ECONOMIC INEQUALITY ISN'T NEW. But this spring it became trendy, especially after Pope Francis dropped the tweet heard ’round the world in April: “Inequality is the root of social evil.”
Around the same time, Capital in the Twenty-First Century—a just-short-of-700-page book by French economist Thomas Piketty—became a best seller. Piketty, while not quite as concise as the pope, also sees wealth inequality as a problem—he focuses on its damaging effects on democratic institutions. Using extensive data, Piketty makes the case that escalating wealth inequality is built into capitalism. Without specific interventions, he writes, our politics and culture will be dominated by a small elite controlling vast amounts of primarily inherited wealth. It might create a new Gilded Age for some, but it won’t be any shinier for regular folks than the first one a century ago.
When class and economic status become news, the conversation tends to get a little shrill. Terms such as “Marxist” and “anti-business” were tossed around freely in reference to both Piketty and the pope. Some, of a more spiritual bent, sought to warn the pope and other Christians who decry inequality about the biblical sin of “covetousness,” offering reminders of the virtue of hard work. (I guess the hidden message of the parable of the rich man and the beggar at his gate is that Lazarus is envious; the real issue must be Lazarus’ poor work ethic and lack of get-up-and-go!)
But the inequality gap should be of concern to everyone, whatever their income or ideology. The point is not the fact that there are differences in wealth—those exist in any human society. And it’s not necessarily helpful or productive to seek scapegoats or assign broad characteristics to particular classes; neither poor people in general nor rich people in general are inherently noble, lazy, or scheming—temptations may vary, but good and evil can be found in people of every economic status.
What’s most important—and troubling—is the decades-long, systemic expansion of the economic distance between the richest of the rich and the poorest of the poor, and the long, backward slide for the majority of those in-between.
The gap’s the thing. No matter what your favored economic theory, this distance is a big problem. As Matthew Yglesias writes on vox.com, “Piketty’s vision of a class-ridden, neo-Victorian society dominated by the unearned wealth of a hereditary elite cuts sharply against both liberal notions of a just society and conservative ideas about what a dynamic market economy is supposed to look like.”
Extreme wealth inequality carries the seeds of economic and social destruction: As more people are excluded from opportunity, the bulk of the economy as a whole slows and becomes less sustainable, and the social fabric strains and tears. Extreme inequality unravels participatory democracy and leads to the rule of the few over the many. It fails to uphold ethical standards of fairness and the common good. Instead of markets serving human needs and dignity, money becomes an idol, and people and values are sacrificed to serve what Pope Francis calls a “deified market.”
A fading American dream?
There are several ways to assess relative levels of economic equality or inequality. One is by comparing income (earned salary and wages). Another is by measuring wealth (owned assets, such as houses, stocks, and cash).
Thomas Piketty’s work focuses on wealth inequality, but wealth inequality is closely related to trends regarding income. The headline grabber these days is skyrocketing executive compensation. For example, a recent study looked at 337 chief executives at S&P 500 companies. The median pay package for these CEOs rose above eight figures in 2013 ($10 million and up), according to an Associated Press/Equilar study released in May. The head of a typical large public company earned a record $10.5 million, an increase of 8.8 percent since 2012. The median CEO pay package has grown more than 50 percent since the official end of the Great Recession in 2009, in large part due to the booming stock market, since top executives increasingly are paid in stock, not cash.
Some still cling to the outdated and idealized vision that the U.S. offers economic opportunity for all who seek it. From the post-World War II years through the early 1970s, wages, employment levels, and benefits didincrease for the majority of Americans.
But conditions were different then. During that period, as economist Robert Reich notes, “tax rates on top incomes in the U.S. never fell below 70 percent, a larger portion of our economy was invested in education than before or since, over a third of our private-sector workers were unionized, we came up with Medicare for the elderly and Medicaid for the poor, and built the biggest infrastructure project in history, known as the interstate highway system.”
Now, tax rates on the top incomes have been lowered to 39.6 percent. Wages for the majority of Americans were stagnant for three decades after the ’70s; since then, they’ve been in precipitous decline. Today, a smaller portion of our economy is invested in education—35 states provide less per-pupil funding than prior to the recession. The share of the workforce represented by unions has declined to 13.1 percent, according to the Economic Policy Institute. (Unions are important because collective bargaining produces higher wages for those in a union and can raise the wage-and-benefits standard across a whole industry.) While Medicare and Medicaid continue as safety nets for some of the most vulnerable, escalating health-care costs are buffeting the middle and working class. And these days, the big infrastructure projects—from interstate highways and bridges to urban sewage systems and our electrical grid—are badly in need of repairs or upgrades.
