New York Times columnist Bob Herbert points out a disheartening trend on how the financial crisis is increasing the gap between the rich and poor.
A rigorous new analysis for the Rockefeller Foundation shows that Americans are more economically insecure now than they have been in a quarter of a century, and the trend lines suggest that things will only get worse…
The team’s findings were grim. Simply stated, more and more families are facing utter economic devastation: completely out of money, with their jobs, savings and retirement funds gone, and nowhere to turn for the next dollar.
Economic insecurity has been increasing for at least a generation and perhaps longer, with very dangerous levels being reached in this latest recession.
There are many reasons for the increased insecurity despite the obvious effects of the ongoing economic crisis. Banks have been ripping off their customers. Deflation, if it occurs, will hurt the poor and middle-class the most since they have less savings that would increase in value in a deflationary environment. More people are defaulting on credit cards and other unsustainable levels of debt. Companies are hoarding cash instead of hiring additional labor or purchasing capital.
While the general trends are bad enough, the specific data on the increasing gap between the rich and poor is outright depressing:
• 61 percent of Americans “always or usually” live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.
• 66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans.
• Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
• In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.
• As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.
• The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
• The top 1 percent of U.S. households own nearly twice as much of America’s corporate wealth as they did just 15 years ago.
• More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.
• For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.
• Approximately 21 percent of all children in the United States are living below the poverty line in 2010 — the highest rate in 20 years.
• Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.
• The top 10 percent of Americans now earn around 50 percent of our national income.
Many free-market enthusiasts on the far right — and I do support capitalism myself — see no problem with the increasing wealth-gap. After all, as long as people become successful through legal means, what is the wrong in that? Everyone is free to compete in the market; some win, some lose. But they miss a couple of important points.
First, a lot of wealth transfer from the poor and middle class to the rich is through means that are unethical at best and outright fraud at worst. Second, an unrestrained free market leads to a collapse of the market itself. A textbook example is legal action against monopolies. In theory, a single, successful company will eventually dominate a market to the point where no one else is able to compete — and this leads to higher prices and lower quality simply because the firm will be able to do whatever it wants. At that point, the government will act to restore the market to equilibrium by breaking up the company and creating various competitors largely on equal footing. Back to square one.
The same is true in societies — an extreme wealth-disparity between the rich and poor is a market failure of society. When the rich control most of the money, investments, and capital, the poor and middle class are then unable to compete and increase their economic standing because the market is stacked against them. The rich have a monopoly as well — but this time on wealth.
Just as governments need to protect a functioning market by breaking up monopolies, so too does the government need to act to ensure that the gap between the rich and poor does not become too extreme.