Robbing the poor to give to the filthy rich

January 11, 2008

Nicole Colson reports on new statistics showing a vast growth in inequality in the U.S.

THE SUPER-rich are getting super-richer--while the rest of us struggle to get by.

That's the reality that emerges from studies of the latest release of government data tracking income inequality in the U.S.

According to an analysis of Congressional Budget Office (CBO) statistics on U.S. household incomes from 1979 to 2005, the Economic Policy Institute's Jared Bernstein found "a sharp increase in income inequality over the past few years. In fact, the increase in income inequality...was greater from 2003 to 2005 than over any other two-year period covered by the CBO data."

The bottom line, says Bernstein, is that there has been a massive transfer in wealth from the poor to the wealthy. Between 2003 and 2005, "an amazing $400 billion in pre-tax dollars was shifted from the bottom 95 percent of households to those in the top 5 percent," Bernstein said. "In other words, had income shares not shifted as they did, the income of each of the 109 million households in the bottom 95 percent would have been $3,660 higher in 2005."

What else to read

The Economic Policy Institute's analysis of recent Congressional Budget Office data reveals an unprecedented increase in income inequality. Mark Weisbrot's "Housing Crash: Why a 'Soft Landing' is Unlikely" documents the approach of a coming recession.

"From Hype to Fear," by New York Times columnist Paul Krugman, argues that the threat of a new U.S. recession is due in part to "Robin Hood in reverse" economic policies.

For more background on the worsening situation of the economy, see Joel Geier's "The coming economic meltdown" in the new issue of the International Socialist Review.

"If this is the ownership society at work," adds Bernstein, "I think we need to have a serious talk with the owners."

That the income gap between the super-rich and the rest of us has been steadily growing for decades is hardly news. But according to the EPI's analysis, the trend has accelerated in recent years, yielding the following facts:

The share of national income held by the richest 1 percent doubled, from 9 percent in 1979 to 18 percent in 2005.

After-tax income for the poorest 20 percent of U.S. households grew just 6 percent from 1979 to 2005 (a gain of just $1,800). For the richest 1 percent, it shot up by 228 percent--a gain of $781,000.

Over half of all household income in the U.S. was held by the richest one-fifth of households, the highest such share on record.

And the gap keeps getting wider. According to Bernstein, in 1979, the post-tax income of the top 1 percent was eight times higher than for middle-income families and 23 times higher than for the lowest fifth. In 2005, those ratios grew to 21 (top compared to middle) and 70 (top to bottom).

In other words, even as the economy was growing, only the wealthiest benefited. "Aggregate household income, according to these CBO data, grew $1.1 trillion [from] 2003-05," commented Bernstein.

"But, to put it mildly, these gains have failed to flow broadly throughout the income scale, and the extent of their concentration at the top of the income scale is historically unique. Just under two-thirds (63 percent) of the gain in household income from 2003 to 2005 went to just 5 percent of the nation's wealthiest households."

NOW, WITH the sub-prime mortgage crisis in the housing market spilling over into other sectors of the economy, a recession appears likely sooner, rather than later--which will hit poor and working-class Americans, already deeply in debt, even harder.

"A 'soft landing' doesn't seem likely," says Mark Weisbrot of the Center for Economic and Policy Research. "Aside from the problems in the financial system and credit markets--which do not seem to have passed--there is the problem of falling home prices.

"Just as the fantasy-based prices of the late 1990s stock market were much broader than a 'tech bubble,' this is not just a 'sub-prime' problem. In fact, foreclosure rates on prime mortgages--borrowers with good credit--are now hitting the level of sub-prime borrowers three years ago...

"Remember that this current economic recovery, now six years old, has been driven primarily by consumers borrowing on the rising value of their homes, and spending this cash. The big increase in residential construction, as well as the real-estate and related sectors, also kicked in. All of these factors--plus the credit crunch--are now working in reverse."

As the New York Times commented last year--in an article titled "The richest of the rich, proud of a new gilded age"--"Only twice before over the last century has 5 percent of the national income gone to families in the upper 0.01 percent of the income distribution--currently, the almost 15,000 families with incomes of $9.5 million or more a year...Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash."

But don't expect any apologies from the rich for their sponging up of all that wealth. "I think there are people, including myself at certain times in my career, who because of their uniqueness warrant whatever the market will bear," equity fund manager Leo Hindery bragged to the Times.

Apparently, Hindery's "uniqueness" warrants a whopping $150 million in assets.

But wealth on that scale isn't unique on Wall Street. Last month, U.S. investment bank Goldman Sachs announced it was distributing $12.1 billion in bonuses. CEO Lloyd Blankfein alone got a $67.9 million bonus for 2007, including $26.8 million in cash and restricted stock units worth $41.1 million--one of the largest executive bonuses in history.

Lehman Brothers, another securities firm, paid out bonuses of $5.7 billion, including a $35 million stock bonus to CEO Richard Fuld Jr.

As New York Times columnist Paul Krugman pointed out in 2006, "[W]e're seeing the rise of a narrow oligarchy: Income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite."

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