I have often written about the impact of a growing disparity in wealth in the United States, leading to a shrinking middle class. The Bush Administration have been open and vocal proponents of tax cuts for corporations and the extremely rich while barely hiding their complete contempt for average working people. If one looks at history, there’s nothing shocking about – an aristocracy seems to be the inevitable by-product of unbridled government. But what surprises me is how the American people, in general, seem OK with this. It feels strange that a Republican candidate could even run for what threatens to be, in the words of Barack Obama, “The Bush Administration’s third term.” So what’s really going on?
In Where did our financial stability go?, author Jim Jubak provides some interesting insight and theories. First, some facts from the article:
What’s so extraordinary is that this tide of anxiety has risen during a period of extraordinary national economic growth.
In the past 10 years, from 1997 through the end of 2007, the U.S. economy has grown to $11.6 trillion from just $8.7 trillion, adjusted for inflation. That’s real economic growth of about 2.9% a year. The picture looks much the same when you adjust for a growing population. Real per capita gross domestic product, which equates pretty well with per capita income, has climbed 2% a year, on average, from 1997 to 2007.
In other words, if you look at the national averages, we’re somewhere between 20% and 33% better off than we were 10 years ago. So why aren’t we dancing in the streets?
The pundits, yours truly included, have offered a variety of reasons:
- Incomes are a lot less equal than they used to be. In 1979, for example, the top 1% of earners had an income 9.4 times that of the average person in the bottom 90%, according to the Economic Policy Institute. By 2006, that ratio had climbed to almost 20-to-1.
- The economy has become more uncertain, with give-backs, outsourcing, off-shoring and downsizing of jobs. And that’s been especially true for the relatively well-paid workers in the manufacturing economy.
- Growth in national income in the past decade went disproportionately to corporate profits and not to worker incomes. Even though nonfarm productivity rose at an average rate of 2.63% from 1997 to 2007, the average hourly wage for production workers climbed just 0.79% annually. Corporate profits captured more of the national income in 2006, the peak of the recent economic cycle, than in any other year on record.
The answer? I’m not going to steal Jim’s thunder completely, but the article talks about the variability in income and its effects on human psychology. It’s good reading and perhaps will serve as a warning to people that can’t seem to manage their own finances responsibly.