An American Divide

wages

You hear talk about how college “isn’t important” if someone wants to go into the work world.  However, before one recommends young adults skip college, look at the above chart.

Those who graduated high school, did not finish high school are worse off (adjusted for inflation) than the same groups in 1973.    Even those who did only “some” college are below their 1973 peers.  In both absolute and relative terms those with college degrees are doing much, much better.

This is not to say that not having a college degree dooms you.   Many electricians, plumbers and other skilled workers do very well.   If you’re really smart, you might start a business and make loads of money.   But those are the exceptions, unskilled workers have a hard time getting a good job, or one with benefits.

This trend is troubling.   While I certainly welcome those who choose college – it is the path most likely to lead to success – a stronger system promoting the development of skilled workers would be a good idea.

My point today, though, is that the relative decline in wages for those without college degrees is related to the overall widening mal-distribution of income and wealth in the country.

wealth

As you can see, the bottom 40% only have 0.2% of the wealth in the country, while the top five percent own about 62%.  That discrepancy is immense, and helps explain how it is that the country is divded.

In the past, strong labor movements would be winning the votes of those bottom 60% percent (which together have about 15% of the wealth), and that would pressure the government to do things to equalize incomes.    But with unions weak, and industrial jobs rare, most of the poor and working lower class have menial jobs, often in the service sector.   Those voters are angry, realize they are losing out, and place the blame where it’s easiest to place: on immigrants and the very poor.  This feeds into the cynical manipulation of politics by elites who as I write this are planning a massive “tax cut” that will most benefit the very wealthy.   The game is rigged.

distribution of wealth

This graph is telling.  Back before WWII the level of wealth held by the top 0.1% was about the same as that held by the bottom 90% – around 20% for each.   After WWII and up until around 1980 the bottom 90% gained more wealth, nearing 40%, but with deregulation of banks and globalization the trend reversed, and we’re back where we were before WWII.    If the top 0.1% have about 22% of the wealth, while the bottom 90% have the same, that means more than half the wealth is between 90% and 99.9%.  Or – the wealthiest 10% of the country have nearly 80% of the wealth (as the previous chart also shows).

A look at income paints a similar picture:

wealthgrowth

The good news is that all are doing better (though not those without college, as the first chart shows), but the relative distribution has gone to the very wealthy.  This is a problem for two reasons:

  1.  It creates bubbles.   The theory is that if you have policies and tax cuts that give money to the very rich, they’ll be the “job creators” and the entire economy will grow.  The reality is that in a globalized economy their money may be invested to stimulate the economy in China, Vietnam or elsewhere.  Moreover, with so much excess wealth they look to make money quickly, yielding bubbles.  When bubbles burst, the entire economy is hurt.
  2. It creates political alienation.   The poor realize the American dream is no longer what it used to be.   We’re not the most popular place for immigrants to go, we are not seen as the land of opportunity.   Alienated, they turn to someone who promises to somehow return to the past, to “make America great again” and stick it to the establishment elites.  This leads to either destructive populism or cynical manipulation by elites to make sure the blame is placed on foreigners, liberals or the media.

But it gets worse:  due to our massive debt, we’re in worse shape than people realize.

netdebt

Take a close look at this.  The only time our total debt (all debt – not just government debt) was anywhere close to this bad was in 1933, at the height of the great depression.  Note that the rapid increase began in the 1980s, when globalization took off in earnest, banks were deregulated, and the nature of economic relations changed.   The banks have won out, so have some elites, but this weakens the country dramatically.   $15 trillion of this debt is held by foreigners.  China alone could cause economic collapse in the US by legally dumping stocks, bonds and currency.   That’s why Presidents are always nicer to China after being elected than during the campaign.

How to turn this around will be the subject of another post.  Important is to recognize the deep structural flaws in our economy, based on massive debt.  These flaws show themselves in an increasingly warped distribution of wealth and income.  This leads to political instability and division – the first symptoms of true national decline.

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  1. #1 by SShiell on November 16, 2017 - 14:05

    In January 2009, the national debt stood at just over $10 Trillion. By the end of the Obama administration, in 2017, the debt stood at just under $20 Trillion. And in these last 2 entries you bring up the debt and the problems associated with it. So I asked myself “When was the last time, in this forum, the deficit was brought up as a major issue?” I began searching back through your archives and was not surprised to find as far back as 2010, when I quit looking, there was not even a single mention of the national debt as a major issue. Oh, on 26 November 2012, you had an entry regarding the “Fiscal Cliff” where you were critical of the GOP criticism of Obama pushing the debt ceiling forward regardless of the debt. But beside that, you seemingly sat back and watched the debt double under Obama and said not a single word. Amazingly, You defended his supposed reduction of the rate the debt was increasing but not a word about the actual debt itself. And now, all of a sudden, the potential that the debt could equal more than some % of GDP at some point becomes important to you? And that this was reflective of a “true symptom of national decline”? A national decline you have been pointing to for years, but not until recently does the debt seem to be important to you – at least not important enough to discuss in this forum.

    Is the debt a major issue that has to be dealt with? Yes. Who is responsible? Neither party has clean hands regarding this issue. And I am not defending either of them. Do I have an answer? No, but it seems to me that a combination of tax and spending reform must both be used to control future increases of debt and at some point even to lower that debt. And I also believe this has to resolved in a true non-partisan way. All Democrats, Republicans, and Independents need to address this in a productive and proactive manner.

    It seems to me that the debt has only been an issue to you when there is someone other than a Democrat in the White House. I would hope this will change in the future and this issue will have some level of importance to you regardless of which party holds the reins of power.

  2. #2 by Scott Erb on November 16, 2017 - 14:29

    An odd comment. You seem to not disagree with the post at all. I also tried very much to make clear both parties share blame. Rarely was one party in charge of the Presidency and both houses of Congress, I noted the “great Democratic and Republican compromise” – the GOP wanted to cut taxes, the Democrats wanted to increase spending, so they compromised and did both! I also noted this wasn’t just government, but a cultural problem, with consumer spending and non-governmental debt also as bad (even worse in some ways). The one thing I’d point out is that deficit spending during a deep recession is almost inevitable. Most economists recommend it. The deficit spending during booms – in the 80s and 00s, and perhaps now – is economic insanity. For a few years after 2007, high deficits actually had some rationale. But in all cases, both parties share blame.

    • #3 by SShiell on November 18, 2017 - 10:13

      I don’t disagree with the post. I guess I was not clear. I have believed for some time that deficit spending is anathema to good governance. Those times when it may be necessary would be periods of national emergency, World War Two for example. The enticement of deficit spending is a slippery slope and one I have never promoted. I was against it equally during the Bush 43 and Obama 44 Administrations. I just feel it is an easy target for you now there is a Republican in the White House because you did not make a single peep about it during the Obama years.

      • #4 by Scott Erb on November 18, 2017 - 11:06

        I don’t blame the President alone in any case, but my posts on the economy were much more frequent after the economic collapse – my goal was to say, no, this isn’t just an incident, it isn’t President Bush, it’s a cultural and political time bomb that covers both government debt and private debt, and it’s been going on for over three decades. I tell my students “my generation had a debt driven party. It was fun, but we’re leaving you the bill.” I think the tax plan which seems to me to favor the wealthy was an impetus to me wanting to write about this again, but I’ve integrated warnings on debt in every class I teach (with charts, graphs, etc.) and have been doing that every semester no matter who is President.

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