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How economic inequality is damaging our social structure

Economic inequality causes serious social problems

One of the most significant problems in the world now is that of economic inequality, and the social problems it produces. And the most damaging impact may be in developed nations such as the U.S. and Canada. The U.S. in particular has the greatest gap in wealth among all developed nations, and the problem it is causing is becoming more apparent with each passing day.

During the recession in the U.S., at least 6 million people have lost their jobs; 25 million are underemployed. Eight trillion dollars of middle class wealth has been destroyed in the housing collapse. One out of eight mortgage holders owe more money on their home than it is worth. Fifty million people live at the poverty level. One of out of 8 people are on food stamps. One out of 2 children will be on food stamps at some point in their lives.

But not all people have suffered equally.

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% has tripled their cut of America's income pie in one generation.

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At the same time the share by the middle class is declining and the number of poor people is growing. Some hedge fund mangers made $4 billion annually, enough to pay the salaries of every public school teacher in New York City, according to Paul Buchheit of DePaul University. Today the average CEO's pay is more than 250 times the average worker's, whereas in 1965, it was only 25 times. According to the 2010 Wall Street Journal analysis of CEO compensation, the average CEO was paid $15 million in 2005 and the figure has increased dramatically. Goldman Sachs, one of the largest investment banks, just announced a new round of bumper bonus payments that will pay an average of $450,000 per person. 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. The median household income in the U.S. is about $30,000 per year. It would take a person at that income level more than 34,000 years to save a billion dollars. 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.

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.

Even Canada, which has been considered a country with less of a problem with economic inequality is following in the U.S.' footsteps. According to Murray Dobbin, writing in Global Research, by the end of 2009, 3.8% of Canadian households controlled 67% of the country's total personal wealth. And between 1990 and 2005, the richest 1% experiences twice the reduction in taxes as the average Canadian.

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.

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."

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."

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.

In their book, Winner-Take-All Politics: How Washington Made The Rich Richer-And Turned Its Back On The Middle Class, Jacob Hacker and Paul Pearson argue that since the late 1970's, an intense campaign of anti-democracy policy changes have resulted in an intense concentration of wealth and income to the very few individuals and corporations in the U.S.

Steven Pressman, an economist, reports in his book, The Decline of the Middle Class: An International Perspective, that from 1980 to 2000 when we experienced explosive economic growth, most western nations, particularly the U.S. saw their middle class shrink. Pressman says that most of shrinkage was a result of people falling into the poverty class and a few up into the higher bracket.

Many people believe it is only the recession that has had a negative impact on the economic welfare of people in the U.S., but wealthy individuals and corporations have faired well during tough economic times.

According to Richard Wolff, professor of Economics at the University of Massachusetts, U.S. corporations, particularly the large ones, "have avoided taxes as effectively as they have controlled government expenditures to benefit them." Wolff points out that during the Depression and WWII, federal income tax receipts from individuals and corporations were fairly equal, but by 1980, individual income taxes were four times higher than corporate taxes. "Since WWII, corporations have shifted much of the federal tax burden for themselves to the public-and especially onto the middle class," Wolff says.

The most comprehensive recent study of corporate taxes by professors at Duke, MIT and the University of California concluded "we find a significant percent of firms  that appear to be successfully avoiding large portions of the corporate income over a sustained period of time."  For example, The New York Times reported that GE's total tax was 14.3% over the last 5 years, while in 2009 receiving a $140 billion bailout guarantee of its debt from the federal government.

What happens to societies where there are large and growing gaps in wealth? Significant social problems, and declining indicators of well being and happiness, recent research seems to suggest.

British epidemiologists Richard Wilkinson and Kate Pickett, authors of The Spirit Level: Why Greater Equality Makes Societies Stronger, argue that almost every indicator of social health in wealthy societies is related to its level of economic equality. The authors, using data from the U.S. and other developed nations, contend that GDP and overall wealth are less significant that the gap between the rich and the poor, which is the worst in the U.S. among developed nations. "In more unequal societies, people are more out for themselves, their involvement in community life drops away, "Wilkinson says. If you live in a state or country where level of income is more equal, "you will be less likely to have mental illness and other social problems," he argues.

