The Outlook
WASHINGTON
America's prosperity in the late 1990s has, by many measures, been more generous to more people than any U.S. boom in two decades. Unemployment and poverty rates are falling. Wages for those at the bottom of the pay scale are accelerating. Yet, the gap in wealth -- which includes investments, in addition to paychecks -- between the richest Americans and everyone else has continued to widen. By some estimates the gulf approaches that of the Gilded Age.
That begs an intriguing question: If the rising tide is indeed lifting nearly all boats, is there anything wrong -- politically or economically -- if most crafts are hoisted a few inches, while some rise a couple feet?
The current levels of consumer satisfaction and the virtually nonexistent dialogue about inequality and redistribution would seem to suggest the answer is "no." But tensions remain beneath the surface, ready for stoking during the 2000 campaign or should the economy falter. Consider the mounting bipartisan political fury over moves by big companies to slash pensions. Any sign workers are being sacrificed for higher stock prices still strikes a nerve.
When inequality widened through the 1970s and the 1980s, the major culprits were high joblessness, stagnant wages, and the rewards given to the best-skilled workers in the new technology age. The ultra-tight labor market of the last three years has slowed that trend. Now it's the soaring stock market that's driving the wedge.
For all the talk of mutual funds and 401(k)s for the masses, of barbers and shoeshine boys giving investment tips, the stock market has remained the privilege of a relatively elite group.
Only 43.3% of all households owned any stock in 1997, the most recent year for which data are available, according to New York University economist Edward Wolff. Of those, many portfolios were relatively small. Nearly 90% of all shares were held by the wealthiest 10% of households. The bottom line: That top 10% held 73.2% of the country's net worth in 1997, up from 68.2% in 1983.
Stock options have pushed the ratio of executive pay to factory-worker pay to 419 to 1 in 1998, from 42 to 1 in 1980.
Yet outrage has been largely limited to a few left-leaning think tanks -- such as the Institute for Policy Studies and United for a Fair Economy, which generated the executive-pay figure. Just 17% of Democrats now believe government should "redistribute existing wealth," says the centrist Democratic Leadership Council. President Clinton began his term with a soak-the-rich tax increase yet ends it wary of Robin Hood policies. The wealth gap "is a problem," says Treasury Secretary Lawrence Summers. "But there is only one right solution," he adds. Not attacking the wealthy, but "raising incomes of the poor and more generally growing the economy."
Why has the '90s so far eluded the "Decade of Greed" label that hung over the '80s? One reason: It was apparently more unseemly for the rich to be getting richer when the poor and middle class were getting poorer. Much of the haranguing about inequality was really about stagnant living standards for most Americans. Those concerns have eased.
Another factor: Americans seem to feel that, in the New Economy, the opportunities for upward mobility are greater. A recent survey by KPMG LLP, the accounting and consulting firm, found that 77% of college students expect to become millionaires in their lifetimes.
"Mobility makes people more tolerant of inequality," says Isabel Sawhill of the Brookings Institution. "We may tolerate even more inequality if it comes with the perception of even more mobility."
Yet some analysts see signs of rising resentment. Class-warfare rhetoric permeates this year's Washington budget debate. Nobody may be for taking down the rich. But Democrats are successfully combating Republican tax cuts by arguing that they'd make the wealth gap even bigger.
A growing disparity in affluence can hurt the less well off, even if their incomes are also on the rise. In the San Francisco Bay area, where stock-driven wealth exploded in the 1990s, a middle-class family earns about 33% more than the national average -- but has to pay up to four times the national average to buy a home because of intensely competitive bidding from freshly minted millionaires, according to a recent series published by the San Francisco Chronicle.
Cornell University economist Robert Frank argues that Silicon Valley could, as it has in so many other ways, be foreshadowing a national trend. From bigger cars to higher tuition for the best schools, the richer rich will ratchet up prices for everyone else. "Extra spending at the top," he says, "raises the price of admission."
--Jacob M. Schlesinger