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Shifting Fortunes The Perils of the Growing American Wealth Gap
By Chuck Collins Betsy Leondar-Wright Holly Sklar
Forewords by Juliet Schor and Lester Thurow
Copyright 1999 Holly Sklar and United for a Fair Economy
Reviews Selected Excerpts
"Shifting Fortunes is a political Power Bar. Everything you need to know about the human shape of the American economy in one tasty, conveniently condensed package. Read it, and be nourished."
Barbara Ehrenreich, Author
"Your opinion of a cattle feedlot has a lot to do with where you're standing and what direction the wind is blowing. It's the same with our economy. Shifting Fortunes shows that for the last 25 years or so, more and more of us Americans seem to have gotten stuck on the downwind side."
Jim Hightower, Radio Host
"Perhaps the most alarming finding in [Shifting Fortunes] is not that financial security has become more elusive for most families÷it is the further finding that a specific segment of workers, the 30 percent who earn poverty or near-poverty wages, have been getting the rawest deal."
Molly Ivins, Fort Worth Star-Telegram
"You have to go deeper into the [bull market] stories to see that someone's fuel is someone else's fumes...The wealth gap is so huge that [Shifting Fortunes] concludes that serious measures have to be taken to address it."
Derrick Z. Jackson, Boston Globe
"A scary little book of plain, hard numbers."
David Nyhan, Boston Globe
"This is democracy's wake-up call, chronicling how economic disparities have gone from the sublime to the ridiculous. Shifting Fourtunes shows why we must move quickly to restore sanity to a system gone mad."
Jeff Gates, Author of The Ownership Solution
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Foreword by Lester Thurow
Foreword by Juliet Schor
Overview: The Growing Wealth Gap
Foreword by Lester Thurow
Foreword by Juliet Schor
1.Overview: The Growing Wealth Gap
2.Stock Market Boom
3.View from the Top
The Global Perspective
4.The Shaky American Dream
5.The Wage Gap Underlies the Wealth Gap
7.Home $weet Home
8.Savings and the Cost of Living Squeeze
9.The Debt Trap
Paying for College
The Debt Pushers: Credit Cards
Vanishing Family Farms
10.The Racial Wealth Gap
Inequality Is a Health Hazard for Rich and Poor
11.Recommendations to Reduce the Wealth Gap
Policies Addressing the Overconcentration of Wealth
About the Authors
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FOREWARD BY LESTER THUROW
Market economies can adjust to any distribution of wealth and earnings. If the top has more wealth and earnings and the broad middle of the distribution has less, the market simply produces more of the goods and services wanted by those at the top and fewer of the goods and services wanted by those in the middle. Firms serving middle class consumers move upscale or downscale÷or, if they cannot do either, they go out of business.
In the hard-nosed "survival of the fittest" version of capitalism (to use a phrase invented by a 19th century economist, Spencer, and borrowed by Darwin for use in his masterpiece on evolution), individuals who cannot compete are supposed to starve and go out of business too. That threat and that reality is part of the motivation that makes the system efficient.
In the theology of capitalism the distributions of wealth, income and earnings are of no consequence. There is no concept of fairness other than that those who produce in the market get fairly compensated by the market. Those who do not produce are shoved aside by the market. They do not get to consume÷they do not deserve to consume.
The problems are political. How does one put together a democracy based on the concept of equality while running an economy with ever greater degrees of economic inequality? At some point, those who are losing economically have to use their political power to vote in a government that reverses the outcome of the market. No one knows where this point is. In the United States there have now been over 25 years of rising inequality in income and wealth with no observable political backlashes. Perhaps our society could move much farther along the continuum toward inequality; perhaps not. But it is a stupid society that runs an experiment to see where its breaking points are.
In the past, egalitarian democracy has been coupled with inegalitarian capitalism on the assumption that government would do three things. First, government guaranteed that first-class educations and skills would be available to children of parents who did not have first-class income and wealth. The next generation would be better skilled and able to earn more than the last. Second, it would insure that those who cannot compete for whatever reason do not get driven into economic extinction (hence the social safety net). Third, government would use the tax system to make after-tax distributions of income and wealth more equal than before-tax distributions of income and wealth. For the last two decades, the American government has been backing away from all three of those commitments.