A University of Leicester psychologist, Adrian White, has produced the first ever "world map of happiness," based on over 100 studies of more than 80,000 people and by analyzing data from the CIA, UNESCO, The New Economics Foundation, the World Health Organization and European databases. The well being index that was produced was based on the prediction variables of health, wealth and education. According to this study, Denmark was ranked first, Switzerland second, Canada 10th and the U.S. 23rd.

A new study, published in the latest issue of Psychological Science by Mike Morrison, Louis Tay and Ed Diener, which is based on the Gallup World Poll of 128 countries and 130,000 people, found that the more satisfied people are with their country, the better the feel about themselves. Recent surveys in the U.S. show a significant percentage of Americans who are unhappy about their country. According to the World Values Survey of over 80 countries, the U.S. ranks only 16th, behind such countries such as Switzerland, the Netherlands, Sweden and Canada, with Denmark ranked first.

According the Economist's annual survey of the most livable cities in the world, three of the top 10 cities are in Canada, with the rest from Europe, Australia and New Zealand.  The top U.S. city was Pittsburgh which was ranked 23rd.

Linda McQuaig and Neil Brooks, authors of The Trouble with Billionaires, argue that increasing poverty due to economic inequality in the U.S. and Canada has detrimental effects on health and social conditions and undermines democracy. They cite the fact that while the U.S. has the most billionaires in the world; it ranks poorly in the Western world in terms of infant mortality, life expectancy, crime levels-particularly violent crime-and electoral participation.

Psychologists Ed Diener and Martin Seligman, in their article "Beyond Money: Toward An Economy of Well-Being," published by the American Psychological Society, concluded "although economic output has risen steeply over the last decades, there has been no rise in life satisfaction during this period, and there has been a substantial increase in depression and distrust."

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."

A new meta-analysis published by the British Medical Journal shows a link between income inequality and mortality and health. The researchers concluded that people living in regions with high-income inequality had an increased risk of premature death, independent of their individual socioeconomic status, age or gender. While it is logical to assume the lowest income citizens would be at grater health risk, the study concluded that income inequality is "detrimental to the more affluent members of society, since these citizens experience psychosocial stress from the inequality and loss of social cohesion."

Often popular media portrays the image of everyone favoring and wanting to be wealthy, but that may be deceiving.

Recent neuroscience search reveals that the brain rejects inequality and prefers equitable balance-physiological, emotional, social and psychological. E. Tricomi and colleagues advanced this argument, published in the journal, Nature. They contend the human brain dislikes inequality when it comes to money. And other behavioral and anthropological evidence shows that humans dislike social inequality and unfair distribution of outcomes. Researchers at the California Institute of Technology and Trinity College in Ireland have identified reward centers in the brain that are sensitive to inequality. This research shows a dislike of fairness and inequality is more than just a social convention. On a physiological level, people may not be as selfish as once believed. Other studies have shown that many wealthy people want to restore equality and balance by charitable donations to assuage their guilt and decrease their own discomfort over having more than other people.

According to the Pew Research Center Poll, 81% of Americans believed the country was on the wrong track, the most negative view in the 25 years the survey was taken.

Michael Norton of Harvard University and Dan Ariely of Duke University published a study of the problem of economic inequality, which was published in Perspectives on Psychological Science. They concluded that a majority of Americans they surveyed "dramatically underestimated the current level of inequality," and "respondents constructed ideal wealth distributions that were far more equitable even than their immensely low estimates of the actual distribution." They contend that all demographic groups including conservatives like Republicans and the wealthy "desired more equal distribution of wealth than the status quo."

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?"

http://raywilliams.ca

Twitter: @raybwilliams

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

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