Summary: This is third in a series showing that we’re losing America. This post examines rising inequality of income, one of the major forces reshaping our society and politics. It’s not a class war if we don’t fight back. {2nd of 2 posts today.}
The one graph that ties together the strands making a New America.
Click to enlarge.
This one powerful but dense graph shows the transformation of what we know of as America — born in the fires of the New Deal, WWII, and the civil rights revolution — into the America of the Gilded Age. The top 2 lines (blue and grey) show America’s increasing economic strength: rising labor productivity and GDP. The bottom two show what we get from that (private sector jobs and median household income).
Here you see the slowly widening break in the early 1980s — the Reagan years, an inflection in so many American political and economic trends — as the 1% siphoned off an increasing fraction of America’s income. That growing gap gives them ever more power, allowing them to restructure America’s institutions to better serve them.
Labor unions were crushed. Workers increasingly became contingent, disposable — either “independent contractors” (often de facto employees without the protections of formal employment), or temps, or just pawns to be fired as needed to boost profits. Open borders brought in more workers to drive down wages (e.g., H-1B visas for skilled workers). Enforcement of labor regulations were gutted, allowing growing exploitation of workers, such as illegally treated cheerleaders in professional sports, plus dubiously legal “managers” (no overtime), unpaid interns, and not-independent independent contractors.
Politics became monetized, with the laws revised to legalize large-scale buying of legislatures. Both parties became loyal servants of the large corps (especially the banks). The press was broken, becoming stenographers for the government and mega-corps (a process still only partially completed, but their deteriorating finances and endless layoffs make them suitably respectful of their betters).
To see more about the dynamics behind that graph see this analysis of the 4 stages of US growth since WWII — I strongly recommend “A brief history of middle-class economics: Productivity, participation, and inequality in the United States” by Jason Furman (Chairman, Council of Economic Advisers). The New York Times gives a less technical explanation: “The Benefits of Economic Expansions Are Increasingly Going to the Richest Americans.”
Results of rising inequality
After WWII a large middle class of financially secure households emerged in America, becoming the foundation for our institutions. These people were the volunteers in our civic institutions (e.g., Boy & Girl Scouts, Rotary, Lions, Kiwanis, political parties). Their spending supported our cultural life (e.g., periodicals, artists, museums). Their stability launched their children well, with the promise of social mobility.
Now all that’s burning away. The remnants of the middle class lack the time for civic involvement. They lack the money to support all but the top musicians and artists, or all but the largest political and cultural newspapers and periodicals. Their children have to work their way through college, taking five or six years to do so — putting them far behind kids of the elites who work less (and have influential unpaid internships, etc). Changing patterns of retail sales show these trends in tangible form.
The advance of wealthy households, while middle- and lower-income Americans struggle, is reshaping markets for everything from housing to clothing to beer. … “Intuitively, then, increasing the supply of educated workers should reduce inequality as it would increase wages among a broader supply of more educated workers. But that assumes the demand for educated workers will continue to rise. Problem is, recent research finds that the demand for skilled labor appears to be on the decline.
— “How a Two-Tier Economy Is Reshaping the U.S. Marketplace“, Wall Street Journal.
It’s a massive restructuring of society. It’s like slowly boiling a frog; it’s happening so slowly that we don’t notice. But there’s still time to act. {Note: zoologists consider this a myth, because frogs are smarter than people. But please don’t test it at home.}
The action is in the reaction
I first wrote about rising inequality in 2008, when it was still controversial. That is, when the typical response of conservatives was to deny the obvious trend. Then we went through the rising inequality is right and proper years (i.e., it’s due to technology or differences in education and IQ). Now we’re in the HA HA It’s not possible to change phase. That’s a logical response to the by-now evident passivity (cause unknown, perhaps due to apathy or despair).
The concept of a tipping point to describe social processes has been, imo, overused (popularized in Malcolm Gladwell’s The Tipping Point
They tell us, sir, that we are weak; unable to cope with so formidable an adversary … But when shall we be stronger? Will it be the next week, or the next year? … Shall we gather strength by irresolution and inaction? Shall we acquire the means of effectual resistance by lying supinely on our backs and hugging the delusive phantom of hope, until our enemies shall have bound us hand and foot?
We are not weak if we make a proper use of those means which the God of nature hath placed in our power. The three hundred millions of people, armed in the holy cause of liberty, and in such a country as that which we possess, are invincible. … The conflict is not to the strong alone; it is to the vigilant, the active, the brave.
These words (slightly paraphrased here) were said by Patrick Henry at St. John’s Church in Richmond, Virginia on 23 March 1775 to the Virginia House of Burgesses. It first appeared in print in 1817 in Sketches of the Life and Character of Patrick Henry by William Wirt.
Books about the 3rd industrial revolution, the next big driver of inequality
(a) By Erik Brynjolfsson & Andrew McAfee (both MIT)
- Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy
(2012).
- The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies
(2013).
