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Opportunity vs. Results: Getting Real about Income Inequality

Allan Lichtenstein
May 18, 2015

by Allan Lichtenstein

monopolist5DECLARED AND PRESUMPTIVE presidential candidates, echoing the legacy of the Occupy Movement and apparent public sentiment, have acknowledged that income inequality is a problem in the United States. Yet the main contenders obfuscate the meaning of income inequality. They have made few bold proposals to solve the problem, and there are no calls for a redistribution of income. Paradoxically, the public, although dissatisfied with the distribution of income and wealth in this country, has little confidence that the government can rectify the distorted income distribution.

On the Democratic side, Hillary Clinton, when announcing her candidacy, declared her intention to be a “champion” for those Americans against whom “the deck is still stacked in favor of those at the top.” Bernie Sanders, who has just announced his candidacy, has proclaimed that the most important issue facing the American people is “the grotesque level of income and wealth inequality.” Elizabeth Warren, who has said she is not a candidate, despite attempts to persuade her otherwise, has positioned herself as “standing up for families” as opposed to others who “stand up for Wall Street.”

Similarly, the Republican candidates — in contrast to 2012 when Mitt Romney described the very issue of inequality as “class warfare” — have recognized that income inequality is on the public mind. Ted Cruz has bemoaned that some have “gotten fat and happy,” and that those doing well are “the top one percent, the millionaires and billionaires the president loves to demagogue.” Rand Paul has stated explicitly “income inequality has worsened under his (President Obama’s) administration.” Marco Rubio decried that lack of higher-wage jobs in an “economy that isn’t producing enough of them.” Speaking in Detroit in February, Jeb Bush deplored the recovery that has been everywhere “but in family paychecks,” adding “the American dream has become a mirage for far too many.”

The populist positions adopted by the contending candidates are in keeping with public opinion. Seeking to tap into the frustration felt by a large section of the American population with an economic recovery that has bypassed them, the candidates are cognizant of public opinion polls that indicate that the American public disapproves of the extensive income and wealth inequality that exist in this country.

A Gallup poll conducted in January this year found that 67 percent of Americans indicated their dissatisfaction with the distribution of income and wealth as opposed to 31 percent who were satisfied. The result was almost identical to their poll of the previous year. A Pew Research Center poll from January 2014 found that both Democrats and Republicans by similar percentages believe that inequality has grown.

THE CONCERNS of the public are real. The evidence is damning. Income inequality has been growing. As figure 1 below shows, the share of total income, including capital gains, accruing to the top 1 percent has grown steadily since the 1970s, reaching a peak in 2007. That 23.5 percent share of all income was only slightly less than the peak of 23.9 percent recorded in 1928, just before the Great Depression of the 1930s. Although the share of total income accruing to the top 1 percent declined slightly during the Great Recession with the retreat of the stock market, it subsequently recovered as the top 1 percent quickly recouped their losses. The sharp increase in 2012 and the subsequent drop in 2013 was a consequence of the increase in top tax rates in 2013, resulting in the shifting of income to 2012 to take advantage of the lower tax rate.

Figure 1: Share of Total Income (Including Capital Gains) Accruing to the Top 1 Percent, 1917 to 2013

Income PercentSource: The World Top Incomes Database

Note: Top 1% Incomes above $392,000 in 2013

Figure 2 below shows the ratio of the average income, including capital gains, of the top 1 percent and the top 0.1 percent to the bottom 90 percent for the period 1979 to 2013. Between 1979 and 2007, the ratio of the average income of the top 0.1 percent to the bottom 90 percent grew from a multiple of 47-to-1 in 1979 to 220-to-1 in 2007, before falling back to 167-to-1 in 2013. The ratio between the top 1 percent and the bottom 90 percent was much smaller and grew by less. It increased from a multiple of 14-to1 in 1979 to 42-to-1 in 2007, before falling back to 35-to-1 in 2013 — still a sizeable differential.

Figure 2: Ratio of Average Income (Including Capital Gains) to the Bottom 90 Percent – 1979 to 2013

Income 2Source: The World Top Incomes Database, United States

The distribution of wealth follows a similar pattern to that of income. While the share of wealth held by the top 0.1 percent of families has been on an upward trajectory since the late 1970s, when it stood at 7 percent, the share of the bottom 90 percent has decreased from a peak of 36 percent in the mid-1980s. By 2012, the top 0.1 percent of families —160,700 in total — held 22 percent of the nation’s wealth, almost as high as their share in the mid-1920s. In contrast, the bottom 90 percent, 144,600,000 families, held about the same share of the nation’s wealth, 22.8 percent, as in the mid-1920s.

ALTHOUGH THEY ACKNOWLEDGE these severe inequalities in income and wealth, the candidates are still hedging on prescription. They have yet to be explicit about their economic agendas and specifically about the role of government.

To date, Hillary Clinton has been especially noncommittal. As Nicholas Lemann has noted in the New Yorker, there is little agreement on economic issues in the broad swath of disparate interests that make up the Democratic Party. These comments echo those of Amy Chozick, writing in the New York Times in February before Hillary announced her candidacy, when she questioned how Hillary Clinton would “address the anger about income inequality without overly vilifying the wealthy.” New York Mayor Bill deBlasio’s refusal to endorse Hillary Clinton’s candidacy underscores the Democratic left’s skepticism towards Hillary Clinton.

