Disparity in U.S. similar to Latin America

Published 1:49 am Thursday, December 14, 2006

By Staff
Economists see the destruction of our middle class as an inequality trap that could catch us as surely as Latin America.
A generation ago, U.S. income distribution was similar to other advanced countries.
We had more poverty because of the unresolved legacy of slavery, but the gap between the rich and the middle class tracked with Europe.
Today, we're entirely out of whack. The share of income received by the top 0.1 percent of Americans is twice the share corresponding groups receive in Britain and three times the share in France.
To find societies as unequal as the United States, you have to look to Latin America.
That comparison, frankly, frightens me.
Kenneth Sokoloff, a UCLA economic historian, postulates that between the kind of crops they grew and colonial Spain's elitist policies, Latin American countries began with more inequality than North America.
It persisted when elites were able to "institutionalize an unequal distribution of political power" and "to use that greater influence to establish rules, laws and other government policies that advantaged members of the elite relative to non-members."
Rather than making land available to small farmers, as the United States did with the Homestead Act, Latin American governments gave large blocks of public lands to people with the right connections.
They shortchanged education, condemning millions to illiteracy. Born into the wrong class, many talented people never got a chance to rise to their full potential.
Another characteristic of unequal societies is their level of corruption. When there are huge disparities in wealth, the rich have both the motive and the means to tilt the system in their behalf.
So much for John Kenneth Galbraith's 1967 book, "The New Industrial State." He dismissed concern that corporate executives would exploit their positions for personal gain because they would be checked by group decision making that would enforce a "high standard of personal honesty."
My favorite writer on these issues is Paul Krugman, an economist, New York Times columnist and author of "The Great Unraveling: Losing Our Way in the New Century."
Conservatives accuse the news media of failing to report President Bush's good economic news.
Krugman concludes, it's more complicated than that that most Americans consider the economy "fair" or "poor" even though gross domestic product is up, official unemployment is low by historical standards, stocks have rebounded and the Dow surpassed 12,000 for the first time.
Krugman scratches beneath that surface to paint a different picture of wages failing to keep pace with rising prices and most Americans worse off than in 2000 because a few get so much larger pieces of the growing economic pie.
Although wages have stagnated during this administration, corporate profits have doubled. The gap between CEOs and average workers is 10 times greater than a generation ago.
I'm not old enough to remember – except from history class – what economic historians Claudia Goldin and Robert Margo call "the Great Compression" between 1933 and 1945, when the New Deal and World War II made the rich dramatically poorer and unionizing workers considerably richer.
I entered the workforce in the late 1970s, when inequality returned.
The gap started growing before Ronald Reagan. The chasm continued to widen during Bill Clinton's tenure.
"But what is happening under Bush is something entirely unprecedented," Krugman writes. "For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth – and they know it."
According to the federal Bureau of Labor Statistics, the hourly wage of the average American non-supervisory worker is actually lower than in 1970.
CEO pay, meanwhile, has soared from less than 30 times the average wage to almost 300 times the average wage.
"The biggest irony of all is that the real boom – the one in the 1990s – followed tax changes that were the reverse of Bush's policies," Krugman writes. "Clinton raised taxes on the rich, and the economy prospered."