STREET SMART ECONOMICS | Organizing and exposing the maldistribution of power is vital
Pretty much everyone accepts that inequality is a big problem in the United States. But it is doubtful that most people grasp how successfully U.S. elites have captured the benefits of economic growth and, as a result, how much the resulting inequality has cost them. Here is one estimate of that cost — according to Carter C. Price and Kathryn A. Edwards, authors of a Rand Education and Labor study on income trends :
“(The) aggregate income for the population below the 90th percentile . . . would have been $2.5 trillion (67%) higher in 2018 had income growth since 1975 remained as equitable as it was in the first two post-war decades. From 1975 to 2018, the difference between the aggregate taxable income for those below the 90th percentile and the equitable growth counterfactual totals $47 trillion.”
That $2.5 trillion was enough to give each and every worker in the bottom 90% of earners an additional $1,144 a month , every month of the year. That is life-changing money for tens of millions — and that is only a partial measure of the costs of inequality.
Economic restructuring The growth in inequality over the last four decades owes much to the implementation of several interlocking and mutually reinforcing economic policies, all largely supported by both Democratic and Republic administrations. These policies, by furthering the globalization, financialization, deregulation and privatization of U.S. economic activity, greatly strengthened corporate profitability and power at the expense of working people, thereby ensuring that the benefits of growth would increasingly flow into ever fewer hands.
In fact, according to the economist Emmanuel Saez, the top 1% captured: 45% of the country’s total real family income growth during the Clinton era economic expansion years of 1993 to 2000; 65% of the country’s total real family income growth during the Bush era economic expansion years of 2002 to 2007; and 95% of the country’s total real family income growth during the Obama era economic recovery years of 2009 to 2012.
Over the entire period, 1993 to 2012, a period which includes two recessions, the top 1% captured 68% of the country’s total real family income growth. Workers suffer from recessions, job losses, wage cuts and insecurity. Increasingly, expansions bring them few benefits, with most of the gains going only to the very richest.
Estimating the dollar costs of inequality In the Rand study cited above, Price and Edwards set out to estimate the actual dollar costs of inequality. Although their estimation techniques are complex, their methodology is straightforward. In brief, they found that over the period 1947 to 1974, all major income groups tended to enjoy similar rates of income growth that closely followed the rate of growth of the overall economy, as measured by the growth in per capita GDP.
This changed dramatically from 1975 to 2018. In this period, income growth for most earners, although not for those at the top of the income distribution, was significantly below the rate of growth of the economy. As a consequence, Price and Edwards focused on the years 1975 to 2018.
They began their quantification of the dollar costs of inequality by estimating the earnings growth of different income groups and the rate of growth in per capita GDP over the period’s five business cycles. They then estimated the earnings growth of the same groups under the assumption that the incomes of all groups grew at the same rate as the economy, much as occurred over the 1948-1974 period. The dollar cost of inequality for each income group was then calculated as the difference between the counterfactual 2018 income and the actual 2018 income.
Here are some of the most striking results from their study: The median worker (considering all workers 20 years of age or older and with nonzero income) earned $26,000 in 1975 (expressed in 2018 dollars to take account of inflation) and $36,000 in 2018, for a real income gain of $10,000. If their income had grown over those years at the same rate as the economy, they would have earned $57,000 in 2018. In other words, the growth in inequality cost them $21,000, an amount that would have more than doubled their earnings over the period.
In fact, income growth at every income level up to the 99th percentile was slower than the rate of growth of the economy, which meant that almost the entire workforce lost income because of the growth in inequality. In contrast, the average income of the top 1% grew at a rate more than 300% of per capita GDP. As a result, their income grew from $252,000 to $1.16 million over the years 1975 to 2018. Had their income grown at the same rate as the economy, they would have earned only $549,000.
The outcome was much the same for full-year, full-time, prime-aged workers (25 to 54). Perhaps most notable is the fact that “the majority of full-time workers did not share in the economic growth of the last forty years.” The median full-year, full-time, prime-aged worker experienced a real income gain of only $8,000 over the years 1975 to 2018, from $42,000 to $50,000. Had their income grown at the same rate as the economy, they would have earned an additional $42,000.
While the median income of full-year, full-time, prime-aged workers grew by less than 20% of the growth in per capita GDP, the threshold to enter the top 1% grew by 166% of the per capita GDP and the growth rate of the average income within the top 1%t was again over 300% of per capita GDP growth.
Ecological concerns aside, this study makes clear that growth, because of the nature and structure of the U.S. economy, largely benefits only the very wealthy. Moreover, the study’s results do not capture the full costs of inequality. For example, as Price and Edwards recognize, using the 1975 income distribution as a starting point means that the inequalities in income that existed then, especially those related to race and gender, were built into their calculations, thereby leading to a dramatic understatement of the costs of inequality for most workers of color and women. Then, there is also the lack of health, solidarity, security and confidence that often comes from low and stagnant earnings in a rich country.
As one might expect, those at the top of the income pyramid have little interest in acknowledging the extent or costs of inequality, and even less in calling attention to the processes and policies that sustain it. Needed change will only come from organizing that helps to expose the maldistribution of power and rewards in our existing economy and encourages the kinds of workplace and community actions that can bring to light alternative possibilities.
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