On the Republican side, Jeb Bush has fallen back on generalities, such as “only conservative principles can solve it by removing the barriers to upward mobility.” Although Ted Cruz, Rand Paul, and Marco Rubio have provided some actual proposals, they have not deviated from the traditional free market rhetoric, rejecting an extensive role for the federal government in solving the problem. The lack of detail in their proposals has raised questions about their actual commitment. Danny Vinik, writing in the New Republic, scoffs at their intentions: “Republicans’ actual policies — based on hostility to redistribution and confidence that the free market delivers fair economic outcomes — suggest they don’t really care about addressing economic inequality.” Similarly, John Cassidy of the New Yorker, after the Republican vote to repeal the federal estate tax and their approval of a budget based on cutting programs that serve people with low incomes, writes that “in 2015, it seems, the most that the Republicans can hope for is to shower more gifts on the wealthiest households in America, while depriving poor families of health care, food stamps, and college tuition.”

As evasive as the candidates are on detail, they also tend to blur the distinction between creating economic opportunities for upward mobility and remedying the deep disparities that exist because of income and wealth inequality. Policies directed at bolstering upward mobility focus primarily on creating individual educational opportunities to facilitate moving up the social ladder. Correcting income inequality requires raising incomes and wages for the broad swath of people at the lower levels of the income pyramid. Lawrence Mishel, president of the Economic Policy Institute, while acknowledging that there is a link between the two, makes the distinction clear:

Concerns about mobility relate to strengthening the chances that children who grow up with relatively low incomes will attain middle-class or higher incomes in their adulthood. To address income inequality, on the other hand, is to focus on whether low- and middle-income households improve their share of the economic growth generated in the next two decades.... So, promoting education solutions to mobility without addressing income inequality is ultimately playing pretend. We can’t substantially change opportunity without changing the actual lived circumstances of disadvantaged and working-class youth.

Emphasizing economic opportunity and upward mobility rather than income inequality is also grounded in public opinion. A recent Gallup poll found that 60 percent of respondents were very or somewhat satisfied “with the opportunity for a person in this nation to get ahead by working hard,” in contrast to 38 percent who were very or somewhat dissatisfied. The results of the Pew Research Center survey from January 2014 were similar: 60 percent of respondents believed that “most people who want to get ahead can make it if they’re willing to work hard” as opposed to 38 percent who took the opposite position that “hard work and determination are no guarantee of success for most people.”

The contrast between these numbers and the January Gallup finding that 67 percent are unhappy about income and wealth inequality seems to indicate a public ambivalence about the “equal-opportunity-versus-equal-results” debate.

Further evidence of this ambivalence is revealed in the Pew survey’s finding that a majority (69 percent) think the government should do a lot or some “to reduce the gap between the rich and everyone else.” A similar majority (67 percent) think the government can do a lot or some to reduce the gap. Yet in response to more specific questions relating to particular redistributive policy choices, respondents show little actual support for reducing income inequality. Even after their concern for the problem increased when shown actual data drawing attention to the growing income gap in the United States, respondent support for reducing income inequality rose in only two areas: opposition to eliminating the estate tax and raising the minimum wage. There was no significant increase in support for increasing the top income tax rates or for programs such as the Earned income Tax Credit for low-wage workers and the Supplemental Nutrition Assistance Program.

THIS AVERSION to government intervention on redistributive policy preferences was due “to the deep distrust in government” held by respondents. Because respondents held government responsible for creating the current level of inequality, they do not trust the government to solve it. This predicament poses a strategic political dilemma in trying to rectify the problem: “the rise in inequality,” says the Washington Center for Equitable Growth, “may have in fact led to the rise of distrust in government. If such a connection existed, then inequality may in fact be self-reinforcing.”

Other studies also point to a reluctance of the public to support redistribution. One study found that “respondents favored less redistribution if they believed that the person had already grown accustomed to a higher income.” A second paper found that the elderly are more likely than any other age group to resist redistributive policies. The elderly are concerned that their Medicare and Social Security benefits could be jeopardized when resources are limited.

Thomas Edsall, writing in the New York Times, also points to the shift in public opinion away from redistributive government policies. He quotes a study that found that “as inequality increases, so does ideological conservatism in the electorate.” Edsall suggests, “the conservative shift in public attitudes on health care and on issues of redistribution and inequality pose a significant threat to the larger liberal agenda.”

Thomas Piketty, whose Capital in the Twenty-First Century was immensely popular last year, has argued that the post-war period of decreasing income inequality (see figure 1 above) was in fact an anomaly. He postulates that the capitalist countries may be moving to a period of greater inequality unless we do something to change the distribution of income and wealth. In an interview in the New Left Review, Piketty says that “there’s a real risk that we will wake up to find a society even more inegalitarian than that of the 19th century, because it will combine the arbitrariness of inherited inequalities with a meritocratic discourse that makes the ‘losers’ responsible for their situation.”

Small wonder, then, that even those political candidates who might be ideologically oriented towards actively lessening wealth inequality are only scratching around the edges of the issue. Reversing the trend toward greater income inequality requires a substantial redistribution of income and wealth — which, in turn, would require a president to reinstill faith in government and persuade the public that its interest will be served better if major redistribution policies are enacted.

Then again, redistribution alone would not be sufficient. As William Greider of The Nation has argued: “incremental changes may be worthy, but they have no possibility of curing what are the country’s deeper maladies (or the world’s).” Deeper structural change is required: The power that the rich hold over the poor must be altered.

Such words will not be uttered on any campaign platform or during any candidates’ debate.

Allan Lichtenstein has a Ph.D in urban planning from Rutgers University and has been working in the field of poverty research for eight years. He grew up in South Africa, lived in Israel for sixteen years, and has lived in the U.S. since 1986.