Level of inequality in United States endangers its future

The Occupy Wall Street movement has led to cries of class warfare on the part of some. They are correct that class warfare is alive and well in the United States. They are wrong, however, about who initiated it and when it began.

There is a very simple measure of income inequality — the Gini coefficient — that permits comparisons of equality of income distribution over time and among countries. If all the income goes to one person or household in a jurisdiction, the Gini coefficient is 1.0 or, as most often stated, 100. If income is equally distributed among all individuals or households, the Gini coefficient is zero.

The CIA maintains a compilation of the distribution of family income for 150 countries. The most equal distribution is in Sweden at 23 (2005); the most unequal is Namibia at 70.7 (2003). The United States is at 45 (2007). Even Russia at 42.2 (2009) and China at 41.5 (2007) are more equal than us. The Gini coefficient for the U.S. in recent times was at its lowest in 1968 at 38.6. Since then, it has been climbing.

How did the degree of U.S. income inequality increase so rapidly?

It is the result of a concerted political effort by many large American corporations, some very wealthy individuals and key agencies of the moneyed elite, e.g., the U.S. Chamber of Commerce, the National Association of Manufacturers, the Heritage Foundation, and many similar organizations; a host of well-paid lobbyists; and substantial campaign contributions to change the political and economic landscape by:

» Outsourcing production to secure cheaper labor;

» Weakening the unions;

» Providing large tax cuts for the rich, including special treatment for capital gains;

» Freezing the minimum wage and ignoring inflation;

» Promoting deregulation, effectively gutting the financial reforms put in place during the Great Depression;

» Weakening campaign finance laws, thus increasing the power of large corporations and financial institutions.

The major immediate consequences of this shift in economic and political power is that the rich have gotten richer, and the very rich have gained astronomically while the middle class has benefited very little and the poor even less.

The consequences of this increase in income inequality (and wealth) for the U.S. include:

» Decapitation of the middle class;

» Increased poverty;

» Heightened internal strife, with immigrants who take low-paying jobs being treated with increasing hostility;

» Decreased social and economic mobility;

» A depressed populace that no longer sees the United States as the land of opportunity;

» Increased fertile grounds for radical leaders to sow resentment and discontent, which can lead to violence and consequent pressure for police-state tactics;

» Decreased participation in the political process, except by those who hold power or their supporters.

How do we extricate ourselves from the trap into which we have fallen? We can and should argue about the most appropriate means for decreasing inequality in this country, including:

» Initiating radical campaign finance reform;

» Establishing strict regulation of capital markets;

» Closing corporate and personal income tax loopholes;

» Assuring the progressivity of our total tax system, taking into account that state and local tax systems will always tend toward being regressive;

» Strengthening unions while assuring their accountability to their members and the public;

» Protecting local industries against unfair foreign competition;

» Vastly enhancing our educational system at all levels.

Will we take steps to defuse the possibility of becoming a Third World country, while increasing equity and opportunity for all Americans? Good question. The answer, though, is not clear.