America's Wealthy — and the Remaining Majority

Ninety-nine percent versus the remaining 1 percent: Only a very small part of American society benefits from economic growth and good fortune. And now the anger is growing.

The protest is giving off sparks. The fire that began in south Manhattan has spread to other places. They’re marching in San Francisco, the traditional home of America’s liberals; even in otherwise-drowsy Atlanta, protesters blocked downtown areas last weekend. The “Occupy Wall Street” protests have spread all the way to the Mall in Washington, D.C.

It’s not a transnational movement: The anti-war and anti-greed protest flares up only in big cities, and they seldom attract more than a few hundred activists. But the cardboard signs advertising their majority status, “We Are the 99 Percent,” always accompany them.

Ninety-nine percent against the richest 1 percent — that’s the battle line. Or, more precisely, that’s the divide. That rapidly growing chasm between the poor and the rich in America, that ever-widening income gap between the low wage earners and the few who earn millions is what drives them into the streets.

The trend began in the ’70s. Top management earnings since 1970 have more than quadrupled while earnings on average, and adjusted for inflation, have only risen a meager 26 percent. Whoever was already at the top got a lot richer a lot quicker since 1970. Incomes of the top 0.0001 percent rose 385 percent to $5.6 million a year between 1970 and 2008. The second-tier earners (those in the top 0.1 percent to 0.5 percent) gained 141 percent, earning an average of $838,139 annually. And those in the third tier (the top 0.5 to 1.0 percent) improved a full 90 percent to $443,102 a year. Those other 137 million Americans who comprise the bottom 90 percent of the population didn’t see their real incomes of $31,244 a year rise by a single cent.

That’s the new reality: America is degenerating into two halves — the rich and the rest. The financial and economic crises have exacerbated social needs and cost millions of middle class Americans their jobs and their homes. But the socioeconomic forces that are tearing America apart have been at work for far longer.

Until the late 1970s, there was an unwritten contract in effect that permitted America’s workers to participate in the growing prosperity. From 1947 until 1979, productivity, average income and average wages remained relatively parallel. That was the “Fair Deal,” and it lasted until the early ’80s. In 2007, the top 0.001 percent raked in 23.5 percent of all earnings. In 1976, their portion stood at a mere 8.9 percent.

Bow Down to the Power of the Market

Twenty-three and half percent — that was the highest figure since 1928, and Robert Reich, the Berkeley professor and former secretary of Labor in the Clinton administration, sees historical parallels. The Great Depression began just a few months after 1928. The “Great Recession” happened in 2007. The high fliers made money, and the economy collapsed — a coincidence? Robert Reich responds with a resounding “No!” That was precisely the cause of the malaise.

Since the Reagan era, Washington has been inclined toward the power of the market, deregulating and privatizing and lowering taxes on the rich. The middle class kept their collective heads above water up until 2008 only by taking on backbreaking debt until many have now reached permanent stagnation. America’s economy cannot get out of its current doldrums without a strategy that reinvigorates the purchasing power of the middle class. Consumer demand from the richest 5 percent of Americans isn’t enough to overcome economic stagnation.

The Plutonomy Label

The new reality has already been labeled: plutonomy. Ajay Kapur, chief strategist for Citigroup, came up with it to describe this “economy of the wealthy,” in which the best-positioned hundredths earn as much each year as the lower 60 percent of society. As early as 2005, the banks told those in the highest tier who already controlled 90 percent of America’s wealth that the rest was theirs. The remaining 99 percent was a minor detail: “Economic growth is powered by and largely consumed by the wealthy few,” gushed Kapur. “The earth is being held up by the muscular arms of its entrepreneur-plutocrats,” Kapur wrote. Plutocrats knew how to brilliantly and creatively exploit technological change and globalization, often on credit.

The destruction of America’s middle class began in the supposedly good years of the ’90s, long before the economic crisis. Twenty-seven million new jobs were created between 1990 and 2008, an increase of 22 percent. But an analysis by Nobel laureate in Economic Sciences Michael Spence revealed that 97.7 percent of these jobs were concentrated in those sectors of the U.S. economy that had no international competition.

The two major job-creation engines were in the health and public services sectors, which accounted for 10.4 million of the new jobs. But, as Spence warned, that path eventually became a dead end; government debt and enforced economy measures would make hiring additional administrators, police personnel or physicians impossible.

That part of the U.S. economy that had to depend on world markets was totally different. Mega-banks and insurance multinationals, as well as the developers of computer systems, created any number of high-paying jobs. But since 2000, the decline of the industry and the relocation of many firms to low-wage countries robbed 6 million workers without college degrees of their existence. Many were able to survive by moving into lower-paying jobs. This trend continues: Half of all newly created positions by 2018 will be low-wage jobs, while a third will be in the higher-paying fields. The tensions are likely to continue growing.