Some like to think that a rising stock market lifts all boats, but the numbers tell another story. Since 2009, median household incomes, adjusted for inflation, have been falling, according to the U.S. Census Bureau. Nearly all of the income growth in our economy has been in jobs paying more than $75,000 a year—about one in eight jobs. “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,” writes David Cay Johnston in Divided: The Perils of Our Growing Inequality. These include food service workers, cashiers, home-health aides, and others who are making minimum wage and not given full-time hours or benefits. While low-wage jobs are becoming more plentiful, higher-paid work has become harder to find. A recent report from the National Employment Law Project found that there are 1.85 million more jobs in lower-wage industries than just before the Great Recession, but 2 million fewer jobs in mid- and higher-wage industries.
Since the recovery began a few years ago, according to economist Emmanuel Saez, 95 percent of all economic gains went to the top 1 percent of earners. Those making less than $100,000 per year—roughly 80 percent of U.S. households—aren’t faring nearly as well. This is what income inequality looks like now.
It’s the wealth, stupid.
But the stunning numbers around income inequality don’t represent the really big gap: wealth inequality.
One percent of households in the U.S. own 35.4 percent of all our wealth, as of 2010. Wealth, in this case, means all the stocks, houses, and cash that people own. Ten percent of households in the U.S. own 76.7 percent of all our wealth. (The bottom 40 percent of U.S. households carries “negative wealth,” or debt.)
This is where Thomas Piketty and his vast swaths of data come in.
Analyzing data from 20 developed countries over time, ranging as far back as the 18th century, Piketty finds that, despite different policies and growth rates, the ratio of wealth (the value of all financial assets owned by its citizens) to national income (defined as a country’s gross domestic product) is increasing.
Piketty also looks at the rate of return of investment on all that citizen-owned wealth, finding that it averages around 5 percent. The rate of economic growth in developed countries for the past several decades has been lower than 5 percent. This means existing wealth is growing faster than GDP—and since wages and salaries usually increase or fall in relation to GDP, existing wealth also grows faster than new income earned by workers.
To those whom much has been given ... much more will accrue.
Wealth, therefore, is even more concentrated at the very top of the economic ladder than income—and, without changes, will become more so.
“The focus on the wealthiest 1 percent is distracting us from the dizzying concentration of wealth among the top one-tenth of 1 percent,” writes Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies. “The largest wealth gains are flowing to the top one-in-a-thousand households. For example, the 400 richest Americans possess combined assets of over $2 trillion. They now have as much wealth as all 41 million African Americans.” (For more on this devastating statistic and on the role of racial bias in economic inequality, read Ta-Nehisi Coates’ essay “The Case for Reparations” in The Atlantic.)
With each generation, the wealthiest pass on those assets to heirs. This is how financial dynasties are built. By 2050, the richest people in the U.S. won’t be tech entrepreneurs or CEOs receiving celestial-scaled salaries; they will be the scions of today’s wealthiest few. “The oligarchs of tomorrow,” as Collins puts it, “are likely to have names like Walton, Zuckerberg, Soros, Adelson, Trump, and Koch, even if they never work a day in their lives.”
‘One person, one vote’? Not so much.
Studies have linked extreme wealth inequality to everything from negative public health effects to increased political polarization to market crashes. But one of the most corrosive and potentially devastating effects of intensely concentrated wealth is the damage it does to democracy.
This spring, researchers from Princeton and Northwestern found that “economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence.” The results support the hypothesis that our country operates under a political reality that theorists call “economic elite domination.” This tradition argues that “U.S. policy making is dominated by individuals who have substantial economic resources, i.e. high levels of income and/or wealth—including, but not limited to, ownership of business firms.” Northwestern political theorist Jeffrey Winters recently described the U.S. as a “civil oligarchy,” where the wealthiest citizens dominate policy concerning crucial issues of wealth and income-protection.
Libertarian billionaires Charles and David Koch are examples of the very wealthy who convert that wealth to political power and influence. They exert political pressure at the national level, where they fund the tea party movement and oppose policies to address climate change. They are also the primary funders of Americans for Prosperity, which works nationally and locally, on everything from the Wisconsin’s governor race to a successful bid to stop a small tax levy to support the Columbus, Ohio zoo.
“It is possible to live a lifetime and not know one of the 6 million Americans who now depend entirely on food stamps to survive,” Johnston writes, “because we are so economically segregated.” This is even truer of the very wealthy who live with little or no exposure to the economic concerns of the vast majority of citizens. Yet they have vast wealth to contribute to political action committees and campaigns, and so can wield disproportionate political power to seek the policies that benefit them.
