The Wealth Gap and the Collapse of the U.S.

And it's not like the wealth gap is colorblind, the racial economic wealth disparity is just as, if not even more, acute than the rich-to-poor one.  If you think there'll be any class conflict, it's hard to imagine it not happening along our racial schism as well:

(from turn the power and when Justice lies)

The precise era that saw a drug-law fueled explosion in our prison population, the early 1970s, are the exact same years that the economic situation of blacks began to starkly worsen and that the gap between rich and poor is wrenched wide open. Beginning in those years and continuing into today, "the economic status of black compared to that of whites has, on average, stagnated or deteriorated."

Up until 1973, the precise year the Rockefeller drug laws were passed, the difference between black and white median income had been closing. But then that year it changed course, and in "an ominous bellwether... the gap between black and white incomes started to grow wider again, in both absolute and relative terms."

In the nearly forty years since America's modern drug laws were passed, there has been a massive increase in economic inequality by any measure. In the early 1970's not only did the income gap between black and white begin to widen again, it also becomes much more top-heavily favored to the very rich - who happen to be almost exclusively white as well.

So the very few families who make up the top 1% of all earners have a combined income that matches the incomes of all the families in the bottom 40% of earners.

Looking at economic well-being another way, in terms of financial wealth or "stocks, bonds, real estate, businesses, and other financial instruments," as of 1998 the top 1% of families controlled nearly half of that pie, with the top 20% controlling fully 93% of it. Meanwhile, the bottom 40% of families actually have negative financial wealth - their debts actually surpass their assets.

And this cavernous gap has only been widening, between 1998 and 2001 the net worth of families in the top 10% of America jumped 69%, significantly more than any other group. In the years leading up to that point, between 1988 and 1999, the difference in net worth between black families and white families grew by $16,000 and the gap in net financial assets grew by $20,000. By 2004 white families had an average net worth of $81,000, and black families an average net worth of just $8,000 - roughly a tenth the average white family's.

With home equity making up 44% of an average American's family's net worth and fully 60% among our middle class, the statistics around homeownernship further delineate the racial schisms of American wealth. Not only do blacks pay higher interest rates, have higher downpayments, have less access to credit, get turned down more frequently for loans no matter what's controlled for, and pay what amounts to an 18% "segregation tax" because homes in black neighborhoods have much less equity than homes in white neighborhoods - but since 1970 black homes have appreciated in value roughly half as much as white homes.

...

Even the very idea of what it means to be poor is color-coded, as while 1 in 3 blacks live in poverty, less than 1 in 10 whites do.   And yet the very definition of poverty itself now varies to the point of absurdity, since "poverty level whites control nearly as many mean net financial assets as the highest-earning blacks, $26,683 to $28,310.  For those surviving at or below the poverty level, this indicates quite clearly that poverty means one thing for whites and another for blacks.

Other statistics drive the point home with increased clarity. By 1995, the wealth-gap between black and white was so wide that blacks owned only 8 cents of wealth for every dollar owned by whites. Just eight-cents to the dollar.  In other terms,  as of 1998 the average white household's net worth was $100,700 higher than the black average.  And that wasn't even the peak of the gap, according the most recent data, from 2007, the gap in household net worth is now $142,600.

Take a moment to consider that gap. 

Your average white American family has a $140,000 leg up on the average black American family.  And those families don't live intermingled among the same neighborhoods, the difficulty black families have securing a mortgage loan have created high concentrations of blacks living in certain neighborhoods while whites live mostly in others.  By 1993, 86% of whites lived in communities where blacks made up less than 1% of the neighborhood

I read something recently that is even more disturbing:

"...What’s happening now is a depression.

Black unemployment is now at 14.7 percent, compared to 8.7 for whites. In New York City, black unemployment has been rising four times as fast as that of whites. Lawrence Mishel, president of the Economic Policy Institute, estimates that 40 percent of African Americans will have experienced unemployment or underemployment by 2010, and this will increase child poverty from one-third of African-American children to slightly over half. No one can entirely explain the extraordinary rate of job loss among African Americans, though factors may include the relative concentration of blacks in the hard-hit retail and manufacturing sectors, as well as the lesser seniority of blacks in better-paying, white collar, positions.

