Sunday, November 28, 2010

A Growing Thanksgiving Gap

This weekend, millions of Americans gathered with friends and family to celebrate our Thanksgiving holiday, an annual moment to stop and take note of all for which we have reason to be grateful. It's a favorite American tradition and is often accompanied with feasts that commemorate the abundance we have enjoyed in this wonderful country since the arrival of our European descendants four centuries ago.

As most American school children can testify, legend has it that the first Thanksgiving feast took place between the Pilgrims and the Native Americans in 1621 as a way to express their gratitude for the bountiful harvest. It's unclear whether this became an annual event right away, but we do have records that show a special feast of thanksgiving in the fall of the year had become an important American tradition shortly after the Revolutionary War.  An official "Thanksgiving Holiday" (in late-November) was declared by President Lincoln in 1863 and, in 1941, Congress set the fourth Thursday in November as the permanent national holiday for Thanksgiving.

One of the hallmarks of our nation's economic progress in the 20th century -- a period that saw our emergence as an economic superpower -- was a thriving middle class.  Like any nation, we've always had an elite class of ultra-wealthy individuals and an underclass of impoverished folks, but the real engine of American prosperity has been the steady progress of the vast number of taxpayers in the middle.

Unfortunately, one of the hallmarks of our economic progress in the last few decades has been growing income inequality. Consider this disturbing trend line from the past century, courtesy of an excellent series recently published in Slate:

In 1915, the richest 1 percent of Americans accounted for roughly 18 percent of the nation's income. By 1976, that top class of elites accounted for just 9 percent of the national income. This significant change is a reflection of the impact of the progressive income tax, the War on Poverty, the emergence of organized labor and other social developments that emphasized the importance of a thriving middle class as a key to our collective economic success. The thinking was that, by requiring a greater fiscal contribution from those who had greater fiscal success, we could look out for the less fortunate and march forward as a nation together, avoiding the class warfare that has destroyed other republics in world history. Apparently, that thinking has changed . . . today, the richest 1 percent now accounts for a shocking 24 percent of the nation's income.

If you're looking for a single smoking gun that will explain this dramatic increase in income inequality, you're not going to find one. There are a variety of contributors -- just as there were a variety of contributing factors to the shrinking of the Rich/Poor Gap from 1930 to 1980 -- but the most striking measure is to look at the simple metric of private sector salaries. In 1950, the average American CEO was paid roughly 18 times as much as the rank and file workers in the same company; by 1980, that ratio had grown to about 42. In 2001, though, the CEOs of the largest American companies earned an average of 531 times more pay than the average workers in their companies.

This gives us pretty persuasive data to support the contention that the growing Rich/Poor Gap is a byproduct of free markets -- left to their own devices, private employers in a capitalist society will pay their workforce as little as possible in order to remain sufficiently competitive in the labor force. The goal is singular: maximize profits and increase investor returns.

There are two reasons why this surging income inequality is troubling: It's bad for the republic and it's bad for our souls.

As for the republic, academic data indicates pretty clearly that rising inequality leads to rising financial distress and ultimately damages our national cohesion. A recent study by a professor at Cornell University, which looked at census data for all 50 states and the 100 most densely populated counties in America, proved that the greatest surges in bankruptcies and other financial disasters occurred in the places where income inequality increased the most. They also noted a connection to other measures of happiness, such as divorce rates and criminal arrests. In short, economic polarization -- as with political polarization -- tends to work against our pursuit of arete in public life because it diminishes our sense of unity and common purpose.

As for our souls, a quick study of world history will reveal the fact that huge concentrations of wealth are detrimental to the social fabric of any civilization. There is something inherently corrosive to the soul of a nation when the richest 1 percent of a society possess more net worth (wealth) than the bottom 90 percent, and yet that is exactly where we find ourselves in America in 2010, according to the Economic Policy Institute. It alienates the poor, who see themselves as powerless, it frustrates the working class, who see themselves as unable to stake a claim to socio-economic mobility, and it further distances the wealthy, who seem themselves as largely immune to the ups and downs of daily economic realities confronting their fellow citizens.

There are political solutions to this rising gap, including specific legislative matters that will likely come before the next Congress, and our elected officials will have to decide whether they will leave the free markets to their own devices or will return to an era in 20th century America where we pursued redistributive policies in the interests of the greater good. My hope is for the latter, but in the meantime, we can all take responsibility for the rising Rich/Poor Gap with how we invest our personal resources and how we run our private businesses.

A popular American idiom is that a rising tide lifts all boats. We all have plenty to be thankful for this time of year, but those of us whose boats have risen higher than others have a moral responsibility to do what we can to help make sure that more tables have bountiful harvests in front of them for the next Thanksgiving.

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