Income inequality continues to rise
Tired of living paycheck to paycheck, not able to put aside any savings for a rainy day or the future? Or worse, not having a full-time job for years, struggling through unemployment, part-time, and/or temporary jobs and having to rely on family, community or government help to get by? At the same time, the news is filled with stories of how the stock market is at record highs and about billionaires’ cash is buying elections?
Year after year, the gap between the rich and almost everyone else continues to grow. One common measure of income inequality, called the Gini index, has been rising since 1974, showing that inequality of income rose more than 30% by 2012. In the last 15 years, the growing inequality has meant that the median, or typical, household income has fallen from a peak of $56,080 in 1999 to only $51,017 in 2012, a decline of more than 9%, even though the economy grew 28% during this period. During this same period the number of Americans who fell below the official poverty line (which, at $18,500 for a family of three, is way too low) rose from less than 12% to 15% of the population.
Liberal economists have a number of explanations of why income inequality has increased, pointing to the decline in unionization, corporations exporting jobs to other countries and cutting pensions and health benefits for their remaining workers here, the impact of technology in substituting machinery and computers for human workers, the increase in part-time and temporary jobs, and a drop in the purchasing power of the minimum wage. Indeed, all of these have contributed to growing income inequality.
But behind these trends lies the relentless pursuit of profit by business. While the value of output, or productivity, of U.S. workers grew 80% between 1979 and 2009, the median wage grew only 10%, with all of this growth coming from the economic boom in the 1990s. Where did the difference go? To profits, with after-tax corporate profits hitting an all-time high of $1.7 trillion last year, or about 10% of Gross Domestic Product (GDP – a measure of the total output of goods and services). This is even higher than the boom year of 1929 which ended the Roaring Twenties with the stock market crash that ushered in the Great Depression. With corporate profits at a record high, it is no surprise that total wages and salaries hit a record low of only 42.5% of GDP in 2013.
While corporate profits were higher in 1942 as the economy roared back from the Depression with the entry of the U.S. into World War II, corporate taxes took 55% of profits that year, as compared to less than 20% today – the lowest rate since Herbert Hoover was president. The drop in corporate taxes has been matched by increases in payroll taxes for Social Security which mainly fall on workers, as salaries above $117,000 and income from interest, dividends, and capital gains (which mainly go to the 1% who own half of all stocks, bonds, and private businesses), are not taxed at all.
Here in the U.S., we live under an economic system of capitalism. The vast majority of us, who do not have wealth enough to live on, have to work for others. The 1% who own the majority of wealth and whom we work for, do not pay us the full value of what our labor creates – this is the source of their profits. This is the fundamental force between the growing income inequality: on one hand are the workers whose income is squeezed by low pay and the rising prices that monopolistic corporations charge. On the other is a tiny number of billionaires who own the giant corporations that dominate the economy and reap the rewards of the record corporate profits.
Our government claims to be a democracy, with regular elections. But most of the members of Congress are millionaires and almost all the rest rely on the donations from the rich to win elections and even write laws for them. Both parties, the Democrats and the Republicans, represent the interests of the 1%. From the bail out of Wall Street to the passage of free trade agreements, there is a bipartisan consensus to do what aids the wealth of the 1% at the expense of working people.
Only a socialist economy, one where working people control the economy and the government, can end the economic inequality inherent to capitalism. Only a socialist economy can end poverty and economic insecurity that is all too common in one of the wealthiest countries in world.