Washington Post tackles increasing income inequality in America

The Washington Post today has published a major piece about growing income disparity in America: With executive pay, rich pull away from rest of America.

I guess it should go without saying, but I’ll say it anyway: an economy dependent on consumer spending needs to have a broad base of consumers with significant disposable incomes. I’m not arguing that income disparity should be eliminated, but it has clearly grown to a level that is damaging the economy. Keep in mind that this article, which is based on some pretty impressive and detailed studies, deals with annual income, not net worth.

First, a little data from the WashPo:

For years, statistics have depicted growing income disparity in the United States, and it has reached levels not seen since the Great Depression. In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent.

Who makes up the group of earners in the top .1%?:

The top 0.1 percent of earners make about $1.7 million or more, including capital gains. Of those, 41 percent were executives, managers and supervisors at non-financial companies, according to the analysis, with nearly half of them deriving most of their income from their ownership in privately-held firms. An additional 18 percent were managers at financial firms or financial professionals at any sort of firm. In all, nearly 60 percent fell into one of those two categories.

Where does that put the U.S. relative to other countries?:

In 1975, for example, the top 0.1 percent of earners garnered about 2.5 percent of the nation’s income, including capital gains, according to data collected by University of California economist Emmanuel Saez. By 2008, that share had quadrupled and stood at 10.4 percent.

The phenomenon is even more pronounced at even higher levels of income. The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million.

In world rankings of income inequality, the United States now falls among some of the world’s less-developed economies.

According to the CIA’s World Factbook, which uses the so-called “Gini coefficient,” a common economic indicator of inequality, the United States ranks as far more unequal than the European Union and the United Kingdom. The United States is in the company of developing countries — just behind Cameroon and Ivory Coast and just ahead of Uganda and Jamaica.

There’s much more in the piece, especially some discussion of a particular company — Dean Foods — that has been around for decades and has seen CEO compensation increase dramatically. A change in the moral culture of executives is discussed.

Is there a way out? If real (inflation-adjusted) wages for middle-class workers continue to stagnate, we might see a continuation of the grim economic news of the last few years, which could force a radical rethinking of current income disparities. Maybe stockholders will begin to pressure companies to reduce executive pay. Maybe politicians in America will quit beating up so much on unions and put more pressure on executives.

I don’t expect any of those things to happen. But our extreme income disparity is a critical issue and it’s great that the Washington Post has published today’s piece, which is apparently the first in an occasional series.