Ed. note: This post is an extract from Chuck Collin’s new report Reversing Inequality. All footnotes referenced in the text below can be found in the full-length report published on the Next System Project website.
The US economy’s deep systemic inequalities of income, wealth, power, and opportunity are part of global inequality trends, but US-style capitalism and public policy make inequalities more acute. Their observable and felt harm to our civic and economic life is corroborated by research from many disciplines. Yet, by the same token, moving toward a more egalitarian society would realign most aspects of economic and social life for the better. So how can we bring these changes about?
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For starters, we must know what we are up against. These inequalities do not spring mainly from technological change and globalization, though both compound and complicate the rift. Instead, imbalances of power and agency embedded in our political and economic system are the main drivers and accelerators of inequality.
Reducing inequality requires a “next systems” analysis and playbook. Here, we briefly examine our current inequality predicament and show how these inequalities undermine our democracy, economic stability, social cohesion, and other cherished values. We then explore the systemic causes, perpetuators, and superchargers of inequalities and, finally, evaluate policy interventions and pressure points for leveling them.
The path through this thicket is only partly uncharted. The United States can learn from other advanced industrial countries with significantly less inequality, adapting policies and practices to US needs and circumstances. We can also learn from our own history—from understanding that our rigged rules have been racially biased—to how we dramatically reduced inequality between 1940 and 1975.
That said, part of the path is uncharted. Grappling with climate change and other breached ecological boundaries—whether ocean acidification, fresh water contamination, or methane dumping—intensifies the challenges of reducing extreme inequality. And many of the New Deal and post-World War II policies that reduced inequality for earlier generations won’t work now given today’s levels of population, resource consumption, and ecological risk.
Together, the extent and widely felt effects of inequality challenge us to put a fine-tuned combination of historical insights, policy innovations, best practices, and fresh thinking to the test. Just as urgently, we also need a vision of a more equal and opportunity-rich society.
Today’s climate of extreme inequality reflects forty years of polarizing wages, wealth, and opportunity. Signs of the times include:
Over the past four decades, the US economy has doubled in size, but the bottom half of US house- holds has seen no income gains. In 1970, the bottom half of wage earners made an average of $16,000 a year in current dollars. By 2014, this group’s earnings had risen to only $16,200. During those same years, the top 1 percent of workers saw their annual income grow from an average of $400,000 to $1.3 million.1
Wage stagnation has been masked in many households by people working longer hours, assuming debt, and enlisting more household members to take paid jobs. Almost half of US workers earn under $15 an hour. One in three earns less than $12 an hour.2
Despite four decades of economic expansion, poverty in the US has changed little. Over 43 million people—one of every seven Americans— live below the poverty line in urban and rural communities. The poverty rate for African Americans is 24.1 percent; for Latinos, it is 21.4 percent. One in five children lives in poverty.3 Most poor people work, but others cannot because they are disabled, mentally ill, or too young or old. Such poverty spells hunger and food insecurity, insufficient health care, poor and unsafe housing, lack of savings or financial cushion, and social exclusion and marginalization.4
Income Gains Flowing to the Top
Since the Great Recession of 2008, over 85 percent of income gains have gone to the top 1 percent of households, and most to the top one-tenth of 1 percent.5 CEOs of major US firms earn over 300 times more than typical workers in their companies, up from twenty to one in 1965.6
Income Inequality Across Regions, States, and Cities
In 2013, the nation’s top 1 percent of households made 25.3 times as much as the other 99 percent. Some states are more unequal than others. Nine—including New York, Connecticut, and Wyoming—have gaps between the top 1 percent and the bottom 99 percent that exceed forty to one.
