You may have noticed—people’s income levels vary wildly, and that gap is getting much, much wider. Income inequality as a newsworthy phenomenon has become a routine topic of discussion and is the cornerstone of Gustavus’s Nobel Conference 2016, “In Search of Economic Balance.”
By any measure, the ‘haves’ and the ‘have nots’ are getting further apart: wealth distribution and concentration as well as wage proportion from rich and poor have vastly increased such that it now resembles the Gilded Age that wrought iconic excesses of those such as the Carnegies and Rockefellers[i] . Government programs between WW2 and the 1960s that narrowed the gap between rich and poor gave way in the 1970s to what the Nobel Prize-winning economist Paul Krugman calls “The Great Divergence” in incomes and wealth concentrations. Between 1979 and the late 2000s, income for the top 1% had grown by 275% while income for the bottom fifth of Americans grew only 18% during that same time period.
But, so what? Why do we fixate on income and wealth inequality as a problem?
It only matters when we talk about what pay and wealth mean, every day, to each person. The conversation is critical when we consider differences between how the rich and the poor actually live. The 99%’s ability to pay for both life’s necessities as well as those things that make us comfortable and happy has dramatically decreased when we add inflation of basic goods and services to the mix. Cumulative inflation between 1979 and 2007 was about 208%[ii] . That means something that cost $75 in 1979 went up to about $210 by 2007 and would now cost us about $240[iii] .
When incomes buy fewer things because costs have gone up so much, measurable, quality-of-life problems pop up. That car repair I used to be able to afford when it was $75 now means I may have to choose between groceries or medical care to get my car working again. My children’s clothes have to suffice for another school year and they may have to share notebooks and school supplies. I may have to rely every week on my local food bank to make sure my kids have enough to eat, even though my spouse and I both work full time. Around the United States, food banks—set up for emergency food relief—are now regularly supplying families with two working adults who simply cannot provide food to their families without assistance[iv].
On a larger scale, income inequality has dramatic effects on a host of life outcomes. Richard Wilkinson, co-author of The Spirit Level, meticulously outlines how whole societies differ due to wealth and income inequality. In societies with lower inequality levels, such as Japan and Scandinavian countries, life for most people is simply better: they have higher life expectancies, lower levels of teen pregnancy, lower infant mortality rates, lower proportion of prisoners, less mental illness including drug and alcohol addiction, and lower obesity rates, among other truly important life outcomes [v]. And it’s not per capita income that matters—raw numbers—but it’s the level of ‘unequalness’ that harms people. The statistical relationships between high inequality and bad social outcomes are startling.
What’s notable about the current inequality problem, as opposed to the Gilded Age, is that the disparity is mostly wage-driven—the 99% are paid vastly less than the 1%. We can’t, in other words, overlook the widespread problem by saying it’s a wealth issue (we’re not all Carnegies), or an inheritance issue (we’re not all Rockefellers). It means that, no matter how hard the great majority of us work, we cannot get ahead. And that reality puts the American Dream and the opportunities that have defined us as a country out of reach.
Beyond income and cash flow for everyday goods, increasingly, the traditionally solid signs of financial security and quality-of-life advancement are moving further away for most of us. Maybe the most important signal of this is college student debt levels. Due to college tuition price increases, for the first time in American history, this generation of young people can expect to have a lower standard of living than their parents. The average 2016 college graduate finished their college years with a $37,000 debt load, which will account for an average monthly payment of $350 every month into their early 30s [vi]. That’s $350 that could be used for more education, a reliable car, saving for a down payment on a home, or simply saving. The expectations of being able to pursue that American Dream of a better life for the next generation are increasingly difficult.
Nobel Conference 2016’s speakers will be charged with exploring solutions to the disparate outcomes we experience as a result of income inequality. Krugman (2015)[vii] noted the varied yet related pieces that ultimately fit into a wealth divide puzzle:
- Outsourcing jobs to emerging-economy exports has depressed wages in wealthier economies and countries;
- “More important, soaring incomes at the top were achieved, in large part, by squeezing those below: by cutting wages, slashing benefits, crushing unions, and diverting a rising share of national resources to financial wheeling and dealing…”
- The wealthy, connected, and insulated assertively exert a “vastly disproportionate effect on policy”;
- Due to budget deficit reduction policies, social programs have been cut or eliminated, putting additional financial stressors on working families.
Part of the solution is increasing awareness of a pretty complicated subject. But when we frame income disparity as an everyday issue, it becomes compelling and groups like Occupy Wall Street crop up. Perhaps most unsettling when we consider the real-time, persistent effects of income and wealth inequality is that most people don’t understand it as a fact. An analysis that went viral from economists Michael Norton and Dan Ariely[viii] not only showed the absolute dollar disparity between 1% and 99%, but showed that most people believe the disparity is not nearly as bad as it is:
Lest you think the problems associated with income inequality are new, or somehow manufactured: even Adam Smith worried about its effects over the long term on both people and whole economies. He wrote early and often in that handbook of capitalism, The Wealth of Nations, about the economically destabilizing effects of great financial disparities, calling on captains of industry to cultivate empathy and making a moral argument for paying wages that enable dignity and security. He noted that those economies with the most persistently high profitability rates are fastest to fail. Smith marveled at the stunning productivity gains to be had using factories and division of labor, yet lamented the human costs of repetitive, mindless, low paid work. While data and charts and spreadsheets may be powerful communication tools showing just how difficult the situation is, we may have forgotten that there are real people, just like you and me, going home after work each day, trying to figure out how to make it all work.
“In Search of Economic Balance” will be an intensive exploration into what’s next, for everyone, and how to understand this entrenched and complex phenomenon that affects so many people, all over the world. Join us in person, or live streaming!
[i] Congressional Budget Office report, 2011, https://www.cbo.gov/publication/42729?index=12485
[ii] US Bureau of Labor Statistics
[iii] BLS, Consumer Price Index calculations http://www.bls.gov/data/inflation_calculator.htm
[iv] Oxfam USA 2014, http://politicsofpoverty.oxfamamerica.org/2014/11/us-working-families-dependent-food-banks/
[v] Please see Wilkinson’s TED Talk for a summary, at http://www.ted.com/talks/richard_wilkinson#t-174095
[vi] https://studentloanhero.com/student-loan-debt-statistics-2016/
[vii] http://www.nytimes.com/2015/01/02/opinion/paul-krugman-twin-peaks-planet.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region®ion=c-column-top-span-region&WT.nav=c-column-top-span-region
[viii] “It’s the inequality, stupid” Mother Jones http://www.motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph
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