Growing Income Disparity and the Middle Class Squeeze

Our economy is marked by a very uneven distribution of wealth and income. For example, it is estimated that 28% of the total net wealth is held by the richest 2% of families in the U.S. The top 10% holds 57% of the net wealth. If homes and other real estate are excluded, the concentration of ownership of financial wealth is even more glaring. In 1983, 54% of the total net financial assets were held by 2% of all families, those whose annual income is over $125,000. Eighty-six percent of these assets were held by the top 10% of all families (US Bishops Economic Justice 183, quoting 1983 Federal Reserve Board figures).

Do you not know or have you not heard? The Lord is the eternal God, creator of the ends of the earth. He does not faint nor grow weary, and God's knowledge is beyond scrutiny. Adonai gives strength to the fainting, for the weak God makes vigor abound. Though the young faint and grow weary and stagger and fall, they that hope in the Lord will renew their strength, they will soar as with eagles' wings; they will run and not grow weary, walk and not grow faint. Isaiah 40:28-31

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This paper has noted the contribution that middle class anxieties and the on-going fiscal crisis are making to the rhetorical and legislative attack on the poor. This "squeeze play" is not imaginary, it is very real and it is manifested in a number of negative ways, including growing income disparities.

Real weekly wages in the U.S. rose until 1973, and have been declining since. From 1977 - 1989, the wealthiest 660,000 families gained 75% of "average pretax income" increases, while most middle income families saw only a 4% increase -- and those in the bottom 40% of income cohorts had real declines. The average annual earnings of the top group increased from $315,000 to $560,000 in twelve years. In 1990, the median income was $29,934; in 1973, it was $30,943 (constant dollars). Women in the workforce have helped to forestall lifestyle crashes due to this stagnant growth (Newman Declining 40, 42).

The Organization for Economic Cooperation and Development notes that the U.S. has the most inequitable distribution of income of all the industrialized nations and the middle class is in serious decline; the international bankers are worried about social and economic problems in the U.S. (Dubois 43). The Economist writes that since the 1970s, economic inequities have mushroomed. The top income quintile is doing great, the bottom quintile is declining (not in numbers, but in income). The conditions of the poor are described as "bad" (34). A survey of 26 industrialized nations (the Luxembourg Income Study) found that the gap between the wealthiest 10% and the poorest 10% is greater in the United States than any other country except Russia (Wallechinsky 6). In 1970, the lowest quintile had 5.5% of the national income; in 1990, that group had 3.7% -- a 33% decline in 20 years (Haughton and Schwoyer 88). The Gross National Product rose 33% (in constant dollars), 1975 - 1985 (Bayer 45). The December 1995 Commonweal magazine, using Federal Reserve data, reports that between 1982 and 1994, nonfarm labor productivity increased three times that of the rate of real hourly compensation. Manufacturing productivity rose by 37%, wages and benefits remained flat. The ratio of the compensation of CEOs to the average worker in 1974 was 35 to 1; now it is 150 to 1. Using Council of Economic Advisors data, the article found that the real income of men with high school educations dropped 21% between 1979 and 1990. During 1983 to 1992, the top 1% of households net worth increased from 34% to 42% of all household wealth; the bottom 80% dropped from 18% to 15% (the top 20% in 1989 controlled 85% of all household wealth). The only other comparable era of wealth concentration was 1922 to 1929 (12-13).

So income is flat or declining. But unfortunately, expenditures have not followed income's example. Of the major categories of household expenditures, only food and clothing have shown declines over time (Segal 62). All others are up, many in excess of the general inflationary rate:

-- Since 1930, the percentage of income devoted to transportation has doubled. Real per capita consumer expenditures during this period rose 300%; transportation, 600% (60).

-- The cost of medical care and household costs of medical care rose 50%, 1970 - 1990, in constant dollars (61).

-- The average annual cost of day care is $6,000 year ($120/week). This is a new consumer expenditure that was relatively minor in 1970 (median income during this period rose $2,115, 1970 - 1990) (61).

-- Higher education tuition is rising faster than inflation; from 1975 - 1990 the increase was $4,400 (in constant dollars). Private school tuition has also increased, as the percentage (e.g.) of Catholic parishes offering school attendance to parishioners without additional tuition payment has declined to zero (62).

-- The steep rise in housing prices is detailed in the section on Housing and Urban Renewal.

-- In 1997, it is significantly more expensive to secure the basic household needs than it was in 1970 and before. Some of this relates to the breakdown of previous systems (such as private school tuition and day care). A higher percentage of household income is now required to meet these needs than was true in previous years (59, 62).

This household squeeze is mirrored on a national level. If we factor together the costs (direct and indirect) of the U.S. international military empire and its adventuristic tendencies (e.g. Persian Gulf, Panama, Grenada, etc.), welfare for the rich, the savings and loan debacle, interest on the national debt (now a trillion dollars every five years) and the expensive drug war, among other issues that might be mentioned, it seems apparent that literally trillions of dollars of national wealth have been squandered over the last 30 years by the economic and political elite to no good purpose and a lot of that money has ended up in the hands of that same economic and political elite and their good friends in corporate America.

The general ethos of the U.S. has been that the country could literally do anything that it wanted to do; it could have guns and butter, manage a Welfare/Warfare state, and manipulate the money supply to make it all happen. But perhaps the most ancient economic principle is also one of the simplest: TANSTAAFL, that is, There Ain't No Such Thing As A Free Lunch. The Bible says that pride goes before a fall. These United States of America may be about to learn the truth of this historical wisdom.