Our country’s most unequal county is Teton, Wyoming, home to the billionaire sanctuary of Jackson Hole. In Teton, the average income of the 1 percent is a whopping $28.1 million, over 233 times the average incomes of other 99 percent. The most relatively equal county in the US is Wade Hampton, Alaska. There, the 1 percent’s average income of just under $150,000 is only five times the average income of the other 99 percent.7
Changing Nature of Work
Over the past thirty years, the nature of work has changed. A growing percentage of the US workforce holds jobs that are contingent and part time, typically without security, health care, and benefits. The millions of new workers in the “sharing economy” who rent rooms out or drive for Uber as independent contractors number among them.
Technological change is also displacing a growing segment of jobs. According to one Oxford study, about 47 percent of US occupations are at risk of elimination due to technological change and automation.8 The jobs most likely to be “substituted by computer capital” are transport and logistics, with the advent of self-driving vehicles, and office support. We can expect polarization of the job market as one result, with a continued decline in middle-skill jobs, such as manufacturing and certain service jobs, and an expansion of low-skill and high-skill professionally trained jobs.9
The distribution of assets and wealth is even more unequal than income distribution. Median net worth for most US households has stagnated or fallen. The share of wealth owned by the richest 1 percent of households has increased from 33.8 percent in 1983 to 36.7 percent in 2013. The share owned by the richest 20 percent rose from 81.3 percent to 88.9 percent over the same period.10 The top one-tenth of 1 percent (an estimated 160,000 households with net worth that starts at $20 million) now own more than 22 percent of all US household wealth in 2012, up from 7 percent in the 1978. This tiny subgroup—the true American elite—now owns as much as the bottom 90 percent of US households combined.11
Racial Wealth Disparities
Growing inequalities of income and wealth have reinforced and, in some cases, compounded historic inequalities among Black, Latino, and white households. The financial crisis of 2007–09 deepened these racial and ethnic wealth divides. Between 2010 and 2013, median African American households saw their wealth decrease by almost 34 percent, from $16,600 to $11,000.12 Latino households experienced a 14.3 percent decline, from $16,000 to $13,700. Meanwhile, the wealth of the median white household increased modestly by 3.4 percent, from $138,600 to $141,900.
According to the Pew Research Center, the median wealth of white households in 2013 was a stunning thirteen times that of Black households—up from eight times greater in 2010.13 White households had ten times more wealth than Latino households. African-American households have six cents—Latinos, seven—for every dollar in wealth a white household owns.14
Negative Net Worth and Economic Precariousness
Discussions of wealth and assets typically ignore the growing number of vulnerable and insecure households with no financial reserves. An estimated 15 to 20 percent of families have zero savings or negative net worth—they owe more than they own. They are disproportionately women, renters, and people without college degrees. The underwater ranks also include a large number of people who on the surface appear to be in the stable middle class. Health challenges are a major cause of savings depletion, both in medical bills and lost wages.15
Financial planners advise families to set aside three months of living expenses in financial reserves to serve as a cushion, so a household with $2,000 a month in expenses should have $6,000 in liquidity. But 44 percent of households do not have enough funds to tide themselves over for three months, even if they lived at the poverty level, according to the Assets and Opportunity Scorecard.16
At the very pinnacle of US wealth is the Forbes 400, billionaires whose combined net worth totals $2.3 trillion. Together, this small group has more wealth than the bottom 61 percent of the US population combined. The richest 100 have more wealth than the entire Black population, over 14 million households. The net worth of the wealthiest 20 billionaires—all of whom could sit in one Gulfsteam 650 luxury jet— exceeds that of the bottom half of the US population combined.17
While the data on inequality is hard to dispute, people do draw different meanings from it. Some argue that how wealthy the wealthy are is irrelevant as long as social mobility and opportunity for the rest of us are real. But are they?
Poverty’s indisputable toll aside, the growing gap between the very wealthy and everyone else has its own troubling dynamics. According to findings from any number of disciplines, the extreme disparities of wealth and power corrode our democratic system and public trust. They break down civic cohesion and social solidarity, which in turn worsens health outcomes. Inequality undercuts social mobility and undermines economic stability and growth.
Economic historians now view inequality as a precondition for major economic upheavals and downturns, such as the Great Depression of 1929 and the Great Recession of 2008. A brief overview of why inequalities of income, assets, and opportunity matter confirms as much.
