In 2001, soon after George W. Bush was inaugurated, I called the White House press office for comment on the latest IRS income data. The deputy spokesperson expressed disbelief at the official figures I read, so much so that I asked, “What do you think is the median income shown on tax returns in America?” The answer: $250,000. The actual figure at the time: $28,000.
Misperceptions about affluence and poverty continue to infect our politics, even as the massive chasm that divides the very richest Americans from everyone else has become the defining story of our time. No natural forces determine income, wealth, and the quality of human life. We make the decisions about who will prosper and who will not—or we let other people make them for us. In societies with democratically elected governments, we are the captains of our fate, because when we elect politicians we choose their policies as carried out by presidents and governors, Congress and legislatures, and those they appoint as judges and regulators. For now, what we have chosen is extreme inequality, the worst by far of any nation with a modern economy.
In choosing inequality, we have opted to give up a broad and strong middle class with rising expectations, growing incomes, broadening home ownership, and access to higher education. In choosing health care inequality, we have decided to dampen millions of spirits, deny a chance at success to millions of children, and turn many hardworking taxpayers into people who become permanently disabled and thus a burden on society, simply because they cannot get corrective surgery or drugs to control their conditions and return to productive lives. We have created a society in which all the nation’s economic gains flow to the top and the vast majority sees income stagnation or decline. We have embraced bankruptcy, debt, long bouts of joblessness, and flat or shrinking paychecks as the new normal. And we have lavished cash, tax cuts, and subtle subsidies on the richest among us, whose prosperity continues to blossom.
It was not always this way.
From the end of World War II until the early 1970s, the vast majority of Americans enjoyed steadily improving lives. Wages increased and a growing share of workers benefited from steady employment with fringe benefits such as health care, paid vacations, and pensions. The number of jobs grew steadily, especially for work requiring a college education or advanced degrees, as taxpayer investments in basic research produced tangible products and life-extending services. Many more people became home owners, often finding that their monthly outlay was less than when they rented. Poverty remained a problem, but it was in decline, especially for older Americans. For most families with children one income was enough. Americans had debts, but they grew in tandem with the economy. Cars were typically bought on three-year loans, not the five-, six-, and seven-year loans common today. The real income reported on federal tax returns by the vast majority of Americans, the 90 percent, doubled between the end of the war and 1973.
Then the lives of the vast majority stopped getting better and, after a few years, began a long and painful slide backward. Unions dwindled, shifting the power to set pay from organized groups of workers with advice from market experts to individual employees negotiating, or more often just accepting, pay set by employers. The rising costs of health care diverted more compensation from cash wages to insurance premiums. Trade rules that often favored other nations destroyed many well-paying manufacturing jobs, including more than 50,000 factories and 2.8 million jobs offshored to China.
As a result, the vast majority’s average income rose above the 1973 level only four times—in 1999, 2000, 2001, and 2007—and even then added only the equivalent of one additional week’s income to each year. By 2012 the average income of the vast majority had shrunk to the equivalent of 45 weeks of 1973 income—a 13 percent decline to $30,997 from $35,584 in 1973, expressed in 2012 dollars.
Between 1998 and 2011, the median weekly wage—half make more, half less—stagnated between $533 and $546 in 2012 dollars, then dropped in 2012 to $529 and change, or $27,519 for the year. Almost a third of the 153.6 million Americans with a job at any time in 2012 made less than $15,000, averaging just $6,100.
In recent years nearly all of the income growth has been in jobs paying more than $75,000—about one in every eight jobs. At the top, pay soared. In 2012 the number of people whose jobs paid cash wages of $5 million or more grew by 27 percent to 8,982 workers while their inflation-adjusted combined pay increased by 40 percent over 2011.
Very highly paid jobs have grown to such a degree that, in 1994, the Social Security Administration changed its top compensation category from “more than $5 million” to “more than $20 million.” In 1997 it lifted the top level again, to “more than $50 million.”
As wage growth slowed and then stopped—or even fell back—for millions of workers and the 90 percent’s average total income shrank, debts rose and bankruptcies grew much faster than population. Since 1980, there have been 32 million personal bankruptcy filings in a nation with an average of about 100 million households, meaning that one in roughly three households has sought refuge from creditors.
