The Real Killer in the Economy – Income Inequality


Four years of so-called stimulus, a record setting stock performance, banksters racking in record profits but still on the edge of economic collapse. What is the real deal killer here? Growing income inequality in the United States has Americans talking about justice and economic fairness, but a new study suggests the burgeoning wealth gap is threatening more than just our pocketbooks. It might be raising our risk for an early death.

In one of the few studies to track the health effects of income inequality over time, one Ohio State University (OSU) researcher has discovered that an increase in inequality leads mortality rates to begin rising after five years. Inequality-linked mortality peaks about two years later, before tapering off five years after that. All told, even a modest increase in American societal inequality more than doubles an average individual’s cumulative risk of death over the next 12 years.

Drawing data from the U.S. National Health Interview Survey for the years 1986 to 2004, the study found that for every 0.01 increase in the Gini coefficient — a standard measure of a country’s economic disparity where 0 represents perfect societal equality and 1 represents maximum inequality — an average person’s cumulative risk of death increased by 112 percent in the next dozen years. Hui Zheng, the OSU sociologist who ran the study, replicated the results using three different measures of inequality across a sample of more than 700,000 Americans aged 30 and older. He then ran the same test on 18- to 25-year-olds, with similar results.

The possibility may be precisely the argument Occupy Wall Street protesters have taken up for themselves: that the accrual of wealth to the nation’s elites creates further incentives to preserve that wealth at the expense of the disadvantaged. Inexplicably, the effect of income inequality on death rates drops off after a dozen years. But, Zheng said, the point is that income inequality doesn’t simply have an immediate impact on public health, as previous studies have suggested. Income inequality may increase over time.

Since 1980, the Gini coefficient in the United States has grown from 0.403 to 0.469 in 2010. Even if inequality were held constant for the foreseeable future, Zheng’s research suggests that Americans will be likely to feel the knock-on mortality effects of past inequality increases through at least 2021. Add that to the growing list of things that are killing us slowly.

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Here’s a finding that would have made for great occupy sign last year: American income inequality may be more severe today than it was way back in 1774 — even if you factor in slavery.

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That stat’s not actually as crazy as it sounds, but it might upend some of the old wisdom about our country’s economic heritage. The conclusion comes to us from a newly updated study by professors Peter Lindert of the University of California – Davis and Jeffrey Williamson of Harvard. Scraping together data from an array of historical resources, the duo have written a fascinating exploration of early American incomes, arguing that, on the eve of the Revolutionary War, wealth was distributed more evenly across the 13 colonies than anywhere else in the world that we have record of.  Suffice to say, times have changed.

In this case, Williamson and Lindert use occupational directories, tax lists, post-revolutionary census documents, and earlier scholarship, among other resources, to build approximations of what people earned when we were getting ready to start turning our muskets on the British. Inherently, such a process involves lots of conjecture.

In the end, the pair find that the colonies were an exceedingly egalitarian place, financially, if not politically. Williamson and Linderts compares the original 13 colonies to contemporary England and the Netherlands (including the former Kingdom of Holland) using a popular measure of inequality known as the Gini coefficient.

Not only was income more equally divided in the colonies, but Americans across the economic spectrum tended to be richer than their European counterparts. Even slaves, who were occasionally paid a tiny sum for their forced labor in addition to shelter and food, technically earned more than the poorest Europeans, Lindert and Williamson write. (From a human rights perspective, they were obviously worse off).* The single big exception to this rule was the top 1 percent: Europe’s elite were still wealthier than ours.

On measures of equality, the colonies also compare extremely well to the latter-day United States. By the time the Civil War came, the top 1 percent of U.S. households laid claim to 10 percent of the nation’s income, versus about 7 percent during the founders’ era. Today, the same group accounts for about 19 percent. Even if you use more conservative measures of American income inequality from the Census Bureau, it still appears we were more of a middle-class society back when tri-corner hats were actually considered high fashion. 

We are a much richer nation, and much better off today, than 240 years ago. In the 1770s, America was a heavily agrarian country of yeoman farmers, merchants, and tradesmen, with an economy that accounted to just a few billion dollars in present values. Like India or Russia today, both of which technically enjoy more income equality than the United States, early Americans were relatively poor compared to us. They were just relatively poor together. The first wave of industrialization in the 19th century increased living standards, but also offered bigger rewards to factory owners than their workers. That pattern neatly fits our classic understanding of what’s supposed to happen when economies move from farming to manufacturing. And by now, we’ve gone through several epic rounds of economic upheaval that have left us with a vast gulf between the rich and the rest, as well as a welfare state that tries to mitigate some of the side effects of that difference.

