Wednesday, June 16, 2010
Despite Recession, Income & Wealth Inequality Growing
Prior to the 2008 financial crash and subsequent recession, income inequality in the US had reached highs not seen since the run-up to the Great Depression.
And yet, since the stock market has recovered much more quickly than the broader economy, the situation has actually gotten worse.
Even though the stock market slumped into early last year, the Dow Jones industrials gained 19% over the course of 2009. And because the rich own a significantly larger potion of all assets, they have enjoyed a nice wealth rebound the rest of the country hasn't.
As a result, the millionaire class now holds a larger percentage of the country's wealth than it did in 2007.
According to data just released by Boston Consulting Group, the number of US households with at least $1 million in "bankable" assets climbed 15% last year to 4.7 million, after tumbling 21% in 2008.
And the percentage of total wealth held by those households increased slightly from 2007 -2009, to 55%, according to the consulting firm.
The middle class relies on home values for a larger slice of family wealth, yet the Federal Reserve reported that the net value of real estate owned by US households fell again in the first three months of this year, after sinking a total of $7.7 trillion from 2007-09.
Despite the declines in home equity, the stock market rebound was so great that Americans' collective net worth still managed to grow 4.3% last year and 2% in the first quarter of 2010, the Fed reported.
The middle class clearly hasn't noticed.
Incredibly, instead of reducing income inequality, the Great Recession has actually worsened a problem that's been growing for more than 30 years.
According to Lawrence R. Mishel and David M. Frankel (The State of Working America), in 1973 the median male weekly wage was $486.10. Corrected for inflation, that is $2,361.45 in 2009 dollars, or $122,795.40 annually. In its report entitled "Usual Weekly Earnings of Wage and Salary Workers: Second Quarter 2009", the Bureau of Labor Statistics reported that the median male weekly wage is now $815, or $42,380 annually.
So, there's been a nearly two-thirds reduction in male wages. Inexpensive debt had previously concealed some of the ramifications of that collapse in real wages. That reality can no longer be hidden.
These findings are not unique.
According to the CIA World Factbook, since 1975, practically all the gains in US household income have gone to the top 20% of households.
In the fall of 2008, Time Magazine reported that the bottom 99% of American wage earners experienced a growth in real average income of just 8% since 1980, while that of the top 1% jumped 177%.
The surprising fact isn't that the rich are so rich; it's that a substantial portion of Americans are quite poor, while many others are part of the middle class only by a very slim margin.
According to an analysis of wage data by Pulitzer Prize Winner David Cay Johnston, 33% of US workers make less than $15,000 annually, and 76% make less than $50,000 annually. Johnston says that roughly half of American workers make less than $500 per week. This supports the contention that the middle class is vanishing.
This is not the sort of equality or equal opportunity generally associated with the US. Perhaps we imagine this inequality taking place in other nations, but not here.
The 30-nation Organization for Economic Cooperation and Development (OECD) released a report on income distribution and poverty in October 2008. The report highlighted global gaps between rich and poor. Guess what great industrialized nation had the fourth highest inequality in incomes, followed by Mexico, Turkey and Portugal? Disturbingly, it was the US.
The report stated, "Rich households in America have been leaving both middle and poorer income groups behind. This has happened in many countries, but nowhere has this trend been so stark as in the United States."
So the wealth has not been getting spread around, as some contend; it's been going in one direction — up.
The thing that masked this polarization was the massive expansion of consumer credit in the last decade.
In 2007, consumer debt came to equal gross domestic product, meaning that Americans owed as much as our entire economy was worth. And by 2008, household debt had reached $14.5 trillion, actually exceeding our $14.2 trillion GDP.
To make up for decades of stagnant wages, and to perpetuate our continual-growth economy, lending practices were loosened and credit was made cheap and easy. People were made to feel affluent with money they didn't really have, but would eventually need to pay back – with interest.
This is how the masses, the common folk, were allowed to participate in our consumption economy along with the truly affluent. It was simply an illusion of wealth for millions, an illusion rooted in debt.
Unfortunately, millions of Americans — ostensibly part of the middle class — are now paying the costs of their indebtedness through a decreased standard of living.
Wealth and income inequality are resulting in a very big difference in the way the Great Recession is being felt and experienced by the vast majority of Americans. For most, further indebtedness is either unwanted or unattainable, and the new reality is unaffordable.