Is Inequality in America Irreversible?

An excerpt from Chuck Collins’ new book, “Is Inequality in America Irreversible?” 

A Front Row Seat to Inequality

I grew up in an affluent family in the wealthy Detroit suburb of Bloomfield Hills, Michigan. I attended an elite boy’s school, played tennis and golf at a private country club, and didn’t worry for much. Though growing up in the 1 percent, my parents had a strong sense of fairness and community responsibility.

At age 26, I had a job working with tenants in mobile home parks who were struggling to buy their mobile parks as cooperatives. In the process, I personally analyzed the private financial information of hundreds of low-income individuals in order to assess the feasibility of a resident-purchase.

By the mid-1980s, real wages for the bottom half of income earners in the population were starting to stagnate or decline. Because of my job, being privy to the financial secrets of many working-class and low-income Americans, I could see at first hand the impact of declining wages. I saw how people stretched and struggled to pay their bills, from working more hours, putting more family members into the paid labor force, and taking on debt.

Because of my advantaged upbringing, I was also witness to the wealth-creating-wealth phenomenon at the top end of the ladder. I personally saw the value of wealth given to me double over a five-year period. All around me people were celebrating their appreciating real estate and financial investment assets.

In the 1990s, when I started to read about inequality trends, these were not abstract numbers on a page. I could recall the faces and stories of people at both ends of the US economic experience.

We are living in a time of extreme and extraordinary inequality. There is now a genre of research looking at different dimensions of the income and wealth gap. This body of work chronicles the shapes and facets of inequality and its adverse impact on everything we care about. I myself have written a few of these books, and have documented this growing body of analysis from my perch as coeditor of the web portal, Inequality.org.

This slim volume will intentionally not linger on the problems caused by inequality, but instead will focus on the pathways to reversing these inequalities. This introduction will provide an overview of changes in income, assets, and the racial dimensions of economic inequality.

The primary focus of this analysis will be on the US economy and its particular systemic inequalities of income, wealth, power, and opportunity. While US inequality is part of a global trend, the condition is more acute due to the nature of hyperindividualistic capitalism and public policy in this country.

Chapter One summarizes the interdisciplinary research on the ways these inequalities undermine our democracy, public health, social mobility, economic stability, and civic life. In each case, I will point readers to other research on why these inequalities matter. In order to prescribe the proper remedies to reverse these inequalities, we must properly diagnose the causes. The second part of Chapter 1 examines the drivers of these inequalities and the debates as to their relevance. This discussion will go beyond the simplistic theory that they are driven by technological change and globalization, though these forces have contributed to the gap. These inequalities have their roots in “rule changes” in the economy, the result of imbalances of power and agency.

Chapter 2 will confront the significant barriers we face in reversing inequality, both in terms of the growing oligarchic power of wealth and the powerful narratives that hold inequalities in place. We will look at the current political moment in the US and the possibilities for change, setting up a more detailed conversation, in Chapter 5, of transformative campaigns.

The bulk of the book, after Chapter 2, is focused on the remedies and interventions required to shift the current US trajectory toward deeper inequalities – and reverse them. This will draw from the US historical experience of reversing the staggering inequalities of the first Gilded Age that emerged between 1880 and 1915. I will also draw lessons from social democracies that operate in the same global capitalist framework as the US but have considerably less inequality.

For ecological reasons, however, we cannot simply repeat the same playbook from the past, such as the policies that created the post-World War Two period of shared prosperity. Ecological limits to growth will constrain our ability to reduce inequality with a revival of carbon extraction and burning. As we face the realities of climate change — and the breaching of other ecological planetary boundaries such as declining fresh water and soil fertility alongside ocean acidification — a program to reduce inequality will have to operate within the constraints of a finite planet.

The discussion of policy interventions to reverse inequality will utilize a framework suggested by sociologist S.M. Miller. He clusters policy solutions into three sometimes overlapping categories: raising the floor, leveling the playing field, and reducing concentrations of wealth and power. Chapter 3 will explore solutions that “raise the floor,” reducing inequality by means of a substantial safety net and by establishing an income and wage floor that enables workers to share in productivity gains. The chapter also examines solutions that “level the playing field,” ensuring equality of opportunity and eliminating distortions in rules that govern the economy and that preference one group over another. Chapter 4 will survey solutions that reduce the “concentration of wealth and power,” including taxing the wealthy and instituting anti-trust provisions in order to break up corporate monopolies.

The final chapter will consider approaches to overcome the considerable barriers in terms of power politics, societal narratives, and economic theories. We will examine four examples of transformative campaigns and strategies for disrupting narratives that justify inequality and shifting power relations to reverse inequality.

Current Inequality Trends

What is the current picture in terms of our present-day wrenching inequalities of wages, assets, and opportunity?

