Stuck!

There are so many myths underlying our economic system. We speak about a “free market” when we subsidize farms and corporations, according them tax breaks completely unavailable to ordinary income earners. There is no “free market”! We even create categories of high-earning individuals – like private equity fund managers – who are given tax rates that are often much less than what their clerical assistants and administrators face. Check out the “carried interest rule” where a fund manager who has not invested a dime in a fund still gets capital gains tax rates of the appreciated values he or she is entitled to. Or this: Accelerated depreciation – found in the industries like oil and gas – and a massive federal corporate tax cut dropping the rated from 35% to 21% producing massive federal deficits without materially impacting the creation of new good jobs. So, is the deficit hit from the President’s $1.9 trillion recovery stimulus package impacting “most Americans” worth it? Read on!

Wealthy Americans generate their values from investment appreciation, and even top CEOs who earn, on average, over 300 times the incomes of their average workers, wind up with massive option/equity packages with astounding wealth-building attached. But most of Americans earn their incomes and marginal worths (usually from homeownership). The economic system, reflected in the tax code, is thorough slanted in favor of the wealthiest among us. No wonder that the 2010 Supreme Court decision in Citizens United vs FEC – which pulled the caps off of political advertising funded by the richest in the land – gave politicians who catered to the wealthy access to so much more de facto campaign funding.

Republicans have long-since embraced “supply side/trickle down” economics – give the rich more tax breaks and they will create jobs like crazy – but as my February 14th When the Political Foundation Plank is Simply Wrong blog points out, that theory has never ever worked! The rich didn’t get rich by being stupid. The reality goes: give the rich lots more money, as with the most recent tax cut, and they will declare dividends, acquire more assets/companies, buy fancier homes and cars, purchase their own shares but at the bottom of the list of deploying that capital is hiring more workers. 

Even before the pandemic, it was becoming painfully clear that average Americans were increasing being left out of an overall growth economy. Income inequality in the United States is the worst in the developed worth. Remember the GDP measures the total, so if those at the top make overwhelming more money, even as 70% of the entire American work force has not seen a genuine increase in buying power in decades, the GDP goes up. But that is only meaningful for those at the top of the food chain, not most of us. Getting a college education, for example, has been the functional equivalent of a high school degree 40 years ago. But the cost of college, reflected in the mass of student loan debt, has experienced an annualized tuition increase of double or more the inflation rate. According to the U.S. Bureau of Labor Statistics, prices for college tuition and fees were 1,417.25% higher in 2021 versus 1977 (a $283,449.74 difference in value).

Even daily life, pre-pandemic, found too many Americans living on the edge. “Some 40% of Americans would struggle to come up with even $400 to pay for an unexpected bill… If — or, more likely, when — they’re confronted with such an expense, they’d probably have to sell something or go into debt. The now oft-cited figure comes from the Federal Reserve’s 2018 Survey of Household Economics and Decision Making, in which some 12,000 households were asked about their financial well-being.” CNBC.com, 7/21/19. Fewer Americans can afford to buy their own homes than at any time after WWII… often the only wealth-builder for many.

For most Americans, the net result of all this is the erosion of hope and the end of both upward mobility and the American dream. Two American authors, writing for the March 13th Guardian UK – Mark R Rank, Herbert S Hadley professor of social welfare at Washington University in St Louis and Lawrence M Eppard, assistant professor of sociology at Shippensburg University in Pennsylvania and jointly authors of  Poorly Understood: What America Gets Wrong about Poverty – present this statistical assessment: “[According] to recent research, the United States has far less mobility and equality of opportunity today than the European Union or other OECD countries… [The] amount of economic advantage passed down from one generation to the next is much higher in the US. Approximately 50% of a father’s income position is inherited by his son. In contrast, the amount in Norway or Canada is less than 20%.

“What about rising from rags to riches? In the US, 8% of children raised in the bottom 20% of the income distribution are able to climb to the top 20% as adults, while the figure in Denmark is nearly double at 15%... Equality of opportunity is also much less viable in the US than in other OECD countries. American life expectancy varies by up to 20 years depending on the zip code of residence. Quality of education also differs widely depending on the wealth of the neighborhood that families reside in. And the chances of being victimized by a crime, exposed to environmental toxins or having unmet healthcare needs is far greater for America’s poor than those impoverished in all other OECD countries.

“One of the reasons for lower US mobility is that the ladder of opportunity has become much harder to climb – because the rungs of the ladder have grown further apart. This is evidenced by the rising levels of income and wealth inequality. Currently, those in the top 20% of the income distribution earn nearly nine times more than those in the bottom 20%. This difference is far greater than in the European Union or the United Kingdom. Wealth inequality is even more skewed. In the United States, the top 5% of the population own three-quarters of the entire financial wealth of the country, while the bottom 60% possess less than 1%. 

“Poverty is often seen as a 'black problem' rather than as an 'American problem'… We discuss one explanation for these trends… The United States has traditionally viewed economic success and failure as the result of individual effort. Rugged individualism and self-reliance have been defining qualities of the American character. On the other hand, our European neighbors are much more likely to attribute poverty to structural factors such as social class or the lack of jobs. As a result, other OECD countries are much more willing to invest in a robust social welfare state designed to help ameliorate some of these structural inequities…

“Research has shown that more racially heterogeneous societies tend to be less generous in their economic redistribution policies to address structural inequities. The reason for this may be that we tend to be less concerned about the needs of others when they look different from us. On the other hand, countries that are racially homogeneous tend to have much more robust social safety nets…

“The US has long prided itself as being an exceptionally fluid society with respect to social class and economic mobility. The American Dream holds that anyone who works hard can achieve economic success – perhaps even rise from rags to riches… Underlying this belief is the assumption of abundant opportunity and meritocracy. Arriving immigrants often believe they have come to a land of opportunity, with a level playing field allowing for advancement and success. Those who fail to do so tend to blame themselves.” The mythology of equal opportunity persists, but most younger Americans no longer believe that they will enjoy a better economic life than their parents. Their assessment seems dead on.

I’m Peter Dekom, and without resolving these escalating metrics of income inequality, populism will continue to rise to create false hope and find more scapegoats, and most Americans will continue to face continued economic unfairness and feel increased frustration and anger.