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Politically, though, there may be a lesson in this. Some would argue that income inequality is an acceptable sacrifice to make in return for income mobility — the ability for children and families to work their way to better stations in life. But as Chrystia Freeland has noted, the founding fathers evidently formed their ideas about democracy in a social context very different than our own, when distinctions of wealth simply weren’t as sharp. It’s possible they expected an equal society to remain considerably more equal than it is today.

Income inequality is not a uniquely American problem. Over the past 30 years, it’s surged across the developed world, driven by everything from the insane wealth generated by big finance to the victory of computers (and offshoring) over blue-collar labor.

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That said, there’s a case to be made that U.S. income inequality is in fact exceptional, and not just because of its severity.  A 2008 report by the OECD tells us is that in many developed countries, a rising tide has truly lifted all boats, with the wealthy rising a bit faster. In the United States, the tide is lifting up the rich, while drowning many of the poor.

Like their peers across the developed world, American women’s earnings rose as they broke into the labor force — though less so for lower-income women. For American men, it was a different story. Among the upper-middle-class and rich, male earnings inched up on the whole. Among the lower-middle class and poor, their incomes shrank. The only other country that saw a similar phenomenon was Canada, where incomes seemed to stagnate in general.

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That’s what’s so frightening about the way the U.S. economy was changing even before the Great Recession. It’s not just that the rich saw their finances improve faster than everyone else’s. It’s that many Americans were seeing the value of their work, and in some cases their standard of living, decline. And that makes us at least a little bit special, in a very unfortunate way.

Perhaps the most politically contentious aspect of President Barack Obama’s new proposed legislation, aimed to revive the still-struggling U.S. economy, is $1.5 trillion in tax increases, much of it aimed at wealthy Americans. The White House is calling this “the Buffett rule.” Named for super-investor Warren Buffett’s complaint that he pays a lower tax rate than some of his most menial wage employees, the legislation would be designed to ensure that anyone making more than $1 million per year will pay at least the same rate as middle-income taxpayers.

Obama’s “Buffett rule” is a response to a number of U.S. economic issues related to the recession. One of the most severe is income inequality — the gaps between wealthy, super-wealthy, and everyone else — a serious, long-worsening problem that makes the recession more painful and recovery more difficult. To get a sense of just how bad our income inequality has become, it’s worth taking a look at how we stack up to the rest of the world.

Viewed comparatively, U.S. income inequality is even worse than you might expect. Perfect comparisons across the world’s hundred-plus economies would be impossible — standards of living, the price of staples, social services, and other variables all mean that relative poverty feels very different from one country to another. But, in absolute terms, the gulf between rich and poor is still telling. When you look at the US, we are comparable income inequality to countries like Cameroon, Madagascar, Rwanda, Uganda, and Ecuador. A number are currently embroiled in or just emerging from deeply destabilizing conflicts, some of them linked to income inequality: Mexico, Côte d’Ivoire, Sri Lanka, Nepal, Serbia.  Perhaps most damning is China, which is significantly more equal than the U.S. with a Gini coefficient of 0.415, where the severe income gap has been a source of worsening political instability for almost 20 years. Leagues ahead of the U.S. on income inequality is India, Gini coefficient 0.368, where outrage over corruption and income inequality recently inspired a protest movement that shook the world’s largest democracy. Russia, which has seen three popular revolutions in the last century against the caviar-shoveling oligarchs who still run everything, is also less unequal than the U.S., at 0.422 Gini.

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These are the facts, and they don’t paint a rosy picture for “the world’s leading economy”. These are facts verified by scholars, not politicians, banksters, or those pseudo-scientists called economists. These are facts that should outrage the American people. To you tea party folks, I would suggest THIS is the issue you should focus on, instead of being dupes to the very oligarchy that is crushing you and cajoling you to say big government is the issue.  The fact of the matter is you are the masters of your own demise and you don’t even know it. To those who are “blindly” conservative, WAKE UP!

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There are only two possibilities to put this ship back on course to a vibrant economy. First, we can foment a revolution, but the elites have armed themselves well and have a very well planned “martial law” scheme to handle that contingency OR we can educate ourselves correctly and deal with these issues politically by putting people in office that will demand our GOVERNMENT take the necessary steps to deal with the real KILLER issue- INCOME INEQUALITY. Duh, how hard is this to understand when you have the facts.

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Author: redhawk500

International business consultant, author, blogger, and student of life. After 35 years in business, trying to wake the world to a new reality. One of prosperity, abundance, and most importantly equal opportunity. it's time to redistribute wealth and power.

4 thoughts on “The Real Killer in the Economy – Income Inequality”

  1. Until the Chinese, Indian, Indonesian (etc) workers unionize, there will be inequity. Until then, those countries will continue to prosper at the west’s expense. So, let’s introduce them to the teamsters.

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