Americans are used to discussions about what is fair between rich and poor. What you are about to read is not just a discussion about what is happening to the rich and what is happening to the poor. It is also a discussion about what is happening to middle Americans÷those who are neither in the top 10 percent of the population nor the bottom 10 percent of the population. As you are about to see, they are big losers over the last 25 years. Their wealth and earnings are falling as a share of the total wealth and earnings in the United States. More disturbingly, their wealth and earnings have been falling absolutely in inflation-corrected dollars. They have less than they used to have despite an economy that has dramatically increased the per capita Gross Domestic Product.
Put simply and bluntly, the great American middle class has become a non-participant in the American dream. A grand old species is becoming extinct.
Lester Thurow is professor of management and economics at the MIT Sloan School of Management and the author of numerous books including The Future of Capitalism.
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FOREWARD BY JULIET SCHOR
The official economic news is exuberant: We are in the midst of the nation's longest peacetime expansion, unemployment is disappearing, the stock market is defying gravity, consumer confidence has soared. Luxuries once reserved for the wealthy are now middle class mainstays, as households remodel their kitchens, tool around town in their spanking new sport utility vehicles, and generally live the good life. Capitalism has been kind to us.
While this picture has superficial appeal (after all, the roads are clogged with SUVs), the official discourse has a profoundly disturbing, almost Orwellian dimension. It describes the experience of the privileged minority that is doing spectacularly well. In a bizarre twist of logic, the news has been good because the punditocracy admits only good news.
Shifting Fortunes completes the picture. It reveals that financial security has become more elusive for most families and that the economic boom has been built on the sweat of the 30 percent of American workers who earn poverty or near-poverty wages. Underlying these trends is an inescapable fact: our economy has been getting increasingly unequal. Whether measured by wages, income or wealth, for 25 years the share of the privileged has increased, and everyone else (a roughly 80 percent majority) has become relatively worse off. We are truly in a second Gilded Age.
Why does inequality matter? Some argue that it doesn't: All we need to worry about is the absolute level of material well-being. Economic growth is the solution, they say, to the problems of poverty and low incomes. There are two flaws to this popular view. First, growth no longer has the magical quality of benefiting everyone÷in recent years, growth has actually been associated with the immiseration of a whole group of workers. And second, the idea that the distribution of income is irrelevant is not supported by the scholarly evidence. It seems that relative position does matter.
Health, well-being and satisfaction appear to be heavily influenced by the ways in which economic resources, prestige and social position are distributed. In more unequal societies, human well-being and quality of life appear to be lower, for a variety of reasons needing more research.
The reasons may not turn out to be so very complicated. Humans are social. We judge our own situations very much in comparison to others around us. It is not surprising that people experience less stress, more peace of mind and feel happier in an environment with more social cohesion and more equality. Perhaps it's time to make that conclusion a fundamental basis of our economic and social policy.
Juliet Schor is an economist and senior lecturer on women's studies at Harvard University and the author of The Overspent American.
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OVERVIEW: THE GROWING WEALTH GAP
Behind the hoopla of the booming nineties, most Americans have actually lost wealth. Most households have lower net worth (assets minus debt) than they did in 1983, when the stock market began its record-breaking climb. From 1983 to 1998, the stock market grew a cumulative 1,336 percent.1 The wealthiest households reaped most of the gains.
The top 1 percent of households have soared while most Americans have been working harder to stay in place, if they have not fallen further behind. Since the 1970s, the top 1 percent of households have doubled their share of the national wealth at the expense of everyone else. Using data from the Federal Reserve Survey of Consumer Finances, economist Edward Wolff of New York University says that the top 1 percent had 40 percent of the nation's household wealth as of 1997. The top 1 percent of households have more wealth than the entire bottom 95 percent.