Poverty, Deprivation, and Social Exclusion
After decades of stagnant wages, most low-income workers are now struggling to get by on poverty wages. Workers who care for the elderly and children, clean offices, staff retail establishments, and prepare and serve food are all in the same boat. Nearly half of the workforce is stuck in jobs paying less than $15 an hour. According to Oxfam USA, 43.7 percent of workers—58.3 million people— earn less than $15 an hour, including 53 percent of Black workers and 60 percent of Latino workers. Over 41 million of these workers earn under $12 an hour.18 That’s less than $25,000 a year—a hair above the poverty line for a family of four. Most of these low-wage workers get few or no benefits—no sick leave, vacation days, childcare, or retirement plans. The pressures to perform and provide in this vacuum make for a difficult work-life balancing act for many millions of individuals and working families.
Inequality effectively disenfranchises us, diminishing what our vote at the ballot box means relative to the influence of money drowning out our voice in the public square. It warps lawmakers’ priorities and blocks necessary reforms. Almost forty years after winning the Presidency, Jimmy Carter told journalist Thom Hartmann that our political system is now “an oligarchy with unlimited political bribery being the essence of getting the nominations for president or [being] elected president.”19 During the first six months of the 2016 Presidential election campaign, almost half the money contributed to candidates, both Republican and Democrat, came from 158 donors.20
Extremely wealthy donors wield political influence in many ways, as investigative journalist Jane Mayer points out in Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right.21 Besides political action committees and direct donations to candidates, the super rich use tax-exempt funds to influence politics. John Olin, the Bradley brothers, and Richard Mellon Scaife pioneered what Mayer calls “weaponizing philanthropy” to advance a narrow agenda. Charles and David Koch organized a network of hundreds of other donors—especially from the extractive coal, gas, and oil industries that have spent billions to fund sham science, attack environmental regulation, and hamstring the US political system’s response to climate change. Hoping to block health care and climate change legislation, this deep-pocket network funds think tanks and advocacy groups that mobilize constituencies as well as communications experts who advance a war of ideas. That’s all on top of donating directly to candidates and campaigns. Mixing legally questionable tax-exempt funds with “dark money” contributions to entities that are not required to disclose donations, a handful of billionaires has wielded enormous influence over the US Congress and captured twenty-five state houses where the GOP controls both legislative branches and the governorship.22
A brief case in point is Art Pope’s influence in North Carolina. The CEO of a chain of discount stores, Pope invested heavily through a network of super PACs in a Republican takeover of both branches of the North Carolina legislature in 2010. Three-fourths of all spending by independent groups in the 2010 races came from accounts linked to Pope, who also helped get Republican Governor Pat McCrory elected in 2013 and later served as McCrory’s budget director.23 Over the same years, Pope’s family charitable foundation gave millions to groups pushing anti-gay marriage and anti-LBGT agendas.24 The North Carolina legislative program included voter suppression, regressive tax policies (such as lower corporate taxes and higher sales taxes), expanded restrictions on abortion, codification of right-to-work laws in a constitutional amendment, and the infamous “bathroom bill” limiting transgender rights. Where extreme inequality is entrenched, one person can shift an entire state’s culture and priorities.
Democrats have their share of large money donors, many with roots in Wall Street finance. And wealthy Democratic donors have held enormous sway in numerous races around the country.25 The insurgent campaign of Bernie Sanders was so important precisely because he bucked this trend: of the over $228 million he raised, $201 million came from donations under $200 and only $3 million from donors giving over $2,000 each (compared to over $174 million in large contributions for candidate Hillary Clinton and almost $28 million for the eventual winner, Donald Trump).26 So while large donors dominate our system, the Sanders campaign demonstrated that candidates with broad support can still compete.