- Wired for Innovation: How Information Technology Is Reshaping the Economy
(2014).
(b) By Martin Ford: The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future
Other posts in this series
- A graph showing the end of America as we know it. – The gap between growth in wages & GDP.
- At last economists see the robot revolution. Here’s why they worry.
- Automation hits the professions. Most remain delusionally confident, so far.
- Education, the glittering but fake solution to automation.
- Automation is a race with the Red Queen. Let’s play a different game & win.
For More Information
Source of these graphs: an article by Andrew McAfee (MIT), at his website, 12 December 2012.
See all posts about these topics: The 3rd Industrial Revolution has begun. and About inequality & social mobility. Posts of special interest:
- Krugman discovers the Robot Revolution!.
- How do we respond to the Robot Revolution?
- 2012: the year people realized the robots are coming.
- Journalists warn us about the coming revolution, but we don’t listen.
- The next industrial revolution starts. Beware the Pied Pipers who lull us into passivity.
Need to fix the typo.
Merrick,
In the title (already fixed)? Or another one?
FM, if you want to see something somewhat less meaningful but considerably more impressive, replace median income with median assets
Pluto,
I have shown that on the posts about wealth inequality. Note, however, that the data on income is far more accurate than that on wealth.
Income is disclosed, imperfectly in national tax data. There is nothing remotely similar for wealth.
I suspected you’d tell me that, FM. Here are some numbers from the tri-annual Survey of Consumer Finances, unadjusted for inflation, all number are in thousands.
1995 2013 % Change
Bottom 20% Median Income 8.5 15.20 78.8%
Bottom 20% Median Net Worth 7.4 6.4 -13.6%
20-80% Median Income 37.8 48.7 28.8%
20-80% Median Net Worth 57.1 55.4 -2.3%
Top 10% Median Income 136.6 223.2 63.4%
Top 10% Median Net Worth 436.9 1,125.9 257.7%
Inflation for the time period was about 30%.
Bottom 20% Median net worth topped out in 2001, and middle class net worth topped out in 2007. The biggest surprise in the data comes from the Top 10%, median indicates that half were above and half were below so top 10% median effectively marks the 95% of net worth. It rose from 2007 to 2010 (no small feat considering the times) but dropped from 2010 to 2013.
After inadequate thought and without sufficient information, I have come to the conclusion that the top 1% has become so effective at sucking wealth out of the other 99% that even the top 2-10% are now being affected.
The Survey disagrees, stating that a single data point is insufficient to establish a trend. They are, of course, correct but I am going to stand by my statement and predict that the 2016 survey will discover that the net worth of the wealthiest 5% of Americans will continue to fall.
Pluto,
1) FM: I was responding to your comment that “There is nothing remotely similar for wealth.”
I agree that it does not cover the same date range and that it is not necessarily as accurate, but it is something.
4) Can you explain your comment: “Survey data is almost useless as a measure of the wealth of the rich?”
Pluto,
The survey of consumer finances is not even remotely close to the tax data as a useful metric. “Not close to” has a different meaning than being “nothing”.
The former asks 6,025 families to volunteer about their finances. The rich are proven reluctant to give this info, and either decline or lie.
The latter orders everybody with income to provide this data, with jail or fines the penalty for non-compliance or lies. That doesn’t mean it’s perfect — the 1% can hide their income in many ways.
Pluto,
Your comment seems to imply that I didn’t know about the wealth data. As I said, I have done several posts about it.
Sorry, FM, I know that you know about the wealth data. It is just something that really gets me going in a bad way these days.
Pluto,
I understand. Me, too. I’m under a lot of pressure.
One can detect different phases: from about 1979-1980, median income separated from productivity and went sideways. From 1999-2000 or so, ot was the turn of employement to split from GDP and go sideways.
Thus, plotting median wealth as suggested by Pluto would be interesting and possibly reveal yet another stage in that long-term evolution with further “tipping point” along the curve.
guest,
“One can detect different phases:”
From the post:
Perhaps the Secret Life of Ben Stiller is a good comment on the “why” Americans put up with this major fleecing.
Breton
Several comments:
1) This site has evolved into the probably the best for looking at the big trends. Keep it up!
2) Like many people I bought the Piketty book (and actually read 3/4 of it). The work of his and other colleagues
is probably good enough to say whether income or wealth increased first as guest has suggested.
3) On the biggest scale income and wealth distribution are politically determined and not the result of rigid
economic ‘laws’ like the return to capital. Thus the Patrick Henry statement is really relevant.
socialbill,
(1) Thanks for the feedback. It’s been an immense effort to double the flow (two per day), increase the quality, and upgrade the website (I just finished a week of struggle with Google’s software over an indexing problem). The jury remains out on whether the result was worth the effort. I might drop back to 6-7 posts per week from current 12-13.
(2) Congratulations on finishing Piketty. It is a powerful book, but I never finished it (I suspect it’s like Milton’s Paradise Lost as described by Satan:
(3) I agree completely.
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