One of the most important trends to understand, with enormous implications for recent politics, is the persistent stagnation of wages since the 1980s. After a period of relative shared prosperity, between 1947 to 1977, when real wages doubled for every stratum of US society, we entered a phase of flat or falling paychecks for a majority of US wage earners.

Since 1975, there have been extraordinary gains in productivity. But over half of US wage earners have not shared in the fruits of their labors. In 1970, the bottom half of wage earners, roughly 117 million adults, made an average of $16,000 a year in current dollars. By 2014, earnings for the bottom half of households had remained virtually unchanged, bumping up slightly to $16,200. Over the same period, the incomes of the top 1 percent tripled, from average annual wages of $400,000 to $1.3 million.

The result is persistent poverty at the bottom, a work treadmill for low-wage workers, and a squeeze on middle-class workers. For more than four decades, poverty rates have remained unchanged. Over 13.5 percent of the population, an estimated 43 million people, live below the poverty line. A growing number of low-wage workers are toiling longer hours and taking on debt to survive economically.

Another form of income inequality is the increasing gap between the compensation of CEOs and top corporate executives compared to average- or lowest-paid workers in firms. In the mid-1960s, the ratio between average worker pay and CEO pay was about 20:1. In recent years, the ratio has swollen to more than 300:1.2 Skyrocketing CEO pay is one of the drivers of increased income concentration. Between 1979 and 2005, corporate executives accounted for 58 percent of the expansion of income for the top 1 percent of households and 67 percent of income growth among the top 0.1 percent.

Another alarming trend has been the updraft of both income and wealth to the very wealthiest households. Between 1980 and 2013, the richest 1 percent saw their average real income increase by 142 percent, with their share of national income doubling from 10 percent to 20 percent. But most economic gains during this period have flowed to the top 0.1 percent — the top one-tenth of 1 percent — whose real income increased by 236 percent. Their share of national income almost tripled, from 3.4 percent to 9.5 percent. Since the economic melt- down of 2008, an estimated $91 of every $100 in increased earnings have gone to the top 1 percent. The bottom 99 percent of wage earners split the remaining 9 percent in gains.

Wealth has increasingly concentrated at the top. The wealthiest 1 percent of households now hold roughly 42 percent of private wealth, up from 33 percent in 1983.5 At the very pinnacle of US wealth is the Forbes 400, all of whom are billionaires, with a combined net worth of $2.3 trillion. Together, this group has more wealth than the bottom 62 percent of the US population combined. The 20 wealthiest billionaires — who could all fit into a Gulf-steam 650 luxury jet — have more wealth than the entire bottom half of the US population.

One reason the wealthy have so much more than the bottom half of US households is that almost 20 percent of US households have zero or negative net worth. This lack of any financial cushion to fall back on increases the vulnerability of millions of households, including those that appear to be middle class and stable. Financial advisors recommend that families maintain three months of financial liquidity, but 44 percent of households don’t have these reserves, especially if they live at the poverty level.

Reflecting the historic inequalities between white, black, and Latino households, the racial wealth divide has grown over the last several decades. In 2013, the median wealth of white households was an alarming 13 times greater than the median wealth of black households — up from 8 times greater in 2010. White households had 10 times more wealth than Latino households.8 The richest 100 billionaires have more wealth than the entire African American population: more than 14 million households with 42 million people. The wealthiest 186 billionaires have as much wealth as the entire Hispanic population: more than 55 million people.

Is Inequality in American Irreversible?

The title of this book poses a serious question. Given the depth of current inequalities, is it possible to reverse the tide? And, if so, is it possible without an economic depression or a world war? We return to this question after a more detailed analysis of the obstacles, policies, and potential campaigns that could increase the odds.

The inequalities we are living through are not the result of weather events or technological changes beyond our control. They are fundamentally the result of human-created rules and policies. In the decades after World War Two, the rules of the economy focused around expanding prosperity and fostering the expansion of a US middle class. For the past few decades, the rules have been oriented toward funneling wealth to the top and the existing wealthy. We can change the rules. We’ve done it before in US history, as we emerged from the first Gilded Age a century ago.

There is no certainty that we will succeed. Indeed, things could go badly as we drift toward greater concentrated wealth and power and the political oligarchy that results. But there are powerful undercurrents pushing us in the other direction, toward a broader societal movement, toward greater equality. The future truly is in our hands. And so this book is dedicated to our shared efforts.

Chuck Collins directs the Program on Inequality at the Institute for Policy Studies. He is co-editor of Inequality.org and the author of  Born on Third Base: A One Percenter Makes the Case for Tackling Inequality, Bringing Wealth Home, and Committing to the Common Good and his new book, Is Inequality in America Irreversible?