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Inequality in America

By Zhao Jinglun: 0 Comment(s)Print E-mail China.org.cn, January 11, 2014

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As Alexis de Tocqueville wrote in the "Author's Introduction" to his masterpiece Democracy in America, "No novelty in the United States struck me more vividly during my stay there than the equality of conditions." He predicted that "the gradual progress of equality is something fated."

De Tocqueville is regarded as an insightful observer of American civilization. When he traveled in America some 185 years ago, the "equality of conditions" in the United States struck him as something in sharp contrast to the European aristocracy. That equality was maintained for some time. Then a reverse trend set in, especially after the 1970s. Inequality has now become so pronounced that, according to the Washington Post, President Obama wants to make it the defining issue of 2014.

Robert J. Shiller, winner of the 2013 Nobel Prize for economics, believes that rising economic inequality in the United States and other countries is "the most important problem today."

A 2012 study by the Congressional Budget Office found that the gap between the richest 1 percent and the remaining 99 percent of the population is the widest it has been since the 1920s. The incomes of the wealthiest 1 percent rose nearly 20 percent, whereas the incomes of the remaining 99 percent rose by just 1 percent.

Stanford recently issued "Twenty Facts About U.S. Inequality That Everyone Should Know". According to data it cited, CEOs made 24 times more than the average production worker in 1965, whereas in 2009, they made 185.1 times more.

Compared with their predecessors and business executives in Europe and Japan, American CEOs are vastly overpaid." (See Ha-Joon Chang, 23 Things They Don't Tell You About Capitalism, Thing 14, Bloomsbury :Press, 2010)

The ownership of wealth among households in the United States has become somewhat more concentrated since the 1980s. The top 10 percent of households controlled 68.2 percent of the total wealth in 1983 and 73.1 percent of the total wealth in 2007.

The Washington Post reported on Wednesday that one in three Americans slipped below the poverty line between 2009 and 2011.

In the United States, 21 percent of all children are in poverty, a higher rate than virtually all other rich nations.

For a "snapshot" of American inequality, Joseph E. Stiglize, winner of the 2001 Nobel Prize in economics, wrote, "The rich are getting richer, the richest of the rich are getting still richer, the poor are becoming poorer and the larger middle class is being hollowed out." ("The Price of Inequality," Allen Lane, 2012)

So how does Obama propose to deal with the inequality issue?

According to press reports, he will insist that lawmakers make restoring unemployment benefits for 1.3 million Americans who are out of work their "first order of business" in the new year.

He will then unveil specific proposals addressing income inequality in the Jan. 28 State of the Union address, including expanding the federal minimum wage to $10 or higher.

But Obama will have trouble getting anything done in 2014, as both extending unemployment benefit and raising minimum wage lack traction with conservative Republicans who control the House of Representatives.

Inequality in America is a structural problem. Joseph Stiglitz argued that both the economic and political systems are fundamentally unfair. Markets are not working the way they are supposed to. They are neither efficient nor stable, and the political system has not corrected market failures.

Why have none of the high-level executives of the financial institutions who brought about the 2008 financial crisis been prosecuted, even though many government officials believe that the crisis was in material respects the product of intentional fraud?

Writing in the Jan. 9, 2014 issue of The New York Review of Books, U.S. District Judge Jud S. Rakoff tried to explain this phenomenon in terms of legal technicalities, which is "attending to trifles and neglecting essentials," as the Chinese saying goes. But he did point out that the government itself was deeply involved, from the beginning to end, in helping create the conditions that led to fraud. It repealed the Glass-Steagall Act and deregulated the financial market.

But why did the government do this? Because it is in the pocket of the rich and powerful. No plutocrat would prosecute himself or his peers.

The author is a columnist with China.org.cn. For more information please visit: http://www.china.org.cn/opinion/zhaojinglun.htm

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