US income inequality reaches record high
There was something I was supposed to remember today—something really important, possibly related to fundamental threats to our American way of life. What was it? I swore I’d never forget. Oh yeah—a decade of skyrocketing income inequality. According to tax data, the top-earning US households captured a larger share of the nation’s income than ever before, breaking a record set in 1927. If I remember correctly, the years after 1927 saw a rising tide that lifted all boats. I’m being sarcastic, of course. There was a worldwide depression, but that situation was different, because back then most of the high-end income came from the financial and real estate economies. Wait—I’m still doing it.
First, a caveat: there is reason to believe that 2012′s record income inequality was anomalous, because lots of people sold off assets ahead of changes to the capital gains tax. Without this artificially induced spike, the income of the top 10% of US households might have been proportionally less than it was during the peak year of the roaring 20s. According to Anne Lowry, though, “economists noted that the trends looked the same for income figures including and excluding realized capital gains.”
Regardless of whether it is historically unprecedented, recent economic data is troubling. Remember that also-barely-not-historic crash we suffered in 2008? The one we all recovered from? It turns out that the very wealthy recovered much more than the rest of us. Also per Lowry:
The new data shows that the top 1 percent of earners experienced a sharp drop in income during the recession, of about 36 percent, and a nearly equal rebound during the recovery of roughly 31 percent. The incomes of the other 99 percent plunged nearly 12 percent in the recession and have barely grown — a 0.4 percent uptick — since then. Thus, the 1 percent has captured about 95 percent of the income gains since the recession ended.
The first of those two links takes you to a longish, insightful disagreement among four political scientists about what has caused our record inequality and whether the government can do anything about it. There are two broad schools of thought on the subject, although they both agree to a surprising extent about the underlying facts.
The first school holds that income inequality is largely the result of broad market forces over which the government has little control. Raising taxes on the rich and using them to fund social services for the poor might mitigate the effects of inequality, but it’s not going to reverse a 30-year trend that has shifted the American economy away from manufacturing and toward finance and the service industry.
The second school suggests that the government could do something about inequality, possibly with the kind of large-scale public employment programs we saw during the Depression, but neither the people nor their representatives want to do it. This school emphasizes economic forces less than the “intellectual capture of political elites and the political and financial power of the affluent,” which is a nice way of saying money politics.
In this era of divided politics,* both parties agree that the financial services industry is extremely important. That sector was the focus of both Bush’s and Obama’s recovery plans—in part because it was a financial crisis that precipitated the crash—and it has been the locus of much of the recovery. Meanwhile, all the experts Edsall consults agree that both parties have shifted toward free-market ideology over the last three decades. It’s almost as if finance and the wealthy gave an enormous amount of money to candidates and sitting congresspeople.
Come to think of it, it’s almost as if money itself were becoming a proportionally stronger motive force in politics than votes. Virtually all the experts in Edsall’s post acknowledge the paradoxical failure of increasing democracy to slow the increase of inequality over the last few decades, and the depressing consensus seems to be that gerrymandering, loose campaign finance laws and ideological consensus within the political class have made votes less relevant.
In this context, record-high inequality is not just a social or ethical problem, but an existential threat to the American experiment. The whole point of democracy is that it makes the citizen the fundamental unit of political power. If the dollar becomes the basic unit instead, it won’t matter whether we’re a republic or a radical democracy or a hereditary monarchy or what. There’s a point when the economy can become more powerful than the government, and that’s a problem, because we have only figured out how to control one of them.