Inequality USA

The American Dream is over. An academic article by Terry Karl, a professor at Stanford University, shows the extent to which the United States has become one of the most unequal countries on the planet. According to Karl’s article, of the 34 most developed countries that comprise the Organization for Economic Cooperation and Development, only China, Mexico, and Turkey have disparities wider than that of the United States. According to the OECD, the United States also has less effective policies on social spending to alleviate poverty and the lowest level of taxation on profits of all the developed countries.

The article, titled “Inequality and Democracy: Latin American Lessons for the United States,” is based on different studies on the issue. It says that in the United States, the wealthiest 10 percent earns 15 times more money than the poorest 10 percent. The gap has increased greatly in recent decades and is even more pronounced if the wealthiest one percent, which earns an average of $1.3 million annually and has retained four-fifths of the sources of American income increases from 1980 until 2002, is taken into account. The super-rich, who represent 0.1 percent of Americans, are those who benefit most from this trend, earning an average annual income of $27,322,212. And the mega-rich, which is 0.01 percent of the population, receive six percent of the total income increases of all American families.

The enormous gap between rich and poor apparent in annual incomes is multiplied when accumulated wealth is measured, according to the article. The wealthiest 20 percent owns 87 percent of the wealth of the entire United States, and the top one percent has 69 percent. The four hundred wealthiest families have the same as the poorest half; that is to say, two thousand individuals have the equivalent accumulated capital as 150 million people.

In terms of race, here’s the picture: a white family earns on average two-thirds more and is 12 times wealthier than the average black family. Half of Hispanics and almost two-thirds of blacks do not have financial assets. However, unlike general inequity, the racial gap measured in economic terms has narrowed in recent decades.

The author cites a study, conducted by economist Richard Wilkinson and anthropologist Kate Pickett, of 23 developed countries, which finds that the United States appears to have the most inequity in terms of personal income. In this study, the United States also leads the index in incarceration, underage mothers, infant mortality, childhood obesity, healthcare coverage costs, military spending and use of illegal drugs. On the other hand, it comes in last on educational examinations, life expectancy and caring for the environment.

In spite of the proverbial American Dream, other studies cited show that social mobility is more difficult in the United States than in other developed countries. One of these studies shows that the United States has less social mobility as compared to Canada, Germany, France, and the Scandinavian countries, and that it is on a par with notoriously classist societies like Britain. Other studies show that the American middle class is shrinking and that, for the first time, the thirty-something generation earns less than their parents did at that age.

Inequity in the United States, according to the article, has roots that trace back to the foundations of its history, when its rules were structured in the interest of the rich. A study shows that among the developed Western countries, the United States has the most actors capable of stopping social change. The study also shows that the American Senate has the worst proportional representation when compared to the other countries analyzed.

According to the article, this inequality grew dramatically in the 80s, when President Ronald Reagan developed a neoliberal economic program to bring the country out of the recession created by the oil crisis in the Middle East and the Vietnam defeat, which caused a spike in inflation and unemployment. According to Karl, the crisis set the scene for a new economic orientation, characterized by the classic neoliberal recipe, which included deregulation of business and finances, strong cuts in social spending, lowering of taxes for the rich and businesses and a new regulatory framework in which market forces controlled outcomes for different types of problems.

Ironically, in 1980, the United States gave in to the same recipe it had been force-feeding Latin America.

Reagan’s economic orientation converted lobbyists into the new dominant class of Washington, DC. In 1971, there were 175 lobbying firms registered in Washington, DC. In 1982 they had already jumped to 22,245. The Political Action Committees that financed the campaigns grew from 89 in 1974 to 1,682 in 1984.

Politics has become very expensive and only the very rich can aspire to the highest elected offices. For the 2010 elections, candidates collected a total of $1.27 billion. That same year, the average cost of a Senate campaign neared the $8.5 million mark, while that of the Lower House averaged nearly $1.5 million.

Meanwhile, the financial sector triumphed with important benefits. In 1982, the average businessman earned 42 times more that the average employee. In 2010, the same businessman earned 325 times more that the same employee. According to another study, Reagan’s rule changes resulted in a transfer of $4.5 to $5 billion into the financial sector between 1980 and 2008.

During this time, the tax bracket changed in favor of the rich. According to the Brookings Institute, in 2007, the poorest fifth of the population received an average of $29 in tax breaks, the middle fifth received $760 and the wealthiest one percent received average tax breaks of $41,077. Families with incomes over $1 million received average tax breaks of $114,000. Thanks to these tax breaks, the poor improved their income by 0.4 percent, while the wealthiest improved their incomes by 5.7 percent. In 2010, the 25 wealthiest businesses received $304 million in tax returns, despite reporting $1.9 billion in profits.

The inequity is accentuated because, on average, Americans pay few taxes. In 2008, the average tax burden was 26 percent, while in other OECD countries the tax burden was 35 percent. Between 1982 and 1994, the tax burden on the rich fell by 67 percent to 28 percent. Meanwhile, the executives of big businesses received unprecedented profits, expanding the inequality gap. In 2010, 25 CEOs of the hundred most important businesses earned more money than their businesses paid in federal taxes. What they saved in the Treasury often went toward various lobbying efforts. General Electric has spent $4.2 billion in campaign donations.

While the rich increase their influence in public politics, workers lose representation. In 2010, the percentage of labor union affiliations, which has been declining systematically since 1982, dropped to 11.4 percent (seven percent in the private sector) compared to more than 27 percent in Canada and 70 percent in Finland.

Without a strong labor union to defend workers, the minimum wage crashed, dropping from $9.2 in the ’70s (Johnson era) to $5.4 during the Bush government, to $5.3 during the younger Bush’s administration. This is the lowest level since the minimum wage was established in 1949. Thus, the gap between the wealthiest and the poorest reached levels unprecedented since the Great Depression of 1928.

The Stanford professor concludes that, in hindsight, the consequences of this aggressively neoliberal policy were manifested in the 2008 crisis. With financial deregulation and the lack of control over institutions, coupled with the drop in labor union affiliations, the decline in revenue transfers, the reduction of the Welfare State, the dismantling of the progressive tax bracket and other factors, the United States has entered into the 21st Century as the most disparate of all the wealthy democracies.