TOPICS > Economy

Recession Ushers in Widest Income Inequality Gap on Record

September 28, 2010 at 5:07 PM EDT
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The U.S. now has the greatest disparity between the rich and the poor within Western industrialized countries, new Census data show. Timothy Noah of Slate magazine and Howard University professor Roderick Harrison looks at the growing income gap in America.
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GWEN IFILL: Next: a look at the growing problem of inequality in America.

A new analysis out today showed the recession magnified the gap between the richest and poorest to the widest margin since the census began counting. Last year, the top fifth of Americans, who earn more than $100,000 a year, received nearly 50 percent of all income in the U.S., while the bottom 20 percent received just 3 percent. The U.S. also has the greatest disparity between rich and poor among Western industrialized nations.

We look at that gap and what’s driving it now with writer Timothy Noah, who just completed a series on the topic for “Slate” magazine, and Howard University professor Roderick Harrison, who studies census data for the Joint Center for Political and Economic Studies.

Welcome to you both. Tim Noah, you write in “Slate” about the great divergence. Describe what you mean.

TIMOTHY NOAH, Slate.com: It’s a — really, it’s a three-decade trend that began in the late 1970s, a trend towards income inequality.

Incomes have been growing less and less equal since 1979. A lot of people accept that as the norm, but, in fact, for much of the 20th century, the trend was going the other way. Between 1929 and the early 1970s, incomes were becoming more and more equal.

And, of course, right in the middle of that period, you had a great deal of prosperity after World War II.

GWEN IFILL: Professor Harrison, what — what is the cause of this?

RODERICK HARRISON, Joint Center for Political and Economic Studies: The underlying cause is that the gains in productivity have been divided more towards corporate earnings and profits than towards the workers and employees.

If we had maintained the historical levels and share of sharing productivity gains, the middle- and lower-income part — portions of the income distribution would have fared much better, and you wouldn’t see this acceleration in the gap…

GWEN IFILL: But we didn’t maintain it. What was the reason for that?

RODERICK HARRISON: Well, I mean, again, you have a gain in productivity. You’re producing more per worker.

If that goes primarily to profits, which it has in recent decades, wages are not increasing due to that gain in productivity. The workers, the employees are not benefiting from it. And wages and the earnings have in fact stagnated over much of this period.

So, if more of that had flowed to the large number of people in the work force, you would have had some increases. We have had great increases in productivity over the period. You would have much greater increases in the earnings and wages and much less of a gap.

GWEN IFILL: So, Tim, we know we’re coming out of — or, according to some numbers — out of a recession, but people feel like we’re still in one. Is that the cause or the effect of this kind of divergence we see?

TIMOTHY NOAH: The divergence is — has been going on a very long time. So, the divergence doesn’t have anything to do with the recession.

It does appear that, during this recession, what we have seen is a new, at least short-term, one hopes short-term, effect, which is a huge surge in the poverty rate. We haven’t seen an increase like this since the mid-1990s.

GWEN IFILL: So, the recession exacerbated a situation that already existed?

TIMOTHY NOAH: Exactly. What the trend — what the trend has been since the early 1990s has been that incomes at the top has just been skyrocketing. The top — we’re talking about the top 1 percent and especially the top 0.1 percent.

Emmanuel Saez, who won a MacArthur grant today, did some pioneering research on this at Berkeley.

GWEN IFILL: And he found exactly the same thing?

TIMOTHY NOAH: He found — yes, he was the one who — this went unnoticed for a long time because social scientists were looking at census data, which is not very precise.

GWEN IFILL: Right.

TIMOTHY NOAH: Saez and his co-author, Thomas Piketty, looked at IRS data, and were able to get a much sharper picture of this increase.

GWEN IFILL: Professor Harrison, can we talk about the demographics of this? Who is affected the most? Is it an urban-vs.-rural construct, male-vs.-female, racial?

RODERICK HARRISON: If you look over the three or so decades, clearly, most rural areas have been left out of the economic growth of the country, particularly during the ’90s. That great expansion left many of those areas behind.

The — some of the sharpest differences are between the less well educated and the college educated . College-educated have shown gains. And particularly where you have college-educated husbands and wives, mothers and fathers, those families have gained. The income opportunities for less-well-educated workers have not kept pace.

GWEN IFILL: Another part of this — and a lot of people have talked about this education gap, but people have talked less about — or at least there have been assumptions made about immigration as an effect or trade policy. Jobs are being outsourced to other countries. Is that part of this as well?

TIMOTHY NOAH: Well, immigration — as far as economists have been able to determine so far, immigration has not been a major factor. It has — except with regard to the very poor, the bottom 10 percent. High school — people who do not graduate from high school have suffered as a result of immigration.

But the middle class, whose income stagnation is really the defining factor of what I call the great divergence — I borrowed that from Paul Krugman of Princeton and The New York Times — the — the — that was unaffected by immigration.

GWEN IFILL: But how about taxation? There’s a lot of discussion now, and we have been having it on this program, about the effect of taxes, raising them or lowering them, on people’s well-being. Is that also driving this divide, or is there any evidence to suggest?

RODERICK HARRISON: It — the Bush tax cuts, and particularly the debate over the top 2 percent, certainly increases some of this. But it’s not…

GWEN IFILL: But that’s just been the last few years.

RODERICK HARRISON: It’s not the driving force, exactly. This has been going on for decades, and independently of tax policy. And it’s part of really the restructuring of the economy.

There is one thing I would like to mention I think is very important. The relationship of this to the recession might be — and Robert Reich is making this argument — the suppressed incomes of lower- and middle-income people meant that people were maintaining their living standards by credit and borrowing.

That was unsustainable. And that’s part of — and part of the difficulty with climbing out of the recession is these relatively flat incomes.

GWEN IFILL: If this is a trend which is now decades-long, this growing, widening gap, is it an arrestable trend? Is there some policy or some personal responsibility that people need to take to dig themselves out of this kind of hole?

TIMOTHY NOAH: It’s hard to point to any one individual thing. Obviously, improving the education system would help, because we really need to be producing more high school graduates than we’re producing. The work force doesn’t seem to be meeting the education level required of employers.

But — I know this sounds glib, but electing Democrats to the White House seems to help. There was a very interesting study done by a Princeton political scientist where he looked at administrations going back to 1948. And he found exact opposite trends under Democrats and Republicans.

GWEN IFILL: Because of government — because of government policies, ideology?

TIMOTHY NOAH: Because of a whole range of government — too many to count, a whole range of government policies. Democrats were much more favorable to people at lower incomes than Republicans.

GWEN IFILL: And, finally, what do you think can arrest this trend?

RODERICK HARRISON: I think the distribution of increases in productivity is the key. If — we — we have had great, substantial gains in productivity. If we maintain those, but if we distribute the benefits of that more widely across the work force, you would start to see a leveling out of — a return to the prior levels of inequality. That would give consumers — broaden the consumer base and give some strength.

GWEN IFILL: Professor Roderick Harrison of the Joint Center for Political and Economic Studies, and Tim Noah for “Slate” magazine, thank you both very much.

RODERICK HARRISON: Thank you.

TIMOTHY NOAH: Thank you.