Financial wealth is even more concentrated. The top 1 percent of households have nearly half of all financial wealth (net worth minus net equity in owner-occupied housing).2 Wealth is further concentrated at the top of the top 1 percent. The richest 1/2 percent of households have 42 percent of the financial wealth.3
Between 1983 and 1995, the inflation-adjusted net worth of the top 1 percent swelled by 17 percent. The bottom 40 percent of households lost an astounding 80 percent. Their net worths shrunk from $4,400 to an even more meager $900. The middle fifth of Americans lost over 11 percent. Only the top 5 percent gained any net worth in this period. The top 5 percent now have more than 60 percent of all household wealth.4
Adjusting for inflation, the net worth of the household in the middle (the median household) fell from $54,600 in 1989 to $45,600 in 1995, before rising again to a projected $49,900 in 1997. That's still $4,700 lower than the median net worth a decade ago. Median financial wealth has fallen from $13,000 in 1989 to a projected $11,700 in 1997.5
The percentage of households with zero or negative net worth (greater debts than assets) increased from 15.5 percent in 1983 to 18.5 percent in 1995÷nearly one out of five households.6 That's nearly double the rate in 1962, when the comparable figure was 9.8 percent÷one out of ten households.7
Nine years into the longest peacetime expansion in U.S. history, average workers are still earning less, adjusting for inflation, than they did when Richard Nixon was president. No wonder many people have been working longer hours and going deeper into debt in an effort to keep up living standards and pay for college.
Many Americans can't make ends meet. Food banks and homeless shelters have been seeing more people with jobs at wages too low to support themselves and their families. As we'll see later, we can reduce the wealth gap and strengthen national prosperity, if we have the will.
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1.Bloomberg L.P., Standard & Poor's. Return using capitalization weighted S&P 500 index, with dividends reinvested. Back to text.
2.Edward N. Wolff, "Recent Trends in Wealth Ownership," a paper for the Conference on Benefits and Mechanisms for Spreading Asset Ownership in the United States, New York University, December 10-12, 1998, Table 2, "The Size Distribution of Wealth and Income, 1983-1997." Wolff's computations are based on the Federal Reserve Surveys of Consumer Finances, 1983, 1989, 1992, 1995. The 1998 Survey will be available in late 1999. Wolff's 1997 figures are "projected on the basis of Board of Governors of the Federal Reserve System (1998), Flow of Funds accounts. Projections are based on the average change in total asset and liability values between the last quarter of 1995 and the last quarter of 1997, standardized for the change in the CPI and the change in the number of households in the U.S. Projections of the median are based on the wealth composition of the middle wealth quintile in 1995."
Wolff's net worth figures represent the current value of all marketable or fungible assets less the current value of debts. Fungible assets include assets that can be readily converted to cash (e.g., owner-occupied housing and other real estate; cash, savings and certificates of deposit; stocks, mutual funds, bonds and other financial securities; the cash surrender value of life insurance plans, IRAs, 401 (k) plans; etc.). Consumer durables such as automobiles, furniture and so on are excluded "since these items are not easily marketed or their resale value typically far understates the value of their consumption services to the household."
For historical data and trends see Edward N. Wolff, Top Heavy: The Increasing Inequality of Wealth in America and What Can Be Done about It (New York: New Press, 1996). Back to text.
3.Edward Wolff cited in "A Scholar Who Concentrates·on Concentrations of Wealth," Too Much, Winter 1999, p. 8. Back to text.
4.Wolff, "Recent Trends in Wealth Ownership," Table 2, "The Size Distribution of Wealth and Income, 1983-1997." Back to text.
5.Ibid., Table 1, "Mean and Median Wealth and Income, 1983-1997." As Wolff notes, "Financial wealth is a more Îliquid' concept than marketable wealth, since one's home is difficult to convert into cash in the short term"; pp. 6-7. Back to text.
6.Ibid., Table 1, "Mean and Median Wealth and Income, 1983-1997." Back to text.
7.Ferdinand Lundberg, The Rich and the Super-Rich (New York: Lyle Stuart, 1968), citing Federal Reserve "Survey of Financial Characteristics of Consumers," 1962. Back to text.
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