Of course, the wealthy have always found the ear of power and channeled money into movements they found pleasing—but again, we’re talking about an ever-shrinking number of people with extreme wealth and inordinate power of the purse influencing the policy machine.
And now, the good news.
Inequality is not the result of a law of physics or some other immutable principle. It is the result of a human-created system, and therefore it can be changed.
Through those we elect and the policies they enact, “We make the decisions about who will prosper and who will not—or we let other people make them for us,” writes Johnston. “For now, what we have chosen is extreme inequality, the worst by far of any nation with a modern economy.”
There are several ways to address inequality through policy:
- Investing in education and infrastructure can address inequality by promoting economic growth for those in the middle class and below. In May, David Leonhardt wrote in The New York Times Magazine that ideally we’d “move the issue to the center of every political debate: how we tax wealth, how we tax the income of the middle class and poor (often stealthily through the payroll tax), how we finance schools and measure their results, how we tolerate income-sapping waste in health care, how we build roads, transit systems, and broadband networks.”
- Raising the minimum wage. Thirty-four states are currently considering increases to the state minimum wage. In early June, the Seattle City Council passed an ordinance to gradually increase the city’s minimum wage to $15 an hour.
- Supporting efforts that raise wealth for citizens at the low end of the economic pool. For example, low-wage and immigrant worker organizing campaigns are fighting for livable wages, against wage theft (deliberate actions by companies to pay workers less than they are owed), and for better working conditions. In December 2013, the growing fast-food-worker movement coordinated one-day strikes in 100 U.S. cities. In early June, Walmart workers organized one-day strikes in 20 cities, calling for an annual salary of $25,000 for Walmart associates and to halt retaliation against workers who organize.
- Strengthening the estate tax. Since 1916, we’ve had a tool to prevent these damaging concentrations of wealth: the estate tax (also known as the inheritance tax or the “death tax” to those who watch Fox News). The extreme wealth accumulated by a few during the Gilded Age (1890-1915) was seen as a clear and present danger to democracy. The threat was understood to be so severe that a tax was levied on the wealth left to heirs (after a substantial exemption). The purpose of the tax was to raise revenue from those with the most means by encouraging dispersal of wealth and charitable giving prior to death and to slow or stop the creation of wealth dynasties.
The estate tax also serves to modestly mitigate the “large tax breaks that extremely wealthy households get on their wealth as it grows, which can otherwise go completely untaxed,” notes Chye-Ching Huang and Nathaniel Frentz at the Center on Budget and Policy Priorities, since much of that wealth comes from unearned income, such as the appreciation on assets that are only subject to capital gains taxes when the asset is sold.
For almost 85 years, a strong estate tax helped limit the buildup of concentrated wealth. However, in 2001 Congress passed a $1.35 trillion tax cut, incorporating legislation that was a body blow to the estate tax, which only applies to the top 0.14 percent of U.S. households. Since 2001, the exemption amount has quadrupled to $5.25 million per person. Additionally, writes Collins, “The aggressive use of trusts has made the estate tax even more porous.”
For those working to promote economic equality and slow the instability created by wealth accumulation at the top, the top policy focus right now, according to Collins, is to fix several “billionaire loopholes” that facilitate estate tax avoidance. In addition, Bill Gates Sr. promotes using funds from a progressive estate tax to provide college tuition grants for young people who complete civilian or military service—thus directly investing some of that wealth into education and the future potential of people of less means. As Piketty reminds us, taxes are a means toward the common good. “Without taxes, society has no common destiny, and collective action is impossible,” he writes.
Reversing the culture of exclusion.
Pope Francis bluntly names “an economy of exclusion and inequality” as a danger to both bodies and souls. “Such an economy kills,” he writes, pointing to those who starve from lack of food while others throw food away, and warning that the “culture of prosperity deadens us” and saps compassion and empathy.
Churches are natural places for reversing this kind of culture. Encouraging people of faith to join organizing efforts and fostering political and social relationships across class lines are how we learn about the cares and concerns of others. Then we begin to invest in them and their well-being in a new way.
The stakes for addressing this problem, Francis says, couldn’t be higher: “As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems.”
This moment, when inequality is in the news, may not last—but inequality won’t go away anytime soon. For the “least of these,” and the rest of us too, we need to keep our eye on the gap, and the ways to close it.
Julie Polter is a senior associate editor of Sojourners.