It’s no secret that the United States is the most outrageously wealthy country on the planet. Our brand of aggressive economic engineering has been part of our national narrative since its inception, and if there’s one thing we like exporting more than democracy, it’s America-brand capitalism.
To boot, as a national economy, we have never been wealthier. According to the Bureau of Economic Analysis, inflation-adjusted gross domestic product — the total value of goods and services produced — touched $16.77 trillion in 2013, up 2.2 percent annually despite a glut of pessimism. Per the Federal Reserve, the net worth — assets such as houses and stocks minus liabilities like debt – of all households and nonprofit organizations increased 13 percent to just more than $80 trillion, a record level, while the net worth of non-financial corporate businesses increased nearly 10 percent to $19 trillion and the net worth of non-financial non-corporate businesses increased 9 percent to $8.7 trillion.
Add to this growing energy independence, a budding revolution in advanced manufacturing, and an information industry that is bursting at the seams with energy, and it looks like we’ve got something pretty good going here. We do more stuff than anyone else, and much of it we do better or more efficiently. If economics is a game, we’ve got the best playing field with the most athletic players.
But the problem (because of course there’s a problem) is that a lot of us are crappy players, some of us are cheaters, and most of us don’t even want to play the game anymore. And as good as the playing field is, there are problems. The reasons we have more big businesses and billionaires than anyone else is not because we are all playing a balanced game well: it’s because the game is fundamentally unbalanced, and in many cases it’s simply broken. Certain players get to take advantage of that either through happenstance or avarice.
Bigger pie, but less sharing
The most obvious result of this unbalance is income inequality, which has become an increasingly severe problem over the past decade. Research conducted by the Russell Sage Foundation shows wealth inequality ratios across various percentiles of the wealth distribution. The graph below shows that in 2003, households in the middle of the distribution had 8.7 times more wealth than households at the bottom quarter, and that households at the 95th percentile — the wealthiest 5 percent — had 13.6 times more income than those in the middle. By the time the financial crisis was roaring in 2009, the inequality between those in the middle and those in the bottom quartile shot up to an enormous 26 before receding somewhat to 17.6, still more than double the 2003 ratio.
While inequality between the 50th and 25th percentile is a major issue, what’s most outrageous about this graph is that it shows the top 5 percent of households continuing to pull away from the pack. This suggests that the new wealth being created (or recreated) in the wake of the financial crisis hasn’t gone to Main Street Americans.
A 2013 report from Emanuel Saez at the University of California, Berkley concludes that 95 percent of the income gains in the first three years of the recovery went to the top 1 percent of the distribution. At that end, incomes grew by more than 31 percent, while incomes for the bottom 99 percent grew just 0.4 percent. When the data was crunched in 2012, Saez found that the top 10 percent of the distribution claimed more than 50 percent of total income, the highest share since 1917, when data were first collected.
Take a step back from the past decade, and the crisis recovery period doesn’t change the picture much. The Russell Sage Foundation research also shows that median household wealth has declined by 20 percent since 1984, and that the wealth of the bottom quartile has declined even more significantly. Meanwhile, the wealth of the the top 5 percent has nearly doubled, inclusive of the effects of the crisis and Great Recession. The research shows that in the past 30 years, it’s not just the poor that have gotten poorer. The middle class as we idealize it is evaporating, and has been for a while.
One of the best visualizations of this was done by The New York Times earlier this year. The publication compiled median after-tax per-capita income data for the U.S. and other developed economies from 1980 to 2010. The data show that median incomes in places like Canada and Norway are catching up with the median income in the U.S., and that median income growth in the U.S. has slowed to a crawl. The Times’ research shows that median per-capita income in the U.S. has grown just 0.3 percent since 2000 compared to growth rates of nearly 20 percent in Canada and Great Britain, 16.2 percent in Ireland, 13.9 percent in the Netherlands, 4.1 percent in Spain, and 1.4 percent in Germany.
But more importantly, incomes at the bottom of the distribution have declined or remained flat while bottom-tier incomes in many other developed economies have risen. And, unsurprisingly, top-tier incomes in the U.S. not only remain much higher than in any other country, but they have grown more quickly.
Our pie is bigger than ever but more and more of it is going to fewer and fewer people, and the trend is not morally or economically defensible.