[lbo-talk] 'Economist' frets over rising US inequality

[Carl Remick]

[Quite something when this organ of plutocracy starts worrying about US 
economic inequality.]

Inequality in America:
The rich, the poor and the growing gap between them;
The rich are the big gainers in America's new prosperity

Jun 15th 2006 | WASHINGTON, DC
>From The Economist print edition

AMERICANS do not go in for envy. The gap between rich and poor is bigger 
than in any other advanced country, but most people are unconcerned. Whereas 
Europeans fret about the way the economic pie is divided, Americans want to 
join the rich, not soak them. Eight out of ten, more than anywhere else, 
believe that though you may start poor, if you work hard, you can make pots 
of money. It is a central part of the American Dream.

The political consensus, therefore, has sought to pursue economic growth 
rather than the redistribution of income, in keeping with John Kennedy's 
adage that “a rising tide lifts all boats.” The tide has been rising fast 
recently. Thanks to a jump in productivity growth after 1995, America's 
economy has outpaced other rich countries' for a decade. Its workers now 
produce over 30% more each hour they work than ten years ago. In the late 
1990s everybody shared in this boom. Though incomes were rising fastest at 
the top, all workers' wages far outpaced inflation.

But after 2000 something changed. The pace of productivity growth has been 
rising again, but now it seems to be lifting fewer boats. After you adjust 
for inflation, the wages of the typical American worker—the one at the very 
middle of the income distribution—have risen less than 1% since 2000. In the 
previous five years, they rose over 6%. If you take into account the value 
of employee benefits, such as health care, the contrast is a little less 
stark. But, whatever the measure, it seems clear that only the most skilled 
workers have seen their pay packets swell much in the current economic 
expansion. The fruits of productivity gains have been skewed towards the 
highest earners, and towards companies, whose profits have reached record 
levels as a share of GDP.

Even in a country that tolerates inequality, political consequences follow 
when the rising tide raises too few boats. The impact of stagnant wages has 
been dulled by rising house prices, but still most Americans are unhappy 
about the economy. According to the latest Gallup survey, fewer than four 
out of ten think it is in “excellent” or “good” shape, compared with almost 
seven out of ten when George Bush took office.

The White House professes to be untroubled. Average after-tax income per 
person, Mr Bush often points out, has risen by more than 8% on his watch, 
once inflation is taken into account. He is right, but his claim is 
misleading, since the median worker—the one in the middle of the income 
range—has done less well than the average, whose gains are pulled up by the 
big increases of those at the top.

Privately, some policymakers admit that the recent trends have them worried, 
and not just because of the congressional elections in November. The 
statistics suggest that the economic boom may fade. Americans still head to 
the shops with gusto, but it is falling savings rates and rising debts (made 
possible by high house prices), not real income growth, that keep their 
wallets open. A bust of some kind could lead to widespread political 
disaffection. Eventually, the country's social fabric could stretch. “If 
things carry on like this for long enough,” muses one insider, “we are going 
to end up like Brazil”—a country notorious for the concentration of its 
income and wealth. ...

<http://www.economist.com/world/displaystory.cfm?story_id=7055911>

Carl