But one thing is certain: The longstanding racial “wealth gap” makes African Americans particularly vulnerable to poverty when job loss strikes. In 1998, the net worth of white households on average was $100,700 higher than that of African-Americans. By 2007, this gap had increased to $142,600. The Survey of Consumer Finances, which is supported by the Federal Reserve Board, collects this data every three years—and every time it has been collected, the racial wealth gap has widened. To put it another way: in 2004, for every dollar of wealth held by the typical white family, the African American family had only one 12 cents. In 2007, it had exactly a dime. So when an African American breadwinner loses a job, there are usually no savings to fall back on, no well-heeled parents to hit up, no retirement accounts to raid.

All this comes on top of the highly racially skewed subprime mortgage calamity. After decades of being denied mortgages on racial grounds, African Americans made a tempting market for bubble-crazed lenders like Countrywide, with the result that high income blacks were almost twice as likely as low income white to receive high interest subprime loans. According to the Center for Responsible Lending, Latinos will end up losing between $75 billion and $98 billion in home-value wealth from subprime loans, while blacks will lose between $71 billion and $92 billion. United for a Fair Economy has called this family net-worth catastrophe the “greatest loss of wealth for people of color in modern U.S. history.”

...The recession is changing everything. It’s redrawing the class contours of America in ways that will leave us more polarized than ever, and, yes, profoundly hurting the erstwhile white middle and working classes. But the depression being experienced by people of color threatens to do something on an entirely different scale, and that is to eliminate the black middle class...."

The Destruction of the Black Middle Class  August 4, 2009

This video best sums up our consumptive-based economic model. It's an unsustainable economic model we've exported all over the planet:

http://www.storyofstuff.com/

Plutocracy Tightens Its Chokehold: American Dream Gasps for Breath
by Robert S. Becker‚ Aug. 18‚ 2009

 "...The U.S. of Plutocracy: Wealth Rules!

What would happen were the plutocracy to become less invisible? Unsettling research from UC Berkeley Professor Saez reinforces the three-decade trend that divides rich from everyone else, across all key measures. First, this stunner: by 2007 the top .01% population captured 6% of America’s total earned income, the highest ratio since the Roaring Twenties. The super-rich are not only much richer, but the rich have captured almost all national productivity gains since the early ‘90s. Second, the top 1% of families take home 23% of all income – after CEO-friendly deductions. In shock yet?

Do you still believe the correlation of total national wealth with majority prosperity? Superficially, it’s true: all boats rise when the top tier thrives. From ‘93 through ’07, total income increased 2.2% per year. But income for the top 1% surged 5.9% each year, leaving 99% of us averaging up 1.3% annually. Let’s not forget that 14 years of inflation, at 3% a year, totaled 46% – wiping out phantom improvements. Average middle-class families with only one income thus suffered a double whammy – less cash plus less purchasing power. What has been and remains “just around the corner” isn’t prosperity but paucity and loss – unemployment, foreclosures and tarnished golden years.

Big spenders, especially Reagan Republicans, worship this correlation not just to defend their present affluence but the limitless abundance dreams are made of. Paul Krugman verifies the magnitude of this gap is an American phenomenon, paralleling three decades of union-busting, resulting in reduced group bargaining power. Union workers are now only 11% of the workforce vs. 30% two decades ago; Canada, by comparison, is still 30% unionized. Wealth disparity reflects not only weaker unions but corporate welfare (farm, mining and energy subsidies, lax or no regulations, or no-bid defense contracts) and sustained tax policy (income and estate loopholes) that act as the great “unequalizer.” This is not about low economic growth, but political leverage that favors the ruling oligarchy (so powerful liberals struggle to distinguish Obama's Wall Street policies from Bush’s). Despite a shift leftward in opinion polls, wealthy ultra-conservatives in power favored the upper crust with cake and everyone else with crumbs. Forget majority rule: rightwingers like Cheney glory in abysmal approval rankings because they reject majority opinion, whether about taxation, leaving Iraq or ending abusive, secret prisons.

Cream Rushes to the Top

Even more telling than income flow are overall capital asset gaps: American capitalism has concentrated more wealth in fewer households than any place but Switzerland (a special case, with 1/50th our population). Thanks to FDR, from the ‘30’s through the mid-‘70’s, family asset parity actually improved: the top 1% “bottomed” out in '76, owning but 20% of everything (back lately to 40%). Worse still, 10% today own 70% of American assets. 70%! In the UK, the top 10% owns 55%; in Canada, 53%; in Germany, only 44%. This “richest” nation on earth spreads wealth like a robber baron skinflint: if 10% own 70%, that means 90% of us own 30%, with gapping trends intact.

