The Ghost of Jimmy Carter

A curious thing has happened in the world of Bush appointees. There are the beginnings of concern being expressed about growing wage inequality.

“Families earning more than $103,100 a year saw their share of aggregate income rise to 48.1 percent in 2005, from 46.5 percent a decade earlier, according to Census Bureau figures. Middle-income families earning between $45,000 and $68,300 saw their share of aggregate income decline to 15.3 percent, from 15.8 percent in 1995.”
--From a Bloomberg report

Of course, Federal Reserve Chairman is quite coy about explaining why this is a problem and why it is growing.

“Understanding the sources of the long-term tendency toward greater inequality remains a major challenge for economists and policy makers,'' Bernanke said.

So, as I have to do so often, it is time for the old Sane One to bail out the Bushies with a simple and truthful explanation:
America grew to immense power and wealth in the 20th century because of the size of our middle class. The egalitarianism that grew from an economy that allowed most people who worked hard to become homeowners is what we all look back on nostalgically as “the American Dream.”

The simple truth of how average slobs could own a boat can be summed up in four words: Unions and Progressive Income-taxes.

Alright, I cheated, one of the words was hyphenated, but I stand by my statement. The American worker organized and demanded a greater share of the economic pie. Organized labor brought about pensions, high wages and benefits. To this day union employees have significantly higher wages than their non-union counterparts.

If you look at income distribution in America you will see that there is a huge shift when Reagan destroyed the income tax system by dropping the top rate from 75% to (and I might be off on this number, but I am pretty sure I am close) 32%.

With that quick drop in taxes the wealthy were able to start hogging more and more of the wealth generated in the economy while the tax burden was shifted more toward the middle class. This double whammy has crushed the average middle class worker. I would add that the abolition in the estate tax (invented by Teddy Roosevelt) has only exacerbated the problem by allowing the wealthiest Americans to pass on more of their wealth than ever before. (For proof of why we need to discourage this sort of idle-wealthy class I call your attention to Paris Hilton)
The popular answer, purported by those who have a vested interest in keeping their lion’s share of the nation’s wealth, is that education will even it all out.

This is foolishness.

Education will help some, but there are others who will never succeed with education.

Further more even if those at the bottom do start earning more, there is still the problem that those at the top are continuing their over-accumulation. It also subtly blames those at the lowest end of the economic ladder for their lot in life, and subtly promotes the virtue of those at the top for their place.

We have to make a decision as a society. We have to decide if we want to let the economic system do whatever it wants, no matter what the consequences, or if we prefer to intervene to bring about a more favorable outcome.

If we leave people to their own devices, look at Mexico, because that is our fate.

If we decide we want to restore balance to the distribution of wealth then we need prudent action to constrain the excesses that are occurring now.