New research from a US think tank shows that over the past 40 years, the income gap between very few and most people in the United States has widened and the imbalance in development has also become larger and larger. Many scholars point out that the United States is already in a state of development imbalance, which is destroying social cohesion and exacerbating polarization.
Income gap has continued to worsen for 40 years
According to data released this week by the Social Security Administration (SSA), the wage-income gap between Americans continues to widen. According to the analysis data of the American Economic Policy Research Institute (EPI), the phenomenon of “the rich always rich, the richer and richer” since the 1980s have become more and more serious.
Between 1979 and 2019, wages of 1% increased by 160%, while wages of 90% increased by only 26%; even the top 1% of the population have a large income gap, with the 0.1% population at the top of the pyramid soaring 345% in wage income. Picture above)
It needs to be emphasized that this only refers to compensation income such as wages, and does not include equity, capital gains, etc. If calculated by assets, the income gap is even more sky-high. According to a joint report released in November by the Policy Institute (IPS), tens of millions of people lost their jobs while the wealth of the rich soared in the worst recession since the Great Depression in the United States. Between mid-March and November 17, the wealth of 647 billionaires in the United States increased by nearly $960 billion; since March, 33 billionaires have been added in the United States.
Some left-wing scholars believe that the root of the income gap in the United States was buried under President Reagan in the early 1980s. Reagan drastically cut taxes and reduced the government’s regulation of the economy. In particular, tax cuts benefit the rich the most. The theory of so-called “trickle down economics” has been practiced, that tax cuts for the rich and enterprises can improve the overall economy, and wealth is like water penetrating downwards, and ultimately benefiting the poor.
Reagan’s strong reform did lead the U.S. economy out of stagflation in the 1970s and achieved rapid development, but it also left the by-product of the polarization between rich and poor in the United States.
In the 1985 tax year, the tax cut increased the income of the top 1% by $350,000, the average household by $3,500, and only a few hundred dollars (in current dollar purchasing power) for the poor, according to the 1985 tax year.
In the process, the rich not only increase wealth, but also political influence. This has also led to the fact that for nearly four decades, although Democrats and Republicans have taken office alternately and economic policies have been very different, the rich’s cake has become more and more difficult to shake, becoming a major hidden danger to the American economy and society.
Development imbalance promotes political polarization
There are more than 3,100 county-level administrative divisions in the United States. According to the Brookings Institution, Biden won 477 counties and Trump won 2,497 counties in this year’s election. It seems that the gap in numbers is very different, but if compared with the volume of the economy, it is completely different.
The 477 counties that Biden won make up 70% of the total economy in the United States, while the 2,497 counties won by Trump make up only 30% (below). It is worth noting that this is not a new phenomenon. Since the 2000 election, the Democratic presidential candidates have won about 472 to 666 counties, but the proportion of counties that support Democrats in national GDP has increased from 55% to 70%.
Charles Hugh Smith, an American writer and commentator, believes that this seems to be a map of political polarization, and the real polarization is economy and finance: the United States itself divides into two economies, which have little in common. With the increasing concentration of productive capital in a few people and a few regions, and income and political power are attracted by capital, the financial gap/unequality far exceeds the 70/30 gap depicted on the political map.
The Washington Post reported that the United States is shifting to an intellectual and digital economy, and the political map seems to be changing with it. Since 2000, Democratic votes have been increasing in nearly every election in densely populated urban areas, while Republicans are increasingly the primary choice for voters in small cities and rural areas. Some people call it the gap between urban and rural areas, but it is actually the gap between the digital economy and the blue-collar economy.
“Blue America” is becoming more and more diversified, generally college educated and invests heavily in professional and technological enterprises; in contrast, “Red America” is more white, less likely to go to college, and relies on labor-intensive industries such as manufacturing, Construction and energy, etc.
Loudoun County, Virginia, which is only 20 minutes away from the reporter’s residence, is a famous data base in the United States. Large companies, including Amazon, have built data centers here. U.S. media estimates that 70% of the world’s Internet traffic passes through the county’s data center. Loudoun County is a typical beneficiary of the digital economy, ranking first in the United States for many years with median household income.
In contrast to Louden County, the latest hit movie “The Tragedy of the Countryman” in the United States. This work based on an autobiographical novel has aroused heated discussion in the United States. It tells the story of the decline of traditional manufacturing in the “rust belt” area of the northeast United States, and the bottom white people have to struggle with poverty, drug abuse and alcohol abuse, and lose the way to flow to the upper class of society.
These two extreme quintessentials seem to be the best annotations to “Red and Blue America” – Biden won more than 60% of the vote in Loudoun County in this year’s election, and the support of the three “rust belt” states such as Pennsylvania directly sent Trump to the presidency in 2016.
Loudoun County’s advanced data center (left) and ‘Rust Belt’ decaying factory (right) seem to be the best annotations to “Red and Blue America”
The U.S. economy and society show faults, and the middle layer weakens the despair of the lower class.
Economic historian John Comlos pointed out that the dislocation of the U.S. economy is reflected in stagnant low wages, increased people’s debt, and reduced social (class) liquidity, followed by despair, while in other regions and areas, the economy is simply “thriving”.
But the problem is not caused by a Reagan administration. During the Clinton administration, financial regulation was greatly deregulated, the Glass Stiggle Act was repealed, and the segregation of high-risk investment banks from commercial banks was tantamount to loosening capital speculation. It was the greed of Wall Street that led to the 2008 financial crisis. The subsequent Bush administration continued to cut taxes for the rich, and after the financial crisis, it used taxpayers’ trillions of dollars to rescue big banks. With the support of the Federal Reserve, the Obama administration continues to provide generous support to Wall Street through the Troubled Asset Relief Program (TARP). In March 2009, the combined market value of Citibank and Bank of America fell by only $24 billion. Today, Citibank alone has a market value of more than $120 billion, but the taxpayers who rescued them that year did not get a penny of capital gains.
Comlos believes that the rescue of Wall Street can be regarded as “the largest wealth transfer in human history”. In 2016, PBS pointed out in its analysis of the “Trump phenomenon” that it was a huge blow to the middle class in the United States. Between 1979 and 2011, the income of the middle class (people with 20% to 60% of income levels) in the United States showed little growth, while the top 1% of incomes were the main beneficiaries of economic growth. The figure below)
The failure of the middle class, a social stabilizer, undoubtedly exacerbates the polarization of the United States.
According to Charles Smith, American society and economy are now divided into two levels, and the lower classes of people lack access to upward mobility.” The lower levels of the U.S. economy have been ‘decapitalized’ and replaced by debt accumulation. Capital flows only to the increasingly concentrated upper economy, which profits from the rising debt wave, which has maintained the vitality of the lower economy for the past 20 years.
The gap between the rich who hold capital and the poor who borrow money is widening. How to solve this problem? Smith expects the answer from the new government.
