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Income Disparities: Our Scourge, World’s Scourge

Neal Peirce / Feb 14 2013

For Release Sunday, February 17, 2013
© 2013 Washington Post Writers Group

Neal PeirceAcross the world, the gap between rich and poor is widening. It’s a grim harbinger for 21st-century peace and progress.

The United States and its communities are not exempt. That’s the case Nobel Prize winner Joseph Stiglitz makes in his recent book, The Price of Inequality: How Today’s Divided Society Endangers Our Future.

One percent of Americans now control 40 percent of the nation’s wealth. Notwithstanding all the campaign talk about our middle class – a group clearly vital for stable growth and a strong democracy – we as a society are losing economic ground. We claim, notes Stiglitz, that we’re an opportunity society. But the chances of moving from childhood poverty to adult prosperity in America have become exceedingly dim.

What, though, does all this mean in actual communities – the cities and towns where we live? The Internet news site GlobalPost recently engaged that question in a fascinating way – an extended series that compared selected U.S. cities to communities from Britain to Brazil, Thailand to China.

As a tool, it employed the “Gini Index,” a scale economists use to measure income disparities. It runs from 0 (most equality of incomes) to 100 (least equality – the most incomes hoarded at the top). Translation: The lower the number, the more shared income – and opportunities.

So where does the United States rank? Nationwide, its inequality score now is 45– more inequality than Canada (32), Germany (27), Great Britain (34). Scores for the semi-socialist Scandinavian countries are even better.

Some American communities are suffering inequality on a scale with developing countries that we usually view as our economic inferiors. In an interesting match, GlobalPost compared Selma, the Alabama city of civil rights protest fame, with Rio de Janeiro. Both have high Gini Index scores of 52.

And what’s the fundamental reason? Despite dramatic other differences, both Selma and Rio have deeply divided education systems that perpetuate economic inequality, specifically, a pattern of elite private schools providing a fast track to success contrasted with deeply underfunded public education. In both cities, the affluent can afford the top schools while the poor are consigned to dramatically underfunded and understaffed schools (and, in turn, to high prospects for academic failure).

Another comparison: Bridgeport, Conn., and Bangkok, Thailand. Bridgeport was thriving in the 1950s and ’60s with many factories, Remington Arms included. But Remington and others folded dramatically in the ’80s. GlobalPost’s report depicts today’s Bridgeport as a tough town, with significant crime, drugs and drive-by shootings.

Bangkok and most of Thailand enjoyed boom years of per capita income growth in the 1980s and 90s. But then the gains diverged: Today Thailand has 47,000 millionaires but so many suffering poor that a “Red Shirt” movement has erupted which claims a corrupt elite exploits the poor.

Bridgeport’s differences are suffered more quietly but are no less profound. As in Bangkok, the top 5 percent of Bridgeport families control more than 60 percent of income. In slums such as Bridgeport’s East End, average household income is around $15,000 a year. In not-too-distant Greenwich, with many hedge fund executives, the figure soars to more than $250,000 a year.

GlobalPost also compares the two historic manufacturing towns of Sheboygan, Wis., and Middlesbrough in northeast England. Each – so far – fares well on the equity scales. But the future’s not bright: Each has lost thousands of manufacturing jobs (8,400 in Sheboygan just between 2000 and 2011). Wages are stagnant, notwithstanding gains in productivity.

It’s true – the McKinsey Global Institute predicts 1 billion new middle-class consumers worldwide in the next decade. But in historic factory towns like Sheboygan and Middlesbrough, leaders fret: “Where’s our future economy?”

There have been dramatic income-opportunity turnarounds in the past. Massive income differentials in the “Gilded Age” of the 1870s and 1880s were coupled with slum epidemics and strikebreaking violence. That era and, later, the crushing Great Depression of the 1930s were both followed by periods of strong economic growth supported by progressive politics. One top example: the GI Bill after World War II, which propelled millions of veterans into successful work and careers.

But there’s little progressivism today. The United States has a moderately liberal president, but the overhang of heavy budget deficits – not to mention politics marred by inordinate special interest lobbying and the corrosive impact of the Supreme Court’s Citizens United decision, removing the last legal floodgates against a tidal wave of semi-secret, special-interest lobbying.

Plus, across the world, machines and automation are replacing human labor. Smart local action – new export-oriented industries, for example – can be an assist. But localities can’t do it all on their own. Why won’t Congress, which agreed to bail out errant banks and brokerage firms, raise the minimum wage (now just $7.25) to the $9 President Obama now urges, or even $10 (its inflation-adjusted 1968 value)? Advocates say that would give close to 30 million workers a $5,000 raise. Talk about that for stimulus and moving an economy forward!

Neal Peirce’s e-mail is

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  1. Howard Wooldridge
    Posted February 15, 2013 at 5:44 am | Permalink

    Great read. thank you. Really put it in perspective.

  2. Posted February 15, 2013 at 7:43 am | Permalink

    Re: Income Disparities

    It’s not rocket science. Its basic evolutionary psychology: pass as many resources on to your children so that they can pass on the evolutionary advantages and then pass those genes on to the next generation.

    The rich will do all that it can to give themselves the upper hand. (It’s good to be the King). The Problem? Not sharing always ends up with those who have nothing to lose to risk it all in violent revolution so that their children (i.e., genes) will survive as well. (It is why the Central Intelligence Agency keeps tabs on income disparities as well).

    What is the thought behind the greed of the wealthy? In one sentence: “Money for rich people makes them noble, wise and productive while “giving” money to poor people makes them dependent, stupid and non-productive.”

  3. Mary DeWolf
    Posted February 15, 2013 at 11:03 am | Permalink

    What did Veblen (sp.?) propose?

  4. Jerry Kolasinski
    Posted February 15, 2013 at 12:12 pm | Permalink

    Very good article, Neal and well presented. It is unfortunate that the US in no longer the land of opportunity it once may have been. Those countries that have learned that the markets and their government must cooperate in order to thrive are the ones now considered to be places of more opportunity than the USA.

  5. Posted February 20, 2013 at 11:25 am | Permalink

    Neal’s point about education in Selma, AL is well put. Research proves that education is the most powerful global economic engine driving creativity, innovation and opportunity. My guess is that Selma spends more to fund police, jails and courts than on public education, and likes that, because the elites benefit. Elites have also found ways to benefit from “public” education with for-profit schools. We now have more than a trillion in student loan debt for degrees and courses that are virtually worthless in the marketplace.

  6. sangjmoon
    Posted February 21, 2013 at 8:51 am | Permalink

    Inflation stopped being an indicator of an overinflated money supply when the government learned it could quiet that canary by selling large amounts of debt to foreign countries. Selling debt increases the demand for the dollar which depresses inflation. This ponzi scheme allows politicians to spend money to buy votes even in the worst of times without having to worry about inflation complaining that they are putting too much money into the economy.

    Because of this, what has become the new canary warning of an overinflated money supply is the increasing gap between rich and poor. Because more money is being pumped into the economy than the economy can stably support, it is accumulating at the top without enough reinvestment circulating the money back down.

    This ponzi scheme would work great if there was never a thing called an economic correction. Unfortunately, economic corrections still occur, and all this scheme does is increase the amplitude of such corrections because it is like trying to balance a jenga tower that is grower ever taller. Our current economic crisis is one such large amplitude correction, and unfortunately because of the government continuing on the same course that got us into this mess, we are on track to have a future correction whose amplitude will be larger than the Great Depression. The increasing gap between rich and poor isn’t the problem in itself in as much as a symptom of the real problem.