US Diary: the rich get richer, and the rest of us get poorer

1. Economic Apartheid in America -- by Russell Mokhiber and Robert Weissman

Top executives now make more in a day than the average worker makes in a year.

"You can have wealth concentrated in the hands of a few, or democracy. But you cannot have both." -- Louis Brandeis

"How wealthy the wealthy are does matter. If we allow great wealth to accumulate in the pockets of a few, then great wealth can set our political agenda and shape our political culture -- and the agenda and the culture that emerge will not welcome efforts to make America work for all Americans." -- Sam Pizzigati

"Plutocracy: 1. The rule or power of wealth or the wealthy; 2. A government or state in which the wealthy class rules. 3. A class or group ruling, or exercising power or influence, by virtue of its wealth." -- Webster's Dictionary

Of the world's 100 largest economies, 47 are nations, and 53 are corporations.

75% of major corporations hire a consultant to stop employees from forming a union.

"The alarming development and aggressiveness of great capitalists and corporations, unless checked, will inevitably lead to the pauperization and hopeless degradation of the toiling masses. It is imperative, if we desire to enjoy the full blessings of life, that a check be placed upon unjust accumulations and the power for evil of aggravated wealth." -- Constitution of the Knights of Labor, 1869.

The Washington monument is 555 feet tall. Say it signifies the 2003 average compensation for CEOs in the Fortune 500. The average worker salary would be only 16 inches tall, representing a ratio of 419 to one. In 1965, the worker's monument was 13 feet six inches tall, representing a ratio of 41 to 1.

"Inherited economic power is as inconsistent with the ideals of this generation as inherited political power was inconsistent with the ideals of the generation which established our government." -- Franklin D. Roosevelt.

Born on home plate -- 42% of those listed on Forbes richest 400 inherited their wealth.
Examples:
J. Paul Getty Jr. inherited the oil fortune from his father.
David Rockefeller Sr. ($2.5 billion) is the grandson of the Standard Oil founder John D. Rockefeller.
S.I. and Donald Newhouse ($7 billion each) inherited the nation's largest private newspaper chain, plus Conde Nast publications, from their father in 1979.
Samuel Curtis Johnson ($1.5 billion) is the great grandson of the flooring salesman who founded the floor wax giant S.C. Johnson and Sons.

The UN Development Program reported in 1999 that the world's 225 richest people now have a combined wealth of $1 trillion. That's equal to the combined annual income of the world's 2.5 billion poorest people.

The richest 10% of the world's population receives 49.6% of the total world income.

The bottom 60% receives 13.9% of the world's income.

The wealth of the world's three most well-to-do individuals now exceeds the combined gross domestic product of the 48 least developed countries.

Half of the world's population of six billion live on less than $2 a day, while 1.3 billion get by on less than $1 a day.

These are some of things you learn from a new book, just out, titled Economic Apartheid in America: A Primer on Economic Inequality & Insecurity by Chuck Collins and Felice Yeskel with United for a Fair Economy (The New Press, 2005).

The book is filled with photos, and charts, and graphs -- that make it a great home schooling tool, for young and old alike.

It puts things in perspective. It keeps you on your toes.

Read it. Then listen to a little Bill O'Reilly. Then read it some more.

Contrast is good.

Stretch limousines are longer, yet more people are homeless.

30 zip codes in America have become fabulously wealthy. Meanwhile, whole urban and rural communities are languishing in unemployment, crumbling infrastructure, growing insecurity and fear.

It makes the perfect gift for the holidays.

And you probably won't find it at Wal-Mart.

Or Costco, for that matter.

(Russell Mokhiber is editor of the Washington, D.C.-based "Corporate Crime Reporter." Robert Weissman is editor of the Washington, D.C.-based "Multinational Monitor." Mokhiber and Weissman are co-authors of "On the Rampage: Corporate Predators and the Destruction of Democracy").


2. The Income Gap Grows -- by Robert H. Frank

Economic inequality has been growing rapidly in the United States, and Congress is about to take steps that will increase it further. How did we get here - and are we wise to continue on this path?

At the end of World War II, income inequality was lower in the United States than at any time since the 1920s. During the ensuing three decades, incomes grew briskly and at about the same rate - almost 3 percent per year - for households up and down the income ladder.

That pattern began to change in the 1970s. Since 1979, for example, the incomes of families in the bottom 80 percent of the income distribution have grown by less than 1 percent each year, and only households in the top 20 percent have enjoyed income growth comparable to that in the earlier period. For a small group at the very top of the economic ladder, however, incomes have been growing explosively.

For more than 25 years, Business Week has conducted an annual survey of the earnings of chief executive officers of the largest U.S. corporations. In 1980, those executives earned 42 times as much as the average American worker, a ratio larger than the corresponding ratios for such countries as Japan and Germany even today. By 2000, however, American CEOs were earning 531 times the average worker's salary. The gains have been even larger for those above CEOs on the income ladder.

With corporate malfeasance much in the news, we know that at least some of the spectacular corporate pay packages were not won on merit. Most of them, however, are a simple consequence of market forces. As local markets have given way to regional, then national, and now global markets, even a few slightly improved executive decisions can now add hundreds of millions of dollars to the bottom line.