At the top it was an entirely different story. Here we do not find the storied captains of industry who risk their capital to create jobs so much as executives, entertainers (from baseball players to pop singers), and other working wealthy, often salaried. The top 1 percent’s average income certainly grew between the end of the war and 1973 along with everyone else’s, but while the vast majority’s income doubled, the top 1 percent’s income grew by only a third. In contrast, from 1973 until 2012, the years when the vast majority saw their incomes slip, the top 1 percent saw their average income more than double, rising 153 percent to more than $1 million. The top 1 percent made almost thirteen times the average of the 90 percent in 1973, but by 2012 the ratio was 41 to 1.
While the average income of the vast majority in 2012 fell back to the level of 1966 (actually, $9 less than in 1966), the news got only better for the top 1 percent. They saw their average incomes rise from nearly $441,000 to $1,264,000, a real increase that nearly tripled their pretax incomes. At the very, very top, the news was nothing short of fantastic. The top 1 percent of the top 1 percent, or one in every 10,000 households, saw their average income skyrocket from $5.4 million in 1966 to almost $30.8 million in 2012. That means that for every $1 in 1966 income, each household at the top reported $5.67 in 2012. Most of these are not the same people, but the figures tell us how, as a group, America rewarded its wealthiest, while the vast majority (also not all the same people, forty-six years later) saw their incomes wither.
The resulting growth at the top has become so concentrated that between 2009, when the Great Recession ended, and 2012 just 16,000 households collected 31 percent of all the increased income in all of America with its 315 million people. That money went to the 1 percent of the 1 percent. The top 1 percent enjoyed 94.8 percent of all the increased income, with the small remainder going to the rest of the top 10 percent.
And the vast majority, the bottom 90 percent? Analysis of tax returns by renowned economists Emmanuel Saez and Thomas Piketty showed that during this same period, from 2009 through 2012, their average incomes shrank by 15.7 percent.
We have also chosen to let the rich keep more of their increased income. Federal tax burdens at the top have fallen dramatically, while rising slightly for the 90 percent. Between 1961 and 2011 the share of their income that the nation’s 400 top taxpayers paid in federal income taxes fell 60 percent. During the same years the income tax burden on the 90 percent declined only 20 percent. Add in higher Social Security and Medicare taxes and the top 400 data remain the same, but the tax burden of the 90 percent actually increases slightly. This means that the burden of government has been pushed down the income ladder.
Signs of modern inequality abound. Small jets have replaced the private piston-engine plane of the 1960s. In the past decade, we have seen a growing fleet of private jumbo jets such as Boeing 767s and 747s. We see ever more private boxes at sports stadia (built primarily with tax dollars) that are reached through private entry and exit ramps. More than 7 million Americans live in gated communities. In this and myriad other ways, the superrich separate themselves from society physically, culturally, and psychologically. These trends help explain how the Bush White House’s deputy press secretary could believe that half of Americans made more than $250,000, when fewer than one in fifty actually did.
Meanwhile, poverty is worsening. Among developed countries only Romania has a larger share of its children in poverty. In any recent year, more than one in five American children lived in a home without enough food for everyone at all times. Black and Hispanic children are five times more likely than children overall to live in households with what our government euphemistically calls “very low food security.” Food banks report that their shelves often go bare before the lines of people are served and that most of their new customers since 2008 are married couples with children who used to have two jobs and now have none. To people accustomed to a pantry full of food and a refrigerator with not enough shelf space for everything that comes home from the grocery store, this may be hard to grasp. Yet one in every fifty-two people you meet today, statistically, has no income except food stamps.
In reality, however, it is possible to live a lifetime and not know any one of the 6 million Americans who now depend entirely on food stamps to survive, because we are so economically segregated.
In the late eighteenth century, the French kings lived in blissful ignorance of the poverty around them. One of them even built a private château for his mistress, in which he planned to have a massive dining table rise from the kitchen below so that the nobility would never have to see the servants, a project that had not been done by the time his son, the last French king, lost his head. Similarly, it is easy for the affluent in America to turn a blind eye to the poor and to surround themselves with the similarly wealthy. Without deep and continual contact with the society as a whole, those at the top begin to view themselves in ways that deny the reality of what is going on around them. When that happens, the policies they seek from government—purchased with campaign donations, free rides on private jets, and jobs for politicians’ friends and families—distort the economy even more, tilting the playing field in their favor and against everyone else.
