Home > Uncategorized > Inequality and polarization in the United States

Inequality and polarization in the United States

from David Ruccio

fig5

The problem of the growing gap between the small group of haves and all other Americans is (as I noted a week ago) so bad even the International Monetary Fund is sounding the alarm. 

Despite the ongoing expansion, the U.S. faces a confluence of forces that will weigh on the prospects for continued gains in economic well being. A rising share of the U.S. labor force is shifting into retirement, basic infrastructure is crumbling, productivity gains are scanty, and labor markets and businesses appear less adept at reallocating human and physical capital. These growing headwinds are overlaid by pernicious secular trends in income: labor’s share of income is around 5 percent lower today than it was 15 years ago, the middle class has shrunk to its smallest size in the last 30 years, the income and wealth distribution are increasingly polarized, and poverty has risen.

So, what’s going on? According to new research by the IMF, the United States is suffering from both increasing inequality and increasing polarization.

fig1

Inequality refers to the evolution of incomes (such as in Figure 1), revealing the fact that, since the 1970s, the real incomes of households in the low- to middle-income brackets have mostly stagnated, while real incomes of households in the highest brackets rose sharply (at least during the 1970–2000 period, though they have not changed considerably since 2000).

fig2

Polarization refers to something slightly different: the distributional changes of the households across different income brackets. Thus, for example (as in Figure 2), we can see that the population share of households whose incomes are within 50 to 150 percent of the median income—a proxy for the middle-class—has shrunk from about 58 percent of total in 1970 to 47 percent in 2014. This is the often-cited “hollowing out” of the middle-class.*

If we put them together, inequality and polarization, we end up with the chart at the top of this post (Figure 5). It shows that the income shares of the middle- and high-income classes were broadly similar, at levels slightly shy of 50 percent of total income, in the late 1970s. Since then, however, these shares have been diverging. Currently, the high-income class holds about 60 percent of total income, while the share of the middle-income class has fallen to only about 35 percent. The income share of the low-income class has been stable at about 5 percent of total for the entire sample of 1970 to 2014.

Clearly, the IMF is much more concerned about polarization (which focuses attention on the decline of the middle-class, especially the fall into the low-income class since 2000) than inequality (which highlights the runaway fortunes of those at the very top from the 1970s onward).

In my view, both inequality and polarization are important, since they are consequences of the same phenomenon: the accumulation of capital, that has worsened the lot of most workers (both middle- and low-income, and even many in the high-income bracket), and allowed a small group at the top (the uppermost portion of high-income earners) to capture a share of the increasing returns to capital.

The question right now is, has the combination of inequality and polarization become so extreme that it threatens the very survival of capitalism? The answer from the IMF is pretty clear:

If left unchecked, these forces will continue to drag down both potential and actual growth, diminish gains in living standards, and worsen poverty.

 

*The IMF divides this polarization into two periods: one (from 1970 to 2000), “when more of the middle-income households moved into high- rather than low-income ranks,” and the other (since 2000), during which “only a quarter of one percent of households have moved up to high income ranks, compared to an astonishing 3 1⁄4 percent of households who have moved down the income ladder (from middle to low income ranks).”

  1. graccibros
    July 12, 2016 at 9:57 pm

    It is interesting how they go about their work, the IMF, and their worries.

    I’ve been thinking about my own sense of a “barometer,” to measure the intensity of the reaction to these changes. We’ve have three, in my mind, that really register, much more than the reassurances we’ve been getting from officialdom (and certain campaigns) about the falling unemployment rate. There have been two studies now, one of increasing suicide rates, the highest in 30 years, for working age-working class people, another on the drop in longevity for the same category, due to increasing suicides, alcoholism and drug addiction. Then the Federal Reserve has disclosed in fairly comprehensive surveys that between 47-60% of the population does not have the savings to meet a $400-$1,000 financial emergency. When one realizes that this is prior to the effects of the next recession, which we are chronologically due to experience, shortly, or perhaps in a year or two…and, the possibility of worse, another financial crisis, one which does not have to originate in the West…and, well, readers can take it from there from my focus, as well as the different one of the IMF. Add to that the likely ideological stalemate in Wash. DC under more dire circumstances, as well as in other Western capitals…and I hope readers can begin to understand my leaning to Karl Polanyi to frame our choices for the next round of troubles against the background of the failures in the 1930’s under another set of austerity regimes.

  2. Garrett Connelly
    July 12, 2016 at 10:41 pm

    Thank you graccibros and David Ruccio. I will read Karl Polanyi’s work.

    Also, I have noticed those same three barometers of intensity. They are a form of friction, to me.

    Information-age autonomous democracy will present unimagined opportunities if we are ready and quick. I look forward to reading more of your impressions.

  3. graccibros
    July 12, 2016 at 11:05 pm

    Garrett:

    You might want to visit my article on “Polanyi and the Coming U.S. Election” in the current edition of the RWER. It’s a head start on “The Great Transformation” and his methodology, especially the “double movement.” And the relevance of his framing for the dilemmas of the 1930’s – the choices to dig out from 1929-1932 here and in Europe…I don’t think the choices or the ideological choices are very different today, the “austerity” regime is in different garb, same “vices” being applied to the people. I go back and forth as to whether we are in, in the US, an 1850’s type breakdown or a milder version of the Weimar Republic’s troubles. I I wrote it from the Weimar perspective…with adjustments, of course.

    • Garrett Connelly
      July 12, 2016 at 11:13 pm

      Wow. Please post the link again.

  4. July 13, 2016 at 2:37 am

    I think these patterns have been noticed for a long time. one just needs to look at time series of gini —I have books from the 80’s discussing this—it was apparent then.
    There are (to me) many adequate math models of this process, going back to Thburow and statistical discrimination, later refined by S Rosen, R Franks and many others. (I have been a sort of collector or historian of these models—they go back long before that to champerowne, simon, etc.) . Now the ‘econophysics’ approach is most popular, and conceptually is not quite the same as earilier ones—entropy explanatoins generally don’t use economic ideas for distribution of income like productivity, only statistics.)

    Polarization more recently has been more of a topic.

    One one wonders (and there are similarities) if current times will be like the 20’s—high inequality, polarizatrion, and also rise of fascist/populist movements alongside communist/progressive ones. Looks like it to me.

    Some people see polarization to be a good thing. They point rather than to rising poverty, instead to rising numbers of upper middle class and wwealthy people—some of whom fund also sorts of very innovative silicon valley type projects (including solar, self-driving cars, smart phones…) which do ‘trickle down’ (just like Ford autos did).

    From this view the IMF report is not new–they and WB have been writing reports along this line a long time (eg B Milanovic).. There is a large redundancy (just like the math models which heavily overlap—re-inventing the wheel). I guess there is a need to repeat ideas to get them across (Shannon’s theorem).

    I sort of dought there is a ‘general theory’ that can predict whether this means capitalism will collapse, or instead one jst has a period of ‘creative destruction’ etc. Also, bad ideas don’t go away; rather they stay around like ancient species and stay in current ideological ecology.

    Predicatbly the Cato institute has a blog post on this study from march saying its ‘flawed’,

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s