This is another in my on-going series of posts on the politics and economics of wealth inequality – perhaps the key political and economic puzzle and problem of our time. As we’ve noted before, the trend toward greater concentration of wealth at the top is most extreme in the US and to a lesser extent in the UK and Canada which are closer to our economic model than other European countries and Japan. This post from November has a good chart illustrating the relative trends (third chart down). But this new study comes at the same data from a distinct and frankly jarring perspective.
The study and the Times article where I found it are actually from the Spring of 2014. It looks at the relative position of the US middle class in relation to those in other industrialized nations. The results are sobering. Even though the US as a whole remains the richest big country, the middle class has fallen behind or is about to fall behind that of a number of countries.
Here’s a key paragraph …
Although economic growth in the United States continues to be as strong as in many other countries, or stronger, a small percentage of American households is fully benefiting from it. Median income in Canada pulled into a tie with median United States income in 2010 and has most likely surpassed it since then. Median incomes in Western European countries still trail those in the United States, but the gap in several — including Britain, the Netherlands and Sweden — is much smaller than it was a decade ago.
There are a couple points to clarify. What’s the middle class? The study doesn’t really look directly at that definitional question. It looks at the poor too. It’s really the relative standing of Americans who are not among the most affluent in the country. Median income is one way – and a fairly good one – of getting a read on the broad distribution of wealth in the country as opposed to the aggregate numbers which dominating reporting on the economy.
Here’s another jarring passage …
Median per capita income was $18,700 in the United States in 2010 (which translates to about $75,000 for a family of four after taxes), up 20 percent since 1980 but virtually unchanged since 2000, after adjusting for inflation. The same measure, by comparison, rose about 20 percent in Britain between 2000 and 2010 and 14 percent in the Netherlands. Median income also rose 20 percent in Canada between 2000 and 2010, to the equivalent of $18,700.
The comparison with the UK since 2000 is, frankly, amazing.
So all the economies in question are growing. And the US is doing very well in aggregate. But as almost all gains go to the very wealthy in US, and gains are more evenly distributed in other countries, the middle classes and also the US poor are slowly falling behind. And it shows up, not surprisingly, in a general and pervasive mood of pessimism that registers in big ways politically.
So why is this happening? One thing we know – the more laissez-faire structure of American capitalism, strong in many ways, tends to stratify earnings more than other countries. (Again, not an accident that the English-speaking Canada and UK are closest to our pattern.) And that has a political-economic component which reinforces those trends through tax policy, a less friendly environment for unions, etc. We know this.
The other part the study points to is educational attainment. Younger Americans are less well educated relative to peers in the industrialized world than older Americans. Again, a key passage …
Three broad factors appear to be driving much of the weak income performance in the United States. First, educational attainment in the United States has risen far more slowly than in much of the industrialized world over the last three decades, making it harder for the American economy to maintain its share of highly skilled, well-paying jobs.
Americans between the ages of 55 and 65 have literacy, numeracy and technology skills that are above average relative to 55- to 65-year-olds in rest of the industrialized world, according to a recent study by the Organization for Economic Cooperation and Development, an international group. Younger Americans, though, are not keeping pace: Those between 16 and 24 rank near the bottom among rich countries, well behind their counterparts in Canada, Australia, Japan and Scandinavia and close to those in Italy and Spain.
I’ve always been very skeptical of cross-country and cross-cultural studies of educational attainment. There’s so much bound up in different philosophies of learning, different languages, the difficulty of making whatever tests you are going by take those differences into account. But this data is difficult to dismiss. Given the trajectory of the industrialized world since World War II it is not surprising that affluent European countries would catch up. But there’s no good reason we should be falling behind.
When you put these different phenomena together – the creation of an increasingly distinct rentier class, declining educational attainment and incomes for the public at large and mounting military expenditures – you get a profile that looks very similar to a lot of states from history in a late-imperial phase, a pervasive hollowing out of the economic structure of the country. Spain, the UK, Holland, arguably even Rome, though the economic structure of the ancient world was so profoundly different that it is difficult to make any real comparisons. What is particularly troubling is that these trends are not necessarily self-correcting. Indeed, quite the contrary. A concentration of wealth at the top is not necessarily one where you’re going to have big new investments in education that can reverse those kinds of trends. The whole pattern may be self-reinforcing rather than self-correcting.
