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Will income inequality cause class warfare?

Income inequality may cause class warfare

Income inequality, which is fuelling other kinds of social inequality, has the potential to create class warfare in America.

Every day, just before midnight, large crowds show up at Wal-Mart stores across America to start filling their carts with bread, milk, and baby formula in preparation for their food stamps to be electronically activated. There is now a record number of people are living in poverty--43.6 million--the largest number in the past 51 years.

Robert Reich, former Secretary of Labor under President Bill Clinton recently cited a Forbes magazine story that reported the combined net worth of the 400 richest Americans climbed 8% during the last year, while the rest of America has gotten poorer. Reich says, "only twice before in American history has so much been held by so few, and the gap between them and the great majority been a chasm--in the late 1920's and in the era of the robber barons in the l880's."

In their report, Building A Better America--One Wealth Quintile At A Time, Dan Ariely of Duke University and Michael I. Norton of Harvard Business School, showed that across ideological, economic and gender groups, Americans thought the richest 20% of American society controlled about 59% of the country's wealth, while the real number is actually 84%. At the same time, the survey respondents believed that the top 20% should own only 32% of the wealth. In contrast, in Sweden, a country with significantly greater economic equality, 20% of the richest people there control only 36% of the wealth of the country. In the American survey, 92% of the respondents said they'd rather live in a country with Sweden's wealth distribution.

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A joint effort by the Russell Sage Foundation, the Carnegie Corporation and the Lyle Spencer Foundation has released several reports based on research on the issue of income inequality. They have concluded that over the past three decades, the U.S. has experienced a slow rise in economic inequality and as a result, the fruits of economic growth have gone largely to the wealthy; median incomes have stagnated; and the poor have increasingly been left behind.

The report contained the following conclusion: "taxes on the rich have been slashed, even as social programs to aid the poor have been steadily rolled back." The report also stated "with a growing concentration of national income at the top, the wealthy may be able to exert more influence over the political process, over-riding the interests of poor and middle-income voters. If so, public policy may well end up favoring the economic interests of wealthier constituents, further entrenching economic inequality."

The United States is the most economically stratified society in the western world. As The Wall Street Journal reported, a recent study found that the top .01% or 14,000 American families hold 22.2% of wealth, and the bottom 90%, or over 133 million families, just 4% of the nation's wealth. The U.S. Census Bureau and the World Wealth Report 2010 both report increases for the top 5% of households even during the current recession. Based on Internal Revenue Service figures, the richest 1% have tripled their cut of America's income pie in one generation.

The gap between the wealthiest Americans and middle- and working-class Americans has more than tripled in the past three decades, according to a June 25, 2010 report by the Center on Budget and Policy Priorities. New data shows that the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest parts of the population in 2007 was the highest it's been in 80 years, while the share of income going to the middle one-fifth of Americans shrank to its lowest level ever.

According to Paul Buchheit of DePaul University, some hedge fund managers made $4 billion annually. This is enough to pay the salaries of every public school teacher in New York City. In 1965, the average salary for a CEO of a major U.S. company was 25 times the salary of the average worker. Today, the average CEO's pay is more than 250 times the average worker's. And it's not just the rich individuals, but also the corporations that are taking money meant for jobs and public needs. Fareed Zakaria noted in Newsweek that the 500 largest non-financial companies are sitting on $1.8 trillion in uninvested cash.

According to Dean Baker, Co-Director of the Center of Economic and Policy Research, it is no longer possible to contest the fact that there has been an enormous upward redistribution of income since 1980. Dozens of economists have reached the same conclusion, using different methodologies and different data sets. Yet, in the last few months, columnists in many of the nation's leading publications and political leaders have told readers that the upward redistribution over this period is good, because income has risen for everyone. According to their perspectives, everyone has benefited from the fact that some people are richer and a relatively small number of people are very rich. Part of that perspective is the argument that tax breaks for the wealthy and very rich (both individuals and corporations) will have a beneficial "trickle down" beneficial effect for the middle class and poor. There is little if any evidence to support this argument.

The Pew Foundation study, reported in the New York Times, concluded, "The chance that children of the poor or middle class will climb up the income ladder, has not changed significantly over the last three decades." The Economist's special report, Inequality in America, concluded, "The fruits of productivity gains have been skewed towards the highest earners and towards companies whose profits have reached record levels as a share of GDP."

It's not just income disparities that creates problems, it's the accompanying social inequalities in health, education and other social indicators.

Between 1983 and 1999, men's life expectancy decreased in more than 50 U.S. counties, according to a recent study by Majid Ezzati, associate professor of international health at the Harvard School of Public Health. For women, the news was even worse: life expectancy decreased in more than 900 counties-more than a quarter of the total. The United States no longer boasts anywhere near the world's longest life expectancy. It doesn't even make the top 40. In this and many other ways, the richest nation on earth is not the healthiest.

Ezzati's results are one example. There is also evidence that living in a society with wide disparities-in health, in wealth, in education-is worse for all the society's members, even the well off. Life-expectancy statistics hint at this. People at the top of the U.S. income spectrum "live a very long time," says Lisa Berkman, Director of Harvard University's Center Population and Development Studies, "but people at the top in some other countries live a lot longer."

Research indicates that high inequality reverberates through societies on multiple levels, correlating with, if not causing, more crime, less happiness, poorer mental and physical health, less racial harmony, and less civic and political participation. Tax policy and social-welfare programs, then, take on importance far beyond determining how much income people hold onto.

The level of inequality we allow represents our answer to "a very important question," says Nancy Krieger, professor of society, human development, and health at Harvard "What kind of society do we want to live in?"

We may be seeing the signs of a cultural and class wars if the current trend of income and social inequality continues in America.

Follow me on Twitter: @raybwilliams

Ray Williams is the author of Breaking Bad Habits and The Leadership Edge.

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