Income Gaps Burning American Capitalism

To thwart tyranny, the wise among our Founders embedded in the Constitution a system of checks and balances. Unwise and unchecked unbalances risk the rise of new forms of tyranny in America.

Consider this reported unbalance: “Income inequality in the United States is at an all-time high, surpassing even levels seen during the Great Depression.” This description resulted from “Striking it Richer: The Evolution of Top Incomes in the United States” by University of California, Berkeley, economics professor Emmanuel Saez.

“The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007,” Saez reported. From 2002-2007, “the top 1 percent captured two thirds of income growth.”

Here’s some background data.

From 1990 through 2006 financial markets experienced one of the great run-ups in history. The Dow Jones Industrial Average jumped 380% from $2,627 to $12,621, vastly increasing the wealth of investors.

It was also a period of great income jumps for the wealthy.

Average income for the top 1% of households more than doubled, from $799,900 to $1,743,700. Average income for the top 20% jumped 51%, from $164,200 to $248,400.

Jumps fell to hops for the bottom 80% of households.

Average income for the bottom 40% hopped just 10%, from $25,800 to $28,400. Average income for the next 40% hopped up 17%, from $64,300 to $75,100.

Factor in inflation, which jumped up over 50% during this period, and you realize real incomes actually fell down for a vast majority of households.

What did jump for middle and lower income households was debt. Consumer credit from 1990 to 2006 nearly tripled, going from $797.7 billion to $2.38 trillion.

Consequently, when consumer access to credit tanked in 2008, our credit-fueled consumption economy tanked with it. This put even greater stress on middle and lower income households as unemployment jumped, credit tightened, home values fell, and pay raises evaporated.

Edward Luce of the Financial Times describes this as “the slow burning crisis of American capitalism.”

“It is one thing to suffer ¬grinding income stagnation,” he wrote. “It is another to realise that you have a ¬diminishing likelihood of escaping it.”

Adam Smith held that free market economies are more productive and beneficial to their societies, a core principle of American capitalism.

The widening wealth gap depicts a skewed economy.

Smith also said “no society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

In 1965 American CEOs earned 24 times more than the average worker. That jumped to 262 times more in 2005.

Many argue the rich now overly influence the U.S. economy to their benefit at the expense of others.

Our Founders would call that tyranny.

Unchecked, great unbalances risk tyranny.

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