income inequality

If the American Dream isn’t dead, it’s in big trouble

Posted on by j.giglio

The American Dream is one of the country’s most attractive founding myths. Ask Americans what the term means and they will provide various definitions that are neither true nor false; people are free to define their core concepts as they see fit.

There is no one American Dream; there are many, based on specific circumstances. Historically, definitions have ranged from religious and political freedom to social equality and economic mobility in the hope that everyone would have an equal chance to succeed.

Sadly, the idea that anyone who really wants to can make their way to the top in the United States may be dead. The ordinary working-class individual would have to be living in a commercial to still believe in the American Dream. When you are poor, trying to get a fair share of the American pie can become a burden that only makes you angry and frustrated.

In 1931, the now obscure historian, James Truslow Adams wrote “The Epic of America,” a book that gave one of the first recorded definitions of the American Dream. He was not writing about consumption, buying things you don’t need and can’t afford with borrowed money. He focused on ideals rather than material goods. According to Adams, the American Dream was:

“That dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. … It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position”.

He was describing a society that values equality and merit are above all else; with hard work, everything is possible. It doesn’t matter where you are from, what schools you went to, or how much money your parents have. What matters is that if you work hard, you can become anything you want. Everyone in America has a chance to pursue his or her personal vision no matter who you are.

Conversely, success is a choice. It’s your own fault if you don’t make it from rags to riches.

In the wake of the Great Recession and the 2008 financial crisis, many people believe the American Dream is dead. The issue of economic inequality has captured the attention of groups across the social and political spectrum; the general public, policy makers, business people, and academicians. Surveys show that more and more Americans believe income and wealth are distributed unfairly.

Few would deny the growing gap between rich and poor in the United States is at historic levels. Wealth and income imbalances have been documented with monotony.

The inconvenient truth is that the richest 10 percent currently own nearly 60 percent of U.S. wealth. The top 1 percent now earns about 30 percent of total income. The top 0.1 percent earns more than 10 percent. According to the Federal Reserve Board 40 percent of Americans can’t cover a $400 emergency expense.

A number of factors have been suggested as important contributors to the widening gap between the “haves” and “have nots” and the increasing concentration of income and wealth. Among them are globalization, technological advances, crony capitalism, lower taxes on the rich, and government policies and programs.

Until these causes and consequences are addressed, there is no realistic hope for dealing with unacceptable levels of economic inequality in the world’s richest country. America will continue to witness the erosion of the middle class and the creation of a permanent underclass that undermines the conceit of a democratic society in which all people have an equal and inalienable right to life, liberty and the pursuit of their own happiness.

Originally Published: November 19, 2018

 

2008 recession is anything but ancient history

Posted on by j.giglio

If you think you have heard it all before about the 2008 financial meltdown, then you need to listen more closely. Enough is never enough when it comes to learning about what caused the crisis and the recession that followed.

This month marks the 10th anniversary of the financial crisis that devastated Wall Street and Main Street. While the autumn leaves were falling in September 2008, months of uncertainty crystallized to spark a financial panic.

The crisis, the worst financial downturn since the Great Depression, was triggered by the bursting of a housing price bubble that had been fueled by increased risk in mortgage lending. As a result, millions of Americans lost their jobs, homes, or both.

The crisis had many causes, including too much irresponsible borrowing, foolish investments, the credit bubble that resulted from loose monetary policy, the housing bubble, national housing policies and non-traditional mortgages, relaxed mortgage lending standards, credit ratings and securitization, financial institutions’ concentrated risk, leverage and liquidity risk, 30 years of deregulation, securities firms converting from partnerships to corporations and perverse compensation incentives.

Scratch the familiar refrain of greed as a cause. Greed has been a constant in human affairs for millennia. It was not a new attribute in the lead up to the crisis.

Today the economy is strong, according to official measures. The United States Bureau of Economic Analysis estimates that GDP growth reached 4.1 percent in the second quarter of 2018. Consumer confidence is high and financial markets are flirting with records. The housing market, the epicenter of the crisis, has recovered in many places. Add low unemployment and things are looking good.

Wall Street has profited every year since the recession ended in 2009. Average Wall Street compensation, consisting of salary and bonus, hit $422,000 in 2017, 13 percent higher than the previous year, according to the New York State Comptroller.

In contrast, the latest Census Bureau data shows that the median income for American employees was $59,039 in 2016. Last month the average hourly wage rose 10 cents, to $27.16, according to the Bureau of Labor Statistics. While that was the largest gain since 2009, the increase was roughly equal to inflation, which eats away at purchasing power.

The crisis strikes some people as ancient history. Others, who saw their net worth wiped out are still trying to recover. They want Old Testament justice for the financial institutions that got bailed out from their reckless behavior while ordinary people suffered and continue to tread water thanks to ongoing wage stagnation. The hope is that as it gets hard to fill jobs with the country approaching full employment, wages will go up and the average American will enjoy the recovery.

While many analysts hesitate to blame American families for contributing to the financial crisis, they did play a role, aided and abetted by bankers and mortgage brokers. To put their role in context, consider that highly risky mortgages were attractive, given that real wages in the United States had been stagnant since the early 1970s.

People came to understand the power of leverage, which had previously been available only to wealthy investors. No-down payment mortgages with adjustable rates reduced their initial costs, providing the opportunity to improve their standard of living and enjoy wealth appreciation.

The assumption was that housing prices always increase. The rising value of the house would allow them to refinance and upgrade to a fixed-rate mortgage. When the housing bubble burst, many families were ravaged.

An economy that is strong for some continues to have harmful effects on the physical and emotional health of ordinary Americans. The results are a permanent state of outraged class warfare, declining social mobility, a shrinking middle class, and widening income inequality.

There is much to be mad about and plenty of blame to go around. Wall Street was the ultimate beneficiary of the Great Recession, not Main Street.

Originally Published: September 23, 2018

Corporate mergers and income inequality

Posted on by j.giglio

You can’t look at the Wall Street Journal or any other business publication nowadays without reading headlines about yet another megadeal. Many industries are consolidating, and that translates to fewer jobs.

This year alone has brought major mergers resulting in a number of industries being dominated by a few firms. Look no further than big-box retailers, too-big-to-fail financial institutions, airlines, health insurers, communications, utilities markets and a broad range of industrial sectors including defense and the beer industry with the $104.2 billion deal between Anheuser-Busch InBev NV and SABMiller.

Last month, after approving Lockheed Martin’s $9 billion acquisition of Sikorsky Aircraft, Pentagon officials warned against further consolidation in the U.S. weapons industry because fewer defense contractors could inhibit innovation, lead to higher costs and result in less competition. Four airlines (American, Delta, United and Southwest) control over 80 percent of the domestic market. There were nine major carriers in 2005.

The wireless industry is also dominated by just four firms. Even there, AT&T and Verizon are much larger than T-Mobile and Sprint, controlling about 70 percent of all subscribers.

In retail, Walgreens, the largest U.S. drugstore, just announced it would acquire Rite Aid, the third­ largest drugstore chain, for $17.2 billion in an all-cash transaction for $9 a share, a 48 percent premium to Rite Aid’s closing price of$6.08. The proposed deal would essentially consolidate the industry into two large retail chains: Walgreens and CVS Health. It follows on the heels of CVS acquiring Target’s nearly 1,700 pharmacies over the summer and the potential merger of Staples and Office Depot.

Business people may be the leading champions of free markets and competition, but Marx, writing in Das Kapital, was spot on when he wrote, “One capitalist always kills many,” meaning that markets that are originally open and diverse evