Rising Income Inequality in the US: Divisive, Depressing, and Dangerous

Thursday, February 4, 2010 by Richard Wolff

The gap between what the top 10 per cent of Americans earns per year and what the rest of us gets has been widening sharply for the last 30 years. The nation’s economic development has thus been increasingly divisive. The work of Professor Emmanuel Saez of the University of California at Berkeley, a leading expert, shows the facts all too clearly. His summary figure below comes from his website: http://elsa.berkeley.edu/~saez/. There you can see how the top 10 per cent of income earners in the US took home an ever more outsized share of the total national income starting at the end of the 1970s.  The top 10 percent took 30-35 per cent of total national income from the early 1940s to the earl 1980s. Then their share rose to its current 45-50 per cent level.

By Saez’s measurements, income inequality in the US is now greater than it has ever been over the last century. It is much, much greater than it was in the thirty years after World War 2 ended. From 1980 to 2007, the US became a far more unequal society.

Income inequality – and especially rapidly rising income inequality – provokes envy, resentment, and tension in a society. They lie behind the more visible signs of bitter hostilities on talk radio, in harshly fought legislative struggles between liberals and conservatives, in nasty outbursts at tea parties and by politicians unaware the microphones are still on, and in election outcomes that break with past patterns.

There is no mystery about why income inequality got so much worse. The real wages of average workers stopped rising during the 1970s (after having risen for a century or more). Meanwhile those workers’ productivity rose. They produced ever more goods and services for their employers to sell, but their employers no longer had to raise their wages to get that work from them. Employers and those they support (share-holders, top managers, professionals, etc.) thus “earned” ever more as workers’ incomes stagnated. That top 10 percent got an ever bigger share of the total national income, while the other 90 per cent of us were left with an ever smaller share.

The problem is that huge numbers of American workers did not know, nor were they informed, why they were falling ever further behind the wealthy top 10 per cent. They did not understand that their decline flowed from the changed social conditions (especially the computers that replaced so many jobs and the jobs employers moved out of the US to lower wage locations). Employers took advantage of those changed social conditions to stop raising the wages paid to their US employees. Nothing personal; it was just business.

Not seeing how changed social conditions combined with the economic system that drives employers’ decisions caused their falling income shares, many workers instead blamed themselves or friends and family or still other scapegoats.  Workers who blamed themselves then suffered from damaged self-esteem. Those who turned in frustration on friends and families suffered from strained intimate and personal relationships. And those who scapegoated still others (immigrants, politicians, and, after 2007, bankers were popular scapegoats) found themselves drawn into harsh, mean-spirited movements that demonized and dehumanized their targets. The personal lives, feelings, relationships, and communities of US workers – not just their relative incomes - were victimized by the country’s divisive economic development over the last 30 years.