Saturday, November 05, 2011

Income Inequality: The Occupy Wall Street Protests

Occupy Wall Street is a protest movement that has been gaining steam over the last two months and garnering a significant amount of media attention.  Honestly, I haven't paid that much attention to it until this week, and am only just now starting to give it some thought, simply because it has managed to have a little staying power - which is saying a lot in this day and age. 

Anytime something like this happens, my first reaction - as a self-described liberal - is to cringe.  Great, just what we need, another reason for conservatives to bash liberals.  Liberal ideology always seems to make itself so easy to parody, so easy to twist into something it's not.  Part of this is because liberals tend to be idealists, and idealists are usually good at seeing the big picture and envisioning something better, but not always so good at the practical implementation of those ideals.   

I've heard just about everything in regards to the OWS protests.  One friend on Facebook recently said: "Here's my suggestion...Occupy a Job, Occupy a Shower, Occupy Your Mom's Basement...Quit crying."  Another friend, on Twitter, said: "Some say the OWS protesters may resort to violence.  But that would require therein lies the rub."

Others have given criticisms a bit more substantive, and a bit less ad hominem in nature.  One friend said: "It makes no sense to complain about unemployment and then advocate to take down the big corporations that provide the jobs that do exist." 

That seems reasonable.  But it also comes across to me as a bit of a strawman argument - a misrepresentation of what the movement is really about - a misrepresentation that is much easier to attack than the real issues being protested.  I haven't watched all the videos or listened to all the interviews or heard all the speeches, but I suspect the core group of folks involved in Occupy Wall Street are not so much interested in "taking down corporations" - in terms of destroying them - but overhauling the entire system for the betterment of all.  

So what is it, exactly, that the OWS protesters are saying?  What do they want? 

Well, this is one of the problems with the movement.  It does not seem to have a whole lot organization, and the people involved aren't necessarily all there for the same reasons.  Another factor is that the protests are, largely by design, leaderless.  According to a New York Times article  that I read, the whole point is to have what they call a "horizontal hierarchy" instead of a vertical one - meaning, essentially, that everyone is a leader.  This may sound ideologically attractive - particularly to a dyed-in-the-wool liberal - but it certainly is not practical.

Then again, the Tea Party movement began largely the same way - grass roots, mainly leaderless, comprised of people who were fed up with the system and who were connected by only the loosest of core philosophies.  

So what are the core philosophies of the Occupy Wall Street folks?  Their rallying cry, of course, has been "We are the 99%."  This has actually been a remarkably effective slogan which, in just a matter of weeks, has become widely familiar.  If only I could think of such a slogan to market my books!!  

The slogan, of course, refers to the wealth gap between the richest 1% of Americans, and everyone else.  More about that in a moment.

In general, it would appear that the core philosophies that tend to connect the various Occupy groups around the country include things like the aforementioned income gap, the role money plays in elections, federal tax structures, and the overpowering role of big banks.  On the OWS Facebook page, one of the more recent posts (as of November 4th), deals with encouraging people to move their bank accounts out of large national banks and into small, local financial institutions.  This, to my mind anyway, sounds reasonable enough - my wife and I have always banked with small, local banks, and I have never had much regard for the big national branches whose power reaches deep.

And I think, at its core, this is what the impetus of the protest is really about.  A general feeling that too much of the wealth is handled by too few people/corporations, and, as a result, those few people/corporations have an unfair share of the power and privilege and prestige and, most importantly, influence, over the direction our country has been taken in recent years and decades.  

This issue of the wealth gap - or income inequality, as I call it in the title - is one that is close to my heart, and one that makes me at the very least sympathetic towards the Occupy movement, even if I don't actually consider myself a part of it.

So what is this income gap?  Why do people like me have such strong feelings about income inequality?  What is the data that backs these feelings up?  Before I start, let me say that the following includes a lot of numbers and percentages, and while I have tried to use all my best writing skills to make it as easy to follow as possible, it might be a bit confusing and/or overwhelming.  I have included links to the sources I have used for the data, so if you feel confused, you can simply click those links to see the data and graphs for yourself. What I have written is essentially just a narrative of the information from the two sources I quote.  

