Friday, October 12, 2007

The Gap

The gap between the rich and the poor in the United States has hit a new record high since the IRS started compiling such data. The Wall Street Journal reports:

The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service. That is up sharply from 19% in 2004, and surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks.

The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000.

Some suggest that the 1920s were the last time the divergence of wealth in this country was so great. In fact the trend has been probably moving in this direction for several decades and so it is not entirely a Neocon fabrication, however the size of the gap has also increased at a record pace in the past five years since the Republicans took the presidency.

Between 2000 and 2005, the median tax filers’ income fell 2% between 2000 and 2005, to $30,881when adjusted for inflation whilst the income level for the top 1% grew 3%, to $364,657.

The remarkable thing is that most of those who claim that the Bush economy was good for them probably lost out in this new distribution of wealth. The economic health of the country however depends on wealth distribution. Ironically, a healthy capitalist economy depends in part upon one of the cornerstones of communism. If a country’s economy degenerates to a point where a few wealthy people effectively own everything and the poor majority own almost nothing, there is a breakdown in the ability to move cash. Everything form the local liquor store to Wal Mart depend on average Joe having moolah in his pocket to spend on frivolous stuff. It depends on average Jane being able to fork out for a bit of extra to put on the dinner table and to buy new shoes. A healthy economy does not thrive on the occasional multi-million dollar yacht sale.
This report is the clearest indicator that ‘trickle down’ does not work. Those who scoff at Europe for its wide ranging social systems and heavy taxing of the wealthier individuals will do well to hold their criticisms. If the Democratic Party cannot change the direction this ship is sailing and by all accounts they probably don’t have the guts to do it, we will be in for a major recession in the not so distant future.

Two weeks ago whilst in San Francisco I saw a Bentley Arnage, worth around $250,000 parked on Union Square in San Francisco and next to it a homeless man holding up a sign saying “please help – hungry.” I’m not suggesting that the Bentley owner should have given him the car or even helped him. I am merely saying that we are seeing signs that are reminiscent of an economy of a Third World country rather than a Western superpower and economically, those countries’ economies are rarely healthy and are not to be envied.

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