So much for fictions we are one, indivisible nation: many are no longer on the same cruise ship, let alone 3rd class. The American Dream is less available than in the 1970s, with mammoth inheritances reifying concentrations. This growing plutocracy undermines the ultimate, if fading American right: Freedom of Opportunity. Unfair taxation (including sales tax, the most onerous) is the key, and many rich view paying taxes as a sucker’s game. Further, if government is the ideological “problem,” the enemy of personal freedom, then more power to those who shrink public coffers.

Impeaching the Constitution

The inequality of income and asset ownership is not only the effect, but prime cause for less prosperity, especially promised "our posterity.” If what passes for majority rule fixes rigid class structures in place, what happens to our immigrant nation? Where is fabled economic mobility and subsequent innovations? Ironically, electing our first non-white president, with humble origins, reinforces a myth LESS true now than during Carter’s presidency: Obama is today's statistical fluke, hardly proof we are economically a fairer, more open, or more equal culture. Sure, some poor person will again be president; some will win the lottery, too.

Short of a second New Deal to offset today's Second Gilded Age, our vast majority is well within rights to sue prominent defenders of the sacred Constitution as welchers. If the Founders pledged a direct link between life, happiness and general welfare, let us hold responsible all those who have violated the spirit and letter of enduring covenants. How long will we sustain the fiction of equal opportunity, or that the majority still rules its destiny, or that everyone benefits, when an entrenched plutocracy owns 70% – lock, stock, and barrel. With the top 10% still earning 50% of all income, “lock, stock and barrel” fits all too well, however at odds with fostering a healthier democracy."

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8-18-2009 User 353732

"America's governing elites have, through a series of explicit willed choices, magnified American weaknesses and crippled American strengths. For the political, financial and media bosses, the only thing that matters is maximizing their wealth, political domination and personal gratification. There is now a tremendous divergence between the ruling bosses and the American people ,esp. the Middle Class.

The bosses know a big thing that most of the people cannot or dare not grasp: The elites can and will increase even as America decreases. The ruling elites of America identify far more closely with the equally corrupt and self aggrandizing elites of China and Russia than they do with the American middle class, which has become an object of contempt and a lowing, mooing herd to be milked , slaughtered and skinned.

Xray Mike:  What would you suggest the US can do to equalize wealth? 

Keep in mind these points (hopefully they come across objectively and not as an opinion):  taxation of the wealthy is already quite dramatic - where the bottom 50% of income earners pay close to nothing -  the top 20% pay almost all of it.  With social welfare, the bottom 1/3rd actually takes in benefits while paying no taxes as a whole.  When more than 50% of the working population pays no taxes (talking income taxes here), then the treasury is at risk.

While I am not saying the tax system is fair or unfair, it is quite clear that the rich do in fact pay most of the taxes, and are taxed quite aggressively.  In fact, including sales taxes, real estate taxes, and state/county taxes, there are places in the US where you pay more in taxes than the vast majority of 1st world countires already.  To go any further could introduce a very destructive spiral.

That said, I do think there is a tremendous issue when wealth is skewed as much as it is in the U.S......but, unfortunately have not heard of any ways to fix this.  Any ideas? 

Why can't journalists separate themselves from the left/right framework?  Why can't they see the cancer of the Fed?

Much in Becker's article is great, but he chalks the cause up to the right and thinks the solution is the left.  Hardly.  While I agree with him about the right, why can he not see that the left is part of the game too?  Why can't he see the New Deal was a program that, while helping the little guy, also benefited the super-elite (the people behind the Fed, bond traders on Wall St, rulers in DC)?  The Fed's monetary system thrives on national debt. They don't care if it comes from excessive military adventures around the world or if it comes from domestic welfare programs.  Either way it feeds the parasites.  And with those 2 pillars, they're able to fool half the population all the time which enables them to keep the machine going.