It need not remain this way. Change is more than possible. We can choose to restore broad prosperity, instead of promoting highly concentrated prosperity and deepening poverty, especially child poverty. We can build a better America, one that reduces poverty and strife and weakens the power of demagogues. Changing our policies, however, first of all requires knowledge, like the data on incomes about which a top Bush administration spokeswoman was blissfully ignorant. But even facts are useless without understanding the causes of extreme inequality, the levers that effect change. Change also requires organized action at the grassroots level, because in America reform has always come from the bottom up.
A society is defined by its rules. Inequality is the product of rules put in place by those we elected or, if we did not vote, let our fellow Americans elect. Those rules determine in good measure who prospers and who does not, who benefits from our tax system and who bears the burden. America began with a constitution that enshrined in law the ownership of human beings, yet we abolished slavery, the most extreme form of inequality. Women won back the right to vote thanks to decades of determined effort by Susan B. Anthony, Elizabeth Cady Stanton, and many, many others. The first child labor laws required half a century of effort, and more than a century passed before minimum ages and maximum hours for children at work were made law through the 1938 Fair Labor Standards Act. Some states have now weakened these laws and some Republicans in Congress say they should be repealed.
We have laws that allow unions to organize and negotiate for better pay and working conditions, though they have been greatly weakened in the past three decades. We also have strong environmental laws, but they are also under attack. These victories, achieved at great cost, have produced a comparatively healthier, wealthier, more engaged, and overall better society. In the same way, we can build a much better society if we choose.
Full employment is one of the twin duties Congress, by law, places on the Federal Reserve, our nation’s central bank. The other duty, which normally gets the most official and press attention, is curbing inflation.
The lack of jobs for young adults, especially those with college and advanced degrees, will be a serious drag on our economy for decades unless we change course and focus on jobs. In late 2013 the economy was operating at only 93 percent of its potential, meaning that about one trillion dollars of additional economic activity was entirely within reach, but for our policies. In good part that shortfall between actual and potential existed because America was short between 9 million and 11 million jobs based on historic performance and population growth. We remain adrift in the economic doldrums because we choose to be there.
Pope Francis I, denouncing “an economy of exclusion,” has made inequality a centerpiece of his reign:
Just as the commandment “Thou shalt not kill” sets a clear limit in order to safeguard the value of human life, today we also have to say “thou shalt not” to an economy of exclusion and inequality. Such an economy kills. How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?
Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.
Human beings are themselves considered consumer goods to be used and then discarded. We have created a “throw away” culture which is now spreading. It is no longer simply about exploitation and oppression, but something new. Exclusion ultimately has to do with what it means to be a part of the society in which we live; those excluded are no longer society’s underside or its fringes or its disenfranchised—they are no longer even a part of it. The excluded are not the “exploited” but the outcast, the “leftovers.”
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I selected the following chapters from a much larger field of speeches, academic studies, essays, and books by a wide range of Americans who care about the durability of our nation and are respected by their peers for their expertise.
We will look first at incomes and wealth, including across generations, because they are the broadest and the best-documented measures, including a compelling speech by President Obama on why inequality matters. Health care comes next because of its enormous slice of our economy—currently 18 percent on its way over 20 percent—and its central role in well-being, the ability to be productive, and in creating inequality. Further contributions explore debt and poverty, including policies that criminalize debt and worsen hunger, which have received little attention in the news and thus remain a mostly hidden scandal.
Policies that promote both equality and inequality are the subject of the next section, providing an understanding of the powerful, but subtle, ways in which laws and rules shape individual economic well-being. Here, too, criminal law plays a powerful role. Pieces on the central role of family follow, showing how government policies affect families, as well as education, the key for many, including me, to a better life and a richer, safer, and happier world through new knowledge.
With the approval of those whose work is presented here, I have deleted outdated or arcane language, footnotes, and other details so the general reader can extract the greatest meaning from each piece. Over the years, I have heard frequently from readers and from audiences attending my public lectures about what struck them as new or valuable insights. In selecting the contributions I focused on what these audiences have told me they longed to know, what they were surprised to learn, and what they worried received too little attention from the press, from politicians, and even from me.
As you read the pieces, keep in mind that inequality is about much more than just incomes or wealth, which I have used as a lens to focus on the easiest-to-grasp measures. Inequality is also about access and opportunity, which are much harder to measure. Education, health care, and exposure to environmental hazards all shape society, affecting who gets a shot at success and who gets success handed to them; who can overcome obstacles and who has those obstacles cleared away for them.
The single most important point of Divided is: keep in mind who benefits and who does not. It’s our choice. We decide. And we are free to make better choices that will strengthen our society so that America, and the liberties of the people, will endure.