Extreme levels of inequality are bad for our health. British epidemiologists Richard Wilkinson and Kate Pickett have documented, in The Spirit Level: Why Greater Equality Makes Societies Stronger, how pronounced inequality worsens health outcomes across the board. The more unequal a community, the greater the incidence of heart disease, asthma, mental illness, cancer, and other morbid illnesses.
While poverty feeds all kinds of bad health outcomes, research indicates that you are better off residing in a community with a lower standard of living but greater equality than a higher-income community where inequality is greater. Researchers at the Harvard School of Public Health attribute one US death in three to high levels of income inequality.27
Counties and countries with lower incomes but less inequality enjoy better health. Their infant mortality rates are lower, their life expectancy longer, and their incidence of all kinds of diseases less high. US counties with higher average incomes but greater disparities between rich and poor are less healthy places to live.28
Why? According to health researcher Wilkinson, communities with less inequality have stronger “social cohesion,” a culture that supports people working towards a common goal rather than an “every man for himself” mentality, and greater networks of mutual aid. Social morality tempers individualism and market values, Wilkinson writes, and more abundant social capital “lubricates the workings of the whole society and economy. There are fewer signs of antisocial aggressiveness, and society appears more caring.”29
Breakdown in Social Cohesion
Extreme inequalities of income, wealth, and opportunity rip our communities apart, spawning social divisions and distrust that erode social solidarity. Each year, new research reveals, we grow more polarized by class and race as birds of a feather flock together. As one analysis of US Census data notes: “As overall income inequality grew in the last four decades, high- and low-income families have become increasingly less likely to live near one another. Mixed income neighborhoods have grown rarer, while affluent and poor neighborhoods have grown much more common.”30
As same-income enclaves form and close the door behind them, people’s sense that they share a common destiny withers, replaced by fear, disconnectedness, misunderstanding, distrust, and class and racial antagonisms that undermine relationships. Too often, public support for public investments in health infrastructure and social opportunity decline as a result.
Social Mobility and Equal Opportunity
Excessive inequality contributes to declining social mobility in the US. For many decades, economists argued that inequality was the trade-off with social mobility in a dynamic economy.31 But now Canada and European nations—with their social safety nets, investments in public goods, and progressive tax policies—enjoy greater social mobility than the US. Research across the industrialized OECD countries confirms that Canada, Australia, and the Nordic countries—Denmark, Sweden, and Finland—now rank among the most socially mobile nations. The United States now numbers among the least mobile of industrialized countries if earnings are the yardstick.32 With three times greater social mobility than the US, it seems the American dream has moved to Canada. Clearly, the correlation between social mobility and policies that redistribute income and wealth through taxation is strong.
Economic Stability and Volatility
The conventional economic wisdom is that we should tolerate high levels of inequality to foster economic growth. But do policies that increase equality slow economic growth? And do aggressive pro-growth policies worsen inequality? New research reveals the opposite, increasingly showing that excessive inequality undermines economic stability and slows traditional measures of economic growth while fostering volatility, bubbles, and punishing cycles of booms and busts.
The strong parallels between 1929, on the eve of the Great Depression, and the 2008 economic meltdown are instructive here. Both economic recessions came on the heels of a decade when rewards were divvied up extremely inequitably. Before both downturns, private corporations and government encouraged the lower and middle classes to borrow, extending easy access to credit. Also during both, household debt nearly doubled. Wages stagnated for most workers while the wealthiest 1 percent captured a huge percentage of income gains. And then as now, when financial markets experience inequality-induced volatility, investors of capital become cautious. Many understand that rigged rules favor inside actors and politically connected financiers, and, so, if they lack insider information they’ll think better of investing it back into the economy.