Journalists need to understand there's more than the simplistic notion of rich vs. poor.  He apparently supports the New Deal because it benefited the poor and put limits on the rich.  But the rich that it didn't help was the bourgeois class--fine, I'm all for not helping them--but it helped the super-elite ruling class A LOT (the top 1% the article mentions).  It sucked power/wealth from local/state levels where real community should happen in a way that would truly help the little guy.  It reinforced the notion of an all-powerful imperial presidency so the masses would look to DC for life support.  It ramped up the level of indebtedness to the Fed's bankers so they and the debt traders would make FAR more money.  It served as the basis for massive taxation and a more powerful IRS akin to Rome's tax collectors (essential in an empire).  It created the 2nd key pillar of Federal Reserve rule.  etc etc etc 

rickets, you're right, but again need to look beyond the simplistic dichotomy of rich vs. poor.  the "rich" are paying most of the taxes, but that's the bourgeois class (the producing class, the upper middle class).  that is not the ruling class.  as we saw with Geithner, Daschle, etc. they don't pay taxes.  and the super-super-elite make money off taxes...taxes are collected from the bourgeois class to pay the ruling financial class.  

the solution to the income disparity is not taxation.  it is returning to a main street production-driven economy rather than a parasitic wall street inflation-driven economy.  

As Strobes says, the cancer must be removed before the patient dies. The financial sector is like the trucking industry. It's supposed to service the wealth building portion of the real economy, not suck the life out of it. Mainstream America was robbed and is continuing to be held up at gun point. The financial oligarchs are not too big to fail; they are too big to exist. After they are busted down into smaller banks, then we must work on overhauling our broken, corrupt government. Absolute term limits on Congress (have you seen TV shots of Senator Byrd of West Virginia in a wheel chair , slobbering on himself?) & a law prescribing a felony for any former member of congress to lobby congress. A very high proportion of senators are millionaires, they should have no need to lobby. They should go home and live under the laws they have created for the rest of us peasants.

I like these ideas here----------------

"Redistribution Done Right:

The scale of this inequality should make one thing clear – efforts to regulate executive compensation are completely inadequate to the task.

Rather, we must be prepared to redistribute wealth far more substantially.

Progressive Taxation – the first step in achieving a more equal society is to make our tax system more progressive. We should work to gradually expand our capital gains, estate, and income tax rates, especially focusing on making these taxes more progressive by adding additional brackets at the top. For example, our current income tax brackets end at 35% of all incomes over $373,000 a year as if there were no difference between a household consisting of two affluent professionals and a household of multimillionaires. There is no sane reason why additional brackets should not be added at $500k, $1 million, $5 million, and so forth.

Progressive Redistribution – in addition to increasing normal social spending, which by its very nature benefits ordinary Americans more than the poor, we should also combine a progressive change in taxation with the expansion and progressivization of our social benefits. While I will expand more upon this subject in future posts, I believe that one of our chief mechanisms of redistribution must be the expansion of the earned income tax credit and the various child-related tax credits into a guaranteed minimum income for workers. Just to take the current EITC, the credit at present is virtually worthless to single people and couples without children (maxing out at $428 a year), while the maximum benefit of $$4,716 is restricted to those with two or more children.

The Goal: I believe that our goal must be to gradually push economic distribution back towards where it was in 1979, when the quintile distribution of income looked like this (2007 numbers shown in parentheses):

1st Quintile – 44% (49.7%)

2nd Quintile – 24.7% (23.4%)

3rd Quintile – 16.9% (14.8%)

4th Quintile – 10.3% (8.7%)

5th Quintile – 4.2% (3.4%)

You will see that this is hardly a dramatic levelling of the sort envisioned by Marx or Engels; indeed, the top quintile of Americans would lose a mere 6 percentage points of their income, which would hardly bring anyone to penury. It’s also worth noting how broadly increasing inequality has been felt – the 2nd and 3rd quintiles have lost far more ground, absolutely, then the bottom 4th and 5th quintiles in the last thirty years. In this sense, redistributing wealth would be almost as far from “class legislation” as one can imagine, in that it would benefit 4/5ths of the population.

Accomplishing this by means of taxation and redistribution would mean, as Larry Summers(!) points out, that the top 1% of households would lose $500,000 a year from additional taxes (although given that the top 1% starts well over $250k a year, this shouldn’t be too painful), and the bottom 80% of Americans should receive $8000 per year per family – easily accomplished by expanding the EITC (or a combination of the EITC and the Child Credits) to a universal and automatic $8000 rebate for all Americans making less than $100,000 per year. Moreover, all of this could be gradually accomplished if that would soothe the fears of those solicitous of the rich, turning the yearly bite on the rich to no more than, say $25,000 a year.

