The Center for Global Awareness is releasing our 6th book this summer: Connecting the Roots of a Holistic System: The Global Economy, A Brief Edition. The book is for students in grades 9-12 and non-economic major undergraduate students. To celebrate this event we are publishing a series of blogs this summer that summarize the essence of one of the chapters in the book: The Impact of Neoliberalism in the United States: Ten Consequences. We hope you follow and enjoy the blog series! The following blog is the ninth in the series.
Impact #9: Widening Social Inequality
The bottom line is that people who work for a living are getting a smaller and smaller slice of the nation’s economic pie. The #9 impact of neoliberalism is the growing gap between rich and poor in the U.S. and worldwide. We will concentrate on the U.S. in this section and look into global inequality in chapter 6.
The neoliberal solution to poverty is to grow the economy. As President Reagan announced, “A rising tide will lift all boats.” But a rising tide has not lifted all boats; some critics claim the rising tide has only lifted the yachts. If the government spread the benefits of economic growth more equally throughout society, everyone should have been almost 20 percent better off in 2008 than they were in 1998. This has obviously not happened. The assumption that continuing growth would close the social gap has not happened; in fact, it has gotten worse. Growth will not reduce social inequality.
The postwar years ushered in such programs as an expansion of public higher education, which reduced economic inequality and helped to expand the circle of prosperity. Income tax rates of 70 percent to 90 percent on the highest incomes paid for most of these social programs. Real wages for workers in manufacturing rose 67 percent and real wages overall rose 81 percent. Income of the richest 1percent also rose 38 percent. This period marked the expansion of the American middle class. As this group shared more of the economic gains, they were able to buy more of the goods and services the economy produced. Growth was widely shared, and income inequality continued to drop.
Income Inequality by Percentages When looking at inequality, it helps to look at the levels of income and wealth distribution. Where to start? Let’s start at the top.
- The Top 1% Where have all the economic gains gone in the last 30 years? To the very top. The lives of those in the top 1 percent have improved considerably. In 1979, they had 9.3 percent of all income in the U.S.; by 1985, their portion had climbed to 12 percent; by 2000, the share was 17.8 percent; and in 2011, it stood at 24 percent. In terms of wealth rather than income, the top 1 percent had 33.4 percent of the total net worth in 2001, while in 2011, that climbed to 40 percent. These figures are the highest since 1928, just before the Great Depression. The richest 1 percent of households earned as much each year as the bottom 60 percent put together; they possessed as much wealth as the bottom 90 percent. The top .01 percent has made even greater gains. Between 2001 and 2007, the 400 richest individuals in the U.S. saw their wealth increase from $1 trillion to $1.6 trillion – an increase of $600 billion.
- The Top 10-20% A tiny 1 percent elite continues to float above everyone else. Below it, sits the professional middle class – an upper level of college graduates. Families earning about $113,000 annually in 2009 would be in the top 80 percent in income. College graduates make up only about 30 percent of the population, and throughout the 2000s, their incomes barely budged. A college degree may be losing some of its economic luster. As more Americans have gone to college, the quality of college education has become more inconsistent, and the value of a degree from a nonselective school has gone down. The future for an average college graduate is not bright, while that of a student from a selective college is good. A college degree is not the kind of protection against job or wage loss that it was in the past.
- The 80-90% and Below An important economic trend in the United States over the past couple of generations has been the sorting of Americans into winners and losers and the slow hollowing-out of the middle class. The incomes of the bottom 90 percent of Americans have been stagnant for almost three decades. Between 2000 and 2010, median income for working households fell from $61,574 to $55,276.
The true center of American society has always been its nonprofessionals – high-school graduates – who make up 58 percent of the adult population. And as manufacturing jobs and semi-skilled office positions disappear, much of this group is drifting downward. For young adults without family wealth to help them, trying to join the upper economic tier is like running after a departing bus. Were it not for the fact that the average family was working at least 500 more hours a year in 2000 than in the 1970s, mainly because of women’s entry into the labor force, incomes for the middle would have fallen even farther.
The bottom 30 percent of Americans – 100 million people – have an average net worth of $10,000 or less. And, more than 50 million Americans have negative net worth – they owe more than they own.
- Poverty, the 15% and Below Increasing poverty is one result of rising inequality. The combined impact of high unemployment and declining wages has resulted in a national povertyrate in 2010 of 15.1 percent. This was up from 14.3 percent in 2009. State-wide, poverty rates range from 8.3 percent in New Hampshire to 22.4 percent in Mississippi. Since 2010, poverty has expanded by an additional 2.6 million people, bringing the total number of Americans in poverty to 46.2 million. The poverty rate for children was 22.0 percent in 2010, representing 16.4 million kids living in poverty. In 2010, more than one-third (35.5 percent) of all people living in poverty were children.
Fifty million people or 17.4 million families couldn’t buy sufficient food in 2009. About one million children from more than a third of these households missed meals regularly. A total of 1.6 million people used emergency shelters or transitional housing during 2007 – 2008, suggesting that 1 in every 50 Americans used shelters at some point. About 170,000 families lived in homeless shelters.
Insights: Inequality and Neoliberalism
The neoliberal policies of the last 30 years and the double whammy of economic globalization have hurt the bottom 80 percent of the U.S. population. Economic history has shown that the more laissez-faire an economy, the more unequal it tends to be. If you are in the top 20 percent of the income scale, you are likely to gain something from neoliberalism, and the higher you are up the ladder, the more you gain. On the other hand, the bottom 80 percent all lose, and the lower you are on the ladder, the more you lose.
Many neoliberals do not believe their policies have contributed to greater social inequality. They counter that those whose wages have stagnated should improve their skills by getting further education. Yet, the weakening of all the equalizing institutions mentioned above contributes far more to the new inequality than changes in demand for skills. Blaming the economic plight on the individual is a handy escape hatch for politicians, economists, and commentators to avoid discussing the more politically loaded factors, such as how the system is organized and for whose benefit. Moreover, focusing on education conveniently blames the government and public school teachers for the problems. Neoliberals have a ready solution to education shortfalls: school vouchers and privatization of education.
- Do you think the emphasis on social inequality should be a major concern for Americans today?