Our economic history doesn’t have to be our economic destiny. Research by the International Monetary Fund (IMF) and the National Bureau of Economic Research finds that more equal societies have stronger rates of growth, enjoy longer economic expansions, and recover from economic downturns faster.33 The flipside: unequal societies are less resistant to both financial crises and political instability—a possible explanation for the sluggish and uneven recovery from the Great Recession of 2008.34
Growing inequality’s toll on economic stability and private markets has enormous consequences. According to the IMF, unequal income trends in the US mean that future economic expansions will be just one third as long as in the 1960s, before the income divide widened, if we stay on our current path.35
Supercharging Racial Wealth Disparities
Disparities in Black, Latino, and white wealth have been exacerbated by overall economic inequality trends in recent decades. After the 2008 economic meltdown, white assets rebounded while Black and Latino assets declined. Outcomes were different because Black and Latino wealth is largely in home equity while white wealth also includes financial holdings.36
The historic gap in homeownership rates also drives racial and ethnic disparities in assets. For generations, white families have enjoyed access to wealth that has eluded their Black counterparts, making it far easier to get down payments together and help their heirs get a stake in the economy. Between 1994 and 2017, white homeownership rates rose to 76 percent, Black rates to 49 percent—an almost 30-point gap that persists today. That said, since 2006 the homeownership rate has declined steadily for everyone, from 69 percent to 63 percent in the first quarter of 2017. For Blacks, the homeownership rate fell from 48 percent in 2005 to under 42 percent by late 2016. For Latinos, the homeownership declined over the same years from 50 percent to 46 percent. For whites, it dropped from 76 percent to 72 percent.37
Wealth concentration distorts our civic life and culture in many ways. Art, music, sports, and other dimensions of our culture and civic life are less inclusive and beneficial as a result. In Greed and Good, veteran journalist Sam Pizzigati discusses how art, culture, and sports in an extremely unequal America are strained and weakened. Community-based and taxpayer-funded support for culture languishes, forcing local theater, arts, music, and performance organizations to struggle, fold, or compete for wealthy patrons. In this climate, wealthy philanthropists pick the cultural winners, usually elite cultural institutions to which they have a personal connection.38
A great deal of cultural experience has moved out of reach for all but the affluent. Survey the cost of tickets to art museums, theater productions, and sporting events to understand how these events typically cater only to the wealthiest 10 to 20 percent of US households. Meanwhile, arts, sports, theater, and music programs in public schools are early casualties of budget cuts as many educational systems tighten their belts. As Pizzigati writes, “America’s schools are offering students precious little contact with the arts.” Only 25 percent of eighth graders, according to a survey by the National Assessment for Educational Progress, were “actually singing or playing an instrument at least once a week.” The same small percentage attended schools where visual arts classes were offered—and only once or twice a week at that—and 17 percent attended schools with no visual arts offerings.39
Inequality spurs status-based consumerism and consumption as people spend money and consume goods to signal the social class and subculture they belong to—or wish they did. In what Robert Frank calls a “positional arms race,” such class self-differentiation and status marking often drives up personal debt.40 The personal savings rate—the amount households save over income—has fluctuated downward over the past several decades. In 1975, it was at 17 percent; by 2005, on the brink of the economic meltdown, it had fallen to a low of 1.9 percent. In 2017, it has averaged closer to 5 percent.41 Recklessly extravagant consumption leads to obvious ecological problems with very little increase in personal happiness.
These extreme inequalities of income, wealth, power, and opportunity count and add up. They undermine much of what Americans say we value most—everything from our health to the next generation’s prospects to the vibrancy of our democracy and the stability of our economy.
Possibilities for the Next System
After reviewing this litany of the damages caused by extreme inequality, it is easy to fall into the mental trap of believing that inequality is our destiny. And some subscribe to the idea that reversing inequality trends will undercut economic growth and prosperity. We are stuck in old and discredited theories that concentrations of wealth are necessary to form pools of investment capital (sometimes called “capital formation”) and that unequal rewards provide incentives for hard work. This false logic underestimates the negative consequences of today’s extreme inequalities, which have little to do with differences in work ethic or individual merit. In fact, these inequalities are holding our society back, destabilizing our economy, and thwarting a timely transition to the next system.
