A reader writes:
Great charts you posted on household income, 1979-present, before and after taxes. But consider how many more two-earner households there are now than in 1979 and the decline in after-tax household income for most people is even more distressing.
Your charts on income distribution from 1979-2007 leave out a major aspect of the story that should not be ignored: the buying power of people in the lowest 10% is exponentially greater today than it was back then.
I know this because I was a kid back then living in a bottom 10% household. A McDonald's meal was a once or twice per year luxury. Today fast food meals are cheaper in actual nominal terms than they were back then. In 1979, gasoline prices nearly bankrupted us, particularly when being forced to drive cars that sucked gas and spewed oil and fumes at criminal levels. Gas prices may be "high" today, but it's nothing in terms of % of people's incomes like it was in 1979. Moreover, cars back then required much more maintenance and lasted barely more than 3-4 years before rusting out and needing to be replaced. Today a person can buy a cheap fuel efficient compact car with as many electronic gizmos as most high end luxury cars and it will easily run 100,000 miles on simple oil changes alone.
Clothing: I had about six outfits in 1979, enough for a week of school and a nice set for church on Sunday. Shoes were worn until they literally had holes in them, and even then duct tape had to make due until enough money was available to buy new ones. Today, clothes are as cheap as food. One trip to WalMart and a person in the bottom 10% of wage earners has as many clothes as it took me three years to accumulate back then. In 1979 we had no computer, no cell phone bill, no Internet bill, no cable TV bill (unless you were "rich"), and only one 17-inch black and white TV. Today: totally different story. Even the poorest the of households has at least one of those luxury items.
My point is: If I had to choose between living in the bottom 10% in 1979 or 2011, I'd take 2011 in a heartbeat. To a person in the bottom 10%, it does not matter - AT ALL - that a person in the top 1% can afford six more vacation homes than he could in 1979. If anything, the rich being SO rich has actually raised the bar on standard of living for everyone.
Funny you should mention Winter's Bone in the discussion, because my father and I, who spent a good deal of time in Arkansas living or on vacation, watched the movie on the recommendation of a small-government, hard-core liberatarian. He said he thought the movie was one of the most depressing he'd ever seen. We, much more liberal economically, found the movie somewhat bleak but uplifting. Discussing the movie later, we thought that this friend found the movie depressing because he simply didn't understand that there were people living like that in America. Or that he "knew" but had never really thought what life was like for the poor.
While I completely concur with your analysis about the destabilizing dangers of inequality, I feel the need to explain why I find such inequality troubling even apart from a consequentialist perspective.
Consider that the basis of an economy is the production and voluntary exchange of wealth, i.e. goods and services. But if an economy is wealth production is increasing, as one might expect by looking at those graphs, why do the benefits of that increasing wealth not accrue to the workers? Even if we grant that CEOs and hedge fund managers worker harder and longer hours than the average worker, are we really supposed to believe that the difference in how much they work can really account for such a huge gap? Has the increase in that disparity been a reflection of these business moguls working harder and harder?
The fact is that there are subtle ways by which wealth is siphoned away by speculators, and even by honest business people who don't realize where their surplus comes from. One of these ways was pointed out by the 19th century economist Henry George, who observed that the benefits of development and production accrue to the most valuable land. Businesses operating on such areas gain a surplus over other businesses known as rent. This surplus is by definition unearned, as it is the surplus of apply the same amount of labor in one area versus another. Land rents also absorb the wealth from public infrastructure, effectively serving as a sort of "wealth sink."
I could go into the margin of production and how it affects wages and unemployment, but that would get a bit too wonkish for your readers to follow along. Suffice to say that the profits reported by the wealthiest corporations are only partly due to production, while another part comes from rent, and when you see wealth disparities grow like that, you can pretty much count on the growing accumulation of rent as a major culprit.
Another related factor, particularly in the recent crash, is debt. After movies like Inside Job and all the talk about derivatives, I don't think I need to explain too much about how Wall Street made billions by leveraging debt. Was there any wealth produced in this process? No. It's just shuffling around a bunch of claims on existing wealth, and making new claims on those existing claims. Now, what happens when the amount of real wealth stays the same but a small number of people increase the number of claims they have on it? Sounds to me like a pretty sneaky form of robbery.