Conclusion:

A scheme to redistribute some $670 billion in wealth might seem to risk attacks of “class warfare.” Certainly, the Blue Dog and New Democrats who balk at income tax surcharges on the wealthy to pay for universal health insurance would quickly run out of superlatives should a proposal of this scope ever be seriously introduced. However, as the 2008 campaign and the subsequent battles over the stimulus, the budget, health care, and even something so babies, apple pie, and flags as “Cash For Clunkers” have shown, we will be attacked for “class warfare” no matter what we do.

So let’s be rather be hanged, if hanged we will be anyway, for stealing a sheep than a lamb. Let’s have a real fight over what kind of society we want to have, one in which America has the same wealth distribution patterns we had under President Reagan, or one in which America has the same wealth distributions as we enjoyed under President Bush."

Strabes - I dislike McDonalds and Starbucks for being on every street corner of the world as much as anyone I know.  I cant stand exploring parts of rural China only to turn the corner and see Starbucks and KFC on the corner.  These companies, although not financial, are the poster children of Wall St leverage, expansion, and power.  These giant corporations do have lots of power in Congress.  But, the masses we are talking about here...the middle and lower class - LOVE these companies.  Take away the morning latte from Starbucks and the masses are 2x likey to riot than if you skew the wealth a few more percent toward the wealthy....thats my guess.

There is no reasonable way to try to dismantle giant corporations.  The best idea on this thread to me is the term limits.  There is no reason anyone should be able to serve longer than a two term president, and even that is pushing it.  Take away that, and power is disseminated.  The rich as a whole are not guilty.  Many rich people are fantastic, hard working, educated, giving citizens.  What we should focus on is corruption and power - which is obviously built around our political parties.  Limit their terms, dilute their power, reseparate executive and legislative branches and I think we would be on a path that looks a lot better - one where the rich that are evil cant infiltrate as easily.

Xraymike...redistribution of wealth - thats an aggressive idea and imo would be more likely to cause division and riots in the US than the current wealth skew.  Lets all remember that our lower class still has way more wealth than most of the world.  Because of that, redistribution of wealth is as corrupt an action as what we are seeing from politicians in power now.   Your redistribution makes no distinction between an investment banker setting up ways to make money on inflation (I think someone on the thread called this type of business parasitic) vs a local business owner who risked his house, worked 80 hours a week for 5 years and now makes 500k per year at his corner store.  Doesnt that guy who makes 500k a year deserve it for the extra risk and hours he worked?  Sure, if the lower class really had it like the lower class in Africa does then maybe we would say there is a moral issue here, but thats not nearly the case.  Surely if this country repressed the poor, didnt have education for the poor, didnt offer tons of scholarships and were as poor as the children in Africa we could have a different discussion.

Tax the small business owner any more and you will find that people will not be willing to take the risk anymore.  Starting small businesses will not make as much sense as the profit margins per unit of risk will vanish due to higher repressive taxes.  Take away a decent percentage of the smaller business man, and what you have left is more giant corporations and more government run entities - which is what we are trying to avoid no?

I would encourage anyone who thinks the poor in our country are impoverished and repressed to travel to central Mexico, or to northern inland China and take note of what poverty means - and what living under bad government and being truely poor is like.  I would be quite surprised if you would still feel taking money away from those who built their own businesses by taking great risk and taking great time (relative to most - not all - people) was justified.  I think things need to get way worse in the US before we see any violent social unrest do to unequal wealth distribution.  I think that simply because there are lots of examples in the world right now were the wealth is more skewed and the poor are far more poor.

So, my points being - kill power of politicians by creating short term limits.  Allow more freedoms and smaller government via reduced taxes and burdens, and trust that the masses are inherently good, because they are.  Lets also remember that regulating equality is a big part of what got us into this housing bubble - with Barney Frank and others forcing banks to extend credit to the poor who previously didnt qualify, followed by the fed created the lowest interest rate mortages in our country's history.  Be careful of giving to those who dont truely need just because it should be more "fair" as this has backfired over and over againg throughout history.  Programs designed to equalize the playing field, ie socialism, have never lead to prosperity.  I agree that the last two decades have not either, however lets not go down either path again - - lets learn from history and try not to repeat