The initiatives outlined below could change our current political economy in fundamental and beneficial ways— revolutionizing, for example, corporate structure and banking and finance. And moving to an egalitarian society, one that healed the wounds just described, would itself help forge a new system. In an egalitarian society where people are economically secure, they can break free of “work and spend;” break free of bosses, corporate control, and fear of being jobless out in the cold; and be free to stay more rooted and to build up their communities and the infrastructure of people-centered democracy (and protest). An egalitarian America would be a fundamentally different—more congenial and resilient—place.
Keeping this endgame in mind, it is vital that we understand that life conditions for the majority do not have to be skewed in the way that they are now. Indeed, the next system and a more equitable society will have these welcome features, among others:
A better social safety net will ensure that no one would live in deprivation, social exclusion, and fear the way that millions do today. Greater protection from calamity will also reduce the pervasive stresses of living in a world where one illness, catastrophic accident, divorce, or job loss can lead to utter destitution and homelessness. These stresses exist up and down the economic ladder in a society without universal access to health care, housing, and opportunities for lifelong learning. As it is now, the price of having no ceiling on wealth is having no floor to break falls.
Reduced Societal Polarization
Our economic polarization has fueled our political polarization. With less inequality—and less room for powerful wealthy interests to pit sectors against one another—social cohesion and harmony will be greater. In an egalitarian society, a new politics would work for the common good by directly addressing real community problems and expanding opportunity and prosperity through broader ownership of land, housing, and enterprises, an economic floor with a guaranteed basic income and other wealth-sharing mechanisms. At last, Americans really will stand united rather than fall divided.
Communities with less inequality will be better, safer, more beautiful, and more diverse places to live. Just as extreme inequalities separate people and foster fear and fence-building, greater inequality will encourage more active street life, local recreation, neighborly mutual aid, sharing, and community celebration. As researcher Daniel Sage concludes, reductions in inequality “could bring about significant improvements in social trust, solidarity, community belonging and civic participation and, subsequently, improve the quality of life for many in a given society.”42
People will be healthier in a more equitable society. Along with less stress, there will be greater public health, universal access to health care, and early intervention for mental health, learning disabilities, and trauma recovery. This emphasis on prevention and quick response will, in turn, lower societal costs for health and long-term care.
Instead of education as a tracking system for class-based divisions, a lifelong learning system would provide training, skills, and life enrichment for people at all stages of life. Students would not live in fear of taking on tens of thousands of dollars in debt to get advanced education opportunities. With a huge percentage of the future’s jobs not even invented yet, we will need an education system that teaches adaptation, agency, and collaborative thinking.
Changing Work, Less Toil, More Leisure
Without extreme inequality, there will be less disparity in the value of different jobs to society. Work will be connected to meeting real social needs, not extracting value from workers, communities, and the earth. Technological and scientific advantages will mean less work—and more leisure—for all, rather than funneling greater profits to the top on the backs of labor.
Life in the next system will include opportunities for voice and real democratic participation at all levels of society—and the free time to participate. Instead of feeling shut out from the decisions that shape our lives, we will we have a voice in the things that matter most. Participation would go beyond periodic voting in representational elections to many options for engagement. Residents could take part in participatory budget processes, policy discussions, and opinion polling, using new technologies to collect input and advisory votes. Without the influence of dark money, there would be no more gerrymandering and greater transparency when private interests collide with public decisions. With all voices heard and embodied in the decisions shaping our lives, there would be less alienation from public and community institutions.
Harmony with Nature
Living in harmony with ecological boundaries can be liberating, not constraining. Extreme inequalities and fear push us into a survival mode where we cannot notice our interconnected place within nature. In contrast, we would all benefit from cleaner air and water, healthy trees, public wild spaces, and a more robust ecological commons. Instead of seeing ourselves as separate and fearing nature, we can integrate our communities into the natural world with connected parks, wild spaces, riverside corridors, and food forests with nut and fruit trees.
This is just a glimpse of the human potentials that will be unleashed in a transition to a more equitable economy and broader prosperity.
Continue reading the report on the Next System website here.