equal. We can see that 40% of all the

income (the Y or vertical axis) goes to the bottom 60% of all households (the X

or horizontal axis). Exploring further, we can see that 60% of all income goes

to the bottom 80% of households. The Gini ratio is the area between the red

and green lines divided by the area in the the triangle—between the green and

blue lines. If all households had exactly the same income, Gini would equal

zero (0). If one household had all the income, and the rest of the householdshad no income, Gini would equal 1.0. Obviously, for all societies reality lies in

between.

#76 Some less technical reports now multiply the Gini score by 100%, implying

that the U.S. household income Gini score of .468 in 2009 is what we might call

47% unequal. However you interpret it, the march toward inequality has been




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relentless! The household Gini score in 1968 was .386, compared to .468 in

2009—a 21% increase in relative inequality occurring over 41 years!

#77 A quick glance of this U.S. map shows the most highly unequal states (in

red) are in the South and in the Northeast (NY, Conn., Mass.). Calif. Is the lone

western state among the most unequal. Green states are especially equal,

comprising the Midwest and New England.

#78 How to do we compare to the rest of the world in terms of our relative

income inequality measure, the Gini Ratio? This map courtesy of the CIA

World Fact book begins to indicate how UNEQUAL the U.S. is when compared

to other nations. While green and blue countries are more equal, purple and

red nations are quite unequal.

#79 The U.S. has a family income Gini score (not house hold Gini) of .450,

which makes us the 42nd most UNEQUAL of 134 countries ranked by the CIA.

This means our percentile rank of 31% on the World Equality Index puts us in

the bottom third of all nations when it comes to economic equality among all

families throughout the world! One can easily see that the most equal

countries are European. Sweden, at the top of the list with a Gini of .23, has a

score that would literally have to double to become as unequal as the United

States in its pattern of family income dispersion.

#80 It can be asked Why we should worry about relative income inequality

anyway? In terms of wealth, our country is still quite rich. Even if our bottom

two quintiles (40%) of households are much less well off than the top quintile,

are not they still better off in real dollars than in less developed countries?

There is room for grave concern, because research shows that high relative

income inequality is associated with a number of negative trends.

#81 High homicide Rates (among nations and among U.S. states)

#82 High rates of imprisonment (among nations and among U.S. States)

#83 High Teen Birthrates (among nations and among states)




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#84 High rates of illegal drug use (nations)

#85 High infant mortality rates (nations

#86 Lower life expectancy (nations)

#87 High rates of Mental Illness (nations)

#88 Low rates of contraceptive usage (nations)

#89 Lower access to safe water (nations)

#90 For detailed charts and graphs exploring these findings, see: RichardWilkinson and Kate Pickett, THE SPIRIT LEVEL: WHY GREATER EQUALITY

MAKES SOCIETIES STRONGER, 2009. See especially their free, downloadable

Power Point presentation at www.equalitytrust.org.uk

#91 For comparison between nations, Wilkinson & Pickett use the ratio of

income received by the top 20% of households divided by the bottom 20%. In

comparing U.S. States, they use household Gini ratios. Both are comparable

inequality measures. You can easily see in this scatter plot that U.S. states

with high income inequality also have much higher high school dropout rates.You will note that California, our home state, is high on both measures. The

area I am from, comprising the upper-Midwest states of Minnesota, Iowa, and

Wisconsin (together with Alaska, Utah, and New Hampshire), are very low on

both measurements.

#92 Nations with greater income inequality tend to have high school students

with much lower math and reading test scores. Note that the U.S. is at the far

right in the graph, reflecting high inequality and low educational scores.

#93 Murder rates are higher in more unequal U.S. States.

#94 Basic trust in our fellow human beings has been diminishing over time in

the U.S. as relative income inequality has risen. Distrust of others was at an

all-time high in 2006, the last year that data was available for this measure.

http://www.equalitytrust.org.uk/










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This is quite serious, since it equates with a breakdown of community—the

sense that we all have a shared destiny and that we’re all “in this together”.

#95 High relative income inequality among U.S. states is associated with low

levels of voter turnout. The latest data (2009) from the Center for Responsive

Politics reports that nearly half (261 of the 535 members) of Congress are

millionaires, while their yearly median income is $911,000. For Senators,

median income is even higher at $2.38 million per year. My question would

be: how can these elected officials really relate to the average American

household, which now has less than $50,000 in yearly household income? It

may be that many poor and average income Americans have become so

dispirited with uncaring, nonresponsive politicians that they no longer bother

to vote.

#96 This cartoon illustrates the reality that political power is increasingly being

wrested away from us by corporations, banks, and the very rich. For a cogent,

detailed, well-researched book on the damaging effect of corporations

financing politicians and political campaigns, see: Jacob S. Hacker and Paul

Pierson, WINNER-TAKE-ALL POLITICS: HOW WASHINGTON MADE THE RICH

RICHER—AND TURNED ITS BACK ON THE MIDDLE CLASS. 2010 (on handout).

#97 Our propensity to become fat, and therefore less healthy, is also relatedto high relative income inequality. States with high levels of obesity also tend

to have high relative income inequality.

#98 Lastly, unemployment tends to rise in U.S. states that are also high on

relative income inequality.

#99 It must be noted that American are aware of these incredible levels of

income inequality in our country. A majority of all Americans (black bars) want

to see income inequality reduced. This is true even among those who areRepublican (gray bars) and those with high incomes (white bars).

#100 Crankshaft has a compassionate view of income inequality despite his

being a curmudgeon! Here he is out having lunch with his buddies, explaining

that it will not matter if the economy improves unless everyone becomes

better off.




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#101 Finally, be sure to read Robert Reich, a former Secretary of Labor and

renowned economist, who has DETAILED suggestions in his must-read book,

AFTERSHOCK. His data show no trickle-down or economic boost given to

Americans by these cuts. Rather, investment by the very rich typically goes to

building new factories in China—further depriving our country of needed jobs.

#102 Cut defense spending/stop fighting needless wars (Stiglitz estimates the

Iraq War has cost $3 trillion)

#103 Invest in R & D (cutting-edge Green Technology)

#104 Re-industrialize our country, especially hi-tech areas!

#105 Continue to fully fund our public university system—the envy of the

world and the font of our national productivity.

#106 Reduce our national debt.

#107 Reinstate more progressive tax rates to protect the middle class (see

Robert Reich, AFTERSHOCK, NY: Knopf, 2010).

#108 What is to be Done? Personal Actions You Can Take

#109 “Think Globally—Act Locally”. Join local action groups that address

social ills (hunger, homelessness, political advocacy, etc.)

#110 Consume less, and when you do—buy carefully, e.g., coops. (Sounds Un-

American—right?) Read Annie Leonard, THE STORY OF STUFF.

#111 Read widely (NEVER STOP LEARNING), use unbiased news sources/avoid

hate-mongering broadcast media pundits, e.g., beware of the FOX in the hen-

house.

#112 Use “social cause” VISA cards like WORKING ASSETS.




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#113 Invest your retirement, IRAs, 401K money in Social Responsible

Investment (SRI) funding companies that “Do No Evil”, e.g., Calvert Fund.

#114 Avoid simplistic, extremist politicians hawking no-nothing solutions

(cutting taxes will not solve all of our problems, but only reward the rich).

#115 Network, Network, Network—especially through the internet. Power

accrues to individuals when they act as groups!

#116 Fatal acceptance leads to defeat. Never lose hope! To preserve

equality and democracy, we must not fail to act.

#117 Thank you so much!

notes of growing u.s. income inequality

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