More generally, rapid pay growth at the top owes much to the spread of reward structures once confined largely to markets for sports and entertainment. In these "winner-take-all markets," small differences in performance often translate into enormous differences in economic reward. Now that we listen mostly to recorded music, the world's best musicians can literally be everywhere at once. The electronic news wire has allowed a small number of syndicated columnists to displace a host of local journalists. And the proliferation of personal computers has enabled a handful of software developers to replace thousands of local tax accountants. Each change has benefited consumers but has also led to greater inequality.

Around the globe, income inequality has been growing for essentially similar reasons. In most countries, public policy has attempted to counter this trend. Not in the United States. With the market's push toward greater inequality already apparent, for example, Congress reduced the top marginal income tax rate from 50 percent to 28 percent during the 1980s.

These tax cuts have increased inequality not only through their direct effects on after-tax incomes, but also through indirect effects on federal spending policies. Although supply-side economists predicted that the cuts would increase tax revenues by stimulating more than enough income growth to offset the lower rates, this did not happen, and hence the large budget deficits of the 1980s.

Those deficits were eliminated during the Clinton years but have reappeared, larger than ever, under President Bush, who has reduced tax rates on earnings, dividends and large inheritances. Once the enabling legislation is fully phased in, more than half of the resulting cuts - 52.5 percent, according to one recent estimate - will go to the top 5 percent of earners. The nonpartisan Congressional Budget Office now forecasts deficits larger than $300 billion for each of the next six years.

Many proponents of smaller government applaud these deficits, arguing that they will force legislators to cut wasteful spending. As always, however, budget cuts focus not on wasteful programs but on those whose beneficiaries are least able to resist them. Recent proposals by House Republicans would eliminate free school lunches for 40,000 children and food stamps for 225,000 people in working households with children. House Republicans also propose $12 billion in cuts for Medicaid, a program on which 25 percent of American children now rely heavily for access to medical care.

The combined effects of market forces and changes in public policy have clearly made life more difficult for middle- and low-income people. They are working longer hours, saving less, borrowing more, commuting longer distances, and doing without things once considered essential. Personal bankruptcy filings have set new records in each of the last several years. The personal savings rate, always low by international standards, has fallen sharply since the 1980s. It has hovered close to zero since the late 1990s, and in recent months has actually been negative. About 45 million Americans now have no health insurance, 5 million more than in the early 1990s.

Although income inequality has increased sharply in recent decades, it has always been greater here than in other industrial democracies. Can a case be made for it? Many have described inequality as the price we must pay to achieve high rates of economic growth.

The evidence, however, suggests otherwise. As economists Alberto Alesina and Dani Rodrik have found, for example, growth rates across countries are negatively related to the share of national income going to top earners.

Others have portrayed inequality as a necessary condition for socioeconomic mobility, arguing that people who are willing to work hard and play by the rules face a better chance of making it to the top here than in any other country. But here, too, the evidence suggests otherwise. Even as economic inequality has been rising, social mobility has been declining. According to sociologist David Wright, the probability that a child born to parents in the third quartile of the income distribution would move up into the top quartile was only half as large in 1998 as in 1973. Economist Thomas Hertz has found that children whose parents are in the bottom fifth of the income distribution have only a 7.3 percent chance of making it into the top fifth. In contrast, children born in the top fifth have a 42.3 percent chance of remaining there. Contrary to popular impressions, socioeconomic mobility is now lower in the United Stated than in most other industrialized countries.

Although the market forces that have been producing higher inequality show no signs of abating, Republicans in Congress are now calling for an additional $70 billion in tax cuts aimed largely at high-income families, arguing that because the most prosperous Americans have worked hard, they are entitled to keep a greater portion of their pretax incomes. But tens of millions of less prosperous Americans have worked hard, too. And in winner-take-all markets, examples abound in which some earn thousands of times more than others just as talented and hardworking.

The economist Herbert Stein once said, if something cannot go on forever, it won't. History has repeatedly demonstrated that societies can tolerate income inequality only up to a point, beyond which they rapidly disintegrate. Numerous governments in Latin America have been overthrown largely because of social unrest rooted in income inequality. And in a survey of more than a quarter of a million randomly selected individuals worldwide, economist Robert MacCulloch found that people in countries with high income inequality were much more likely to voice support for violent revolution.

Major social upheavals are sometimes preceded by years or even decades of rising levels of social unrest. If such unrest is currently building in the United States, it remains well-hidden. But as recent experience has made clear, social upheavals often occur with virtually no warning. Almost no one predicted the fall of the Eastern European governments in 1989. Because revolutions almost always entail important elements of social contagion, even small changes can launch political prairie fires once a tipping point is reached.

As Plutarch wrote almost 2000 years ago, "An imbalance between rich and poor is the oldest and most fatal ailment of all republics." Before the United States succumbs to that ailment, we might want to reconsider the wisdom of policies that widen that already large gap.

(Robert H. Frank -- rhf3@cornell.edu -- is an economist at the Johnson School of Management at Cornell University and the coauthor, with Philip J. Cook, of "The Winner-Take-All Society.")