The Center on Budget and Policy Priorities is a non-profit think-tank based in Washington, D.C.  According to its website, it is an organization "working at the federal and state levels on fiscal policy and public help shape public debates over proposed budget and tax policies."  It has used data from the Congressional Budget Office and the IRS to analyze wealth distribution in America.

According to the CBPP's findings, during the period of economic growth from 2002 to 2007, the wealthiest 1% of U.S. households saw their income grow by more than 60%.  During that same period, the bottom 90% saw its average household income grow by only about 3%.  In other words, those who were already very wealthy grew significantly wealthier, while those who were not as well off did not grow very much at all.    

To put this in perspective, imagine one person with 100 dollars, and another person with 1 dollar.  The person with 100 dollars would have seen their income rise to about 160 dollars.  The person with 1 dollar would have seen their income rise to about 3 dollars.  The net income gap was originally 99 dollars.  After the period of growth, the income gap grew to 157 dollars.  This is an excellent illustration of what people are talking about when they speak of income inequality and how "the rich get richer."  

The CBPP went on to demonstrate that during the first year of the recession - 2008 - the top 1% of earners lost about 20% of their income.  The lowest 90% of earners lost about 7% of their income.  So the recession hit the wealthy much harder than it did the rest of us.  

However, as the CBPP's graph demonstrates, the losses suffered by the bottom 90% were more than double the gains they had seen from 2002 to 2007 - during the years of prosperity.  During that time, they had seen growth of 3%.  So by the end of the first year of the recession, the lowest 90% of earners had an average net loss of 4% since 2002.  So while the wealthiest households lost more in the first year of the recession than most everyone else, their income change going back to 2002 was still a net gain of about 30% (after being adjusted for inflation).

This, of course, is a further illustration of how even during a recession, and even despite large losses by the wealthiest people during economic crises, it is still ultimately the middle class who suffers the most.  If you were among the top 1% of earners in 2008, your net gain over your income in 2002 was about 30%.  For everyone else (90% and below) you had no net gain at all, but rather a loss of about 4%.  To use our 100 dollar vs. 1 dollar analogy, the person with 100 dollars now has 130 dollars, and the person with 1 dollar now has 96 cents.

And just to put this in perspective, that 7% drop for the lowest 90% of earners was the biggest one-year drop for that group since before World War Two - 1938.  It left the income of the 90% at its lowest level since the mid-1990's - effectively pushing the middle class back more than a decade, economically-speaking.  

I realize everyone has a different perspective, but when I see data like this, it definitely makes me feel like something is inherently broken within our system. 

The CBPP's analysis also looked at how much of the total income of the United States was concentrated at the top.  In the late 1920's, just before the start of the Great Depression, nearly 25% of the nation's income went to the top 1% of earners.  To put that in perspective, if 100 people collectively earned 100 dollars, 25 of those dollars would be earned by one person, while the other 99 people would earn about 75 cents apiece.  

How can this be?  How can one person be worth that much more?  And wouldn't it be better, from a market and economic stability standpoint, for that wealth to be distributed a bit more evenly, to give as many people as possible as much buying power as possible?    

After the Great Depression, this enormous income gap steadily declined throughout the remainder of the 20th century, to a low of about 8% in the 1970's - meaning that in the '70's, the top 1% of earners made only about 8% of the total income earned in the United States - the remaining 99% of earners earned the remaining 92% of the income - as close as we've come to a break-even scenario since this sort of data has been collected.  

After the so-called "Reagan Revolution" of the 1980's, the income gap began to soar again.  After hovering around 10% for almost 30 years from about 1950 to 1980, by the middle of the 1980's, it spiked back up above 15% - the highest it had been since the 1930's.  It has continued to grow since then, peaking at about 23% just before the start of the recession in 2008 - its highest point since right before the Great Depression.

I hope you notice the pattern here.  The two highest points of the income gap over the last 100 years have been right before a major economic recession/depression.  What does this tell us about the dangers of rising income inequality and the public policies that permit it to happen?  I'll let you answer that question for yourselves (or, even better, put your thoughts in the comments section).  

Another key point from the CBPP's data concerns the top .01% of earners - the richest of the rich, the super wealthy.  From 2002 to 2007, that group's income grew by a staggering 123%.  Recall that the lowest 90% of incomes grew by only about 3% during that period.  During the first year of the recession, this super wealthy group lost about 25% of its income.  As such, it's net change from 2002 to 2008, adjusted for inflation, was nearly a 70% increase.  Again, even during a recession, it is not the rich who are harmed, but the middle class.

It may be important to note here that this data concerns personal, household incomes.  This is not about business incomes or corporate growth and decline.  This is about individual people and the money that they earn. 

The last graph presented by the CBPP is perhaps the most disconcerting.  It is a bit difficult to interpret, but it essentially looks at how income growth has stagnated for the bottom 90% since about 1980, while it has grown dramatically since that time for the top 1%.  

In 1950, the bottom 90% made about 50% less than what that same group was making by the late 1970's.  In other words, during those years from 1950 to the end of the 1970's, the bottom 90% saw significant growth in its income.  In fact, during many of those years, this group actually saw greater increases in their income than the top 1%.  Income inequality was falling by the wayside.  

However, starting in about 1980 (again, one can't help but note that this was when the Reagan Revolution began), income began stagnating for the bottom 90%.  In fact, and this is almost hard to believe, by 2007, the average pre-tax household income for the bottom 90% was actually about $900 lower than what it had been in 1979 (this, of course, is adjusted for inflation).  Among the top 1%, however, their pre-tax, household income was about $700,000 (that's seven hundred thousand) higher than in 1979.  

This is absolutely staggering.  According to this data, and when you adjust for inflation, the middle class - the bottom 90% of earners - actually lost income, overall, from 1980 to 2007, while the top 1% gained more than half a million dollars on average.         

How can we have created a system where income inequality like this exists so blatantly?  And again I have to ask, is this actually good for our country's economic health?    

Moving on now, I want to look briefly at a second analysis, this coming directly from the Congressional Budget Office, released in October of 2011 - in other words, as up to date as possible.  

This is a very long document and I have not scoured all of it.  What I have done, essentially, is gather information from the summary page.  

In short, this CBO study essentially confirms much of the data collated by the CBPP.  From 1979 to 2007, overall income, across the board for all households in the U.S., grew by about 62%.  However, this increase, as we saw above, was top-heavy among the top 1% of households.  The income of that top 1% grew by 275% during the period in question.  The 81st through 99th percentiles (the "upper middle class") grew by about 65%.  The 21st through 80th percentiles (the "middle class") grew by about 40%.  And the lowest group - the lowest 20th percentile (the "lower middle class" and the poor) - grew by roughly 18%.  

There are some interesting things to take from this.  Clearly the top 1% of earners earned the vast majority of the income throughout the period from 1979 to 2007.  By the mid-2000's, in fact, the income earned by the top 20% of earners (the upper middle class and the wealthy) was more than everyone else combined.  

However, all groups saw increases between 1979 and 2007.  Even the poorest households increased by 18%, and as one of my conservative friends pointed out, these are inflation-adjusted numbers, so that means that even among the poor, people generally have more buying power today than they had in the 1970's.  

I'm not sure how to reconcile all this with the data above from the CBPP report, which says that, after adjusting for inflation, the bottom 90% has actually lost income since 1979.  The CBO's report would seem to contradict that.  The difference in numbers is probably due to how the data is collated - with the CBPP looking at overall numbers among the entire bottom 90%, and the CBO breaking it up into discrete categories.  Still, because the CBO's report is the official report from the non-partisan Congressional Budget Office, I am inclined to trust its data more than that from the CBPP.  Interestingly, however, the CBO's report actually authoritatively cites the report by the same economists whose data informed the CBPP's report.  It's confusing, I know.   

Either way, it is clear that there is a major wealth gap in this country, and it has been growing exponentially for the last 30 years.  While this seems to have started with the Reagan Revolution, we certainly can't put all the blame on Republicans, because we've had two Democrats in the White House during that time too, not to mention plenty of Democratically-controlled Congresses, and none of the trends changed during those years.         

So what are we to make of all this?  Why does the wealth gap actually matter?  When I told one of my conservative friends that income inequality was the impetus behind the Occupy Wall Street protests, he said that if income inequality is what it's all about, then he understands it even less than he did before.  There will always be rich, and there will always be poor, he said.  Our job, according to him, is simply to ensure that everyone has equal opportunities - not, he said, to ensure that everyone is financially equal.  In short, "Say No To Socialism." 

I'm no Socialist, although I was called one by another conservative on the same Facebook thread where I was discussing this issue (this person, by the way, was not known to me - a friend of a friend).

Still, income inequality is something that is deeply concerning to me.  I suppose you could say that from an ideological standpoint, I believe in creating a world where people have reasonable opportunities to succeed, and where people have reasonable opportunities to make their way in the world from a financial standpoint.  And unlike my conservative friends, I believe the government has a role to play in this, through fair regulation, taxation, and other programs.  In short, I agree with Thomas Jefferson when he said that one of the responsibilities of a government is to provide for the life, liberty, and pursuit of happiness for its people.  When a government endorses gross income inequality, it is not providing for life, liberty, and the pursuit of happiness, in my opinion.    

When I look at data like what is described above, I see a government creating policies and economic systems that are primarily designed to help the wealthy grow wealthier, without much regard for everyone else.  In fact, I see a government that I suspect, in many cases, has every intention of ensuring stagnation among the middle classes - because the rich can't get richer if the middle class is prospering - that much is evidenced by the slow growth among the super wealthy from 1950 to 1980, while the middle class boomed.  I'm not suggesting a grand conspiracy theory here, I am simply saying that when all of our politicians have the money of wealthy donors in their back pockets, and when they, themselves, are primarily wealthy individuals with their own business interests,  it is little wonder that they enact policies that are primarily geared towards helping the wealthy. 

This, I believe, is the soul of the Occupy Wall Street protests.  Those with the most money are the very same people electing members of their own group to make all the policies that have clearly been designed to primarily help those with the most money.  It's a vicious cycle.

I wish, at this point, I could provide a profound solution to this problem.  It would be a great way to tie this analysis all up nice and pretty.  But, as I said at the outset, liberals tend to be idealists and not pragmatists.  I don't know what the answer is.  I don't know how to overhaul the system.  I suspect that sitting in a park on Wall Street won't do much to change anything.  But I can't help but secretly applaud those people who are idealistic enough to believe that they can change something, that they can make life better for the rest of us.

As a sort of postscript to this analysis, I want to end with a brief comment about how this issue meshes with my perspective on Christianity.  In discussing this issue on Facebook, I noted to one of my conservative friends that as Christians, we should be dedicated to helping the poor and needy and thus working towards ending income inequality.  I said this in response to his argument that it was not the job of the federal government to ensure "financial equality" among all people.  He responded by saying that he differentiates between what we, as Christians, should do, and what the federal government should legislate.  Christians, he agreed, should be dedicated to ending income inequality, but that shouldn't impact what our government does.    

I can't help but disagree.  Jesus's message was anything but non-political.  In fact, Jesus's entire message was as much a political and social commentary as it was a religious commentary.  Jesus, in the gospels, talks about income inequality - rich vs. poor - more than just about any other topic.  It was clearly an issue close to his heart.  His vision of the kingdom of God, in fact, was an earthly kingdom of radical equality, where everyone would share in God's bounty.  He wasn't talking about heaven.  He was talking about life right here on earth!  This is why the earliest Christian communities, as we are told explicitly by the writer of Acts, were communal groups of Christians living together and sharing everything they had.  They were attempting to live the kingdom of God as envisioned by Jesus.  

So as someone who attempts to follow the path opened by Jesus, I can't help but believe that while I have a personal responsibility to help the poor and needy and do all I can to provide equal opportunities for others, I also believe in my community's, and society's, responsibility to do the same.  I don't want to live in a theocracy that forces its religious beliefs on others, but helping the poor and providing for the needy and, in short, providing for the life, liberty, and pursuit of happiness of society, is not just a Christian ideal.  It's a human ideal, and it's one I believe in.  


Anonymous said...

Another excellent summary of a very important topic. We can but continue to tell the truth, to proclaim the data. But those who chose to "turn a blind eye" will continue to and to do so INTENTIONALLY. Facts are not of interest to them. Preconceived dogmatic beliefs are much more important to such people, making them responsible for their positions and actions.

Trent N. said...

As always, a great piece Scott. But enough about Occupy Wall Street, I wonder if you will join my new movement, "Occupy Rupp Arena".

As a big Missouri Tiger basketball fan, we are finding it more difficult with each passing year to compete with the recruiting prowess of John Calipari. Every year, Coach Cal has THE top recruiting class in the nation, absolutely loaded with 5 star prospects. Meanwhile, my school is left to pick up the proverbial scraps. How can my Mizzou Tigers compete? What about Vandy? Tennessee? and the rest of the basketball "less fortunate" and "left behind"? We are the 99%!!! Schools like mine do not have the tradition, coach, arena or the rabid fan base that Kentucky has and quite frankly, its not fair.

Kentucky obviously has too many built in advantages and I think the NCAA should act. For example, they should mandate that 5 star prospects be more evenly "distributed" throughout the country. Certainly some controls could be put in place? For example: Kentucky, North Carolina, Duke and Kansas should be allowed to only recruit one 5 star player per season. For each additional 5 star recruit they sign, they should be required to start each game down 5-0 on the scoreboard. So, if Kentucky signs three 5 star players, they will start each game that season down 15-0 on the scoreboard. Simple controls like these dictated by the NCAA would ensure fundamental fairness and give other teams a chance to compete.

I'm typing this from my tent in front of Rupp arena. I know you live in the area, will you come join me?? :)

In all seriousness, you bring up some good points in your essay. Most importantly (in my opinion) is the problem of the shrinking middle class. I think all would agree that a large and prosperous middle class is something important that we should strive for.

The statistics you presented are compelling, but I take them with some caution. It reminds me of the old saying, "Torture numbers and they will confess to anything".

I'm not very smart and I am certainly not an economist, but I remember the Reagan Revolution quite differently. Although it may be true that income disparity spiked during that time, let's not forget that America enjoyed almost uninterrupted prosperity and economic growth from 1983 to 2008 (many would say due in large part to the Reagan Revolution). This is a far cry from the stagnate economy we experienced in the 1970's when the income disparity was smaller.

As far as the OWS protesters specifically, I am a bit perplexed. What EXACTLY is their beef? I am left with the impression that they are just pissed because people other than them make a bunch of money. They come off looking like sore losers wanting handouts. Maybe I'm wrong... but that's just the impression I get. Do Wall Street bankers and CEO's make too much? Probably. But so does Albert Pujols and Joel Osteen. People need to get over it. The system is not rigged. It rewards talent and hard work. If you have and do both, you will be rewarded, if you don't, I guess you hold a placard down on Wall Street.

Do tax loopholes need to be closed? Yes. Can those making over $1 million per year pay 5% more on taxes and get by? Yes. But can't we compromise by agreeing that these measures must be met with equal or more cuts in spending? If rich guys can get by with paying 5% more in taxes, the Federal Government can get by with cutting 5% in spending ACROSS THE BOARD. I think melding these two measures together would go a long way to solving this country's economic ills.

In closing, I appreciate and respect your opinion. And I really enjoy your blog. Keep up the great work and good luck with your e-books.


Scott said...

A very nice, well-thought out reply, Trent.

I pretty much can agree with most of what you said.

And a very cute UK basketball analogy, by the way :)

The one thing that perplexes me most about this issue of "income inequality" is that it shouldn't be a political issue - or at least not a PARTISAN political issue. It should be just as important to you to decrease income inequality if you are a Democrat or Republican, liberal or conservative.

The fact is, when a significant amount of the money is concentrated near the top, that means less buying power for everyone else - which ultimately harms the economy. I'm no economic guru for sure, but I would think this is basic Economics 101 stuff. And I think the most significant point I made in my post was that part about how the two biggest recession/depressions of the last 100 years have occurred RIGHT AFTER a peak in income inequality. That can't be an accident. When more and more income gets trapped in the top tiers, economic collapse is inevitable. It should be the policy of both Dems and Repubs to solve this problem. But I see a whole lot of Republicans shrugging their shoulders and blowing it off with "Well, they just need to work harder" rhetoric. It's not about an individual and how hard he or she works, but society as a whole. It's bad economics to put policies in place that increase the wealth gap.

As for the OWS protesters, I don't think any one thing drives them all, other than income inequality. Just like no one thing drives all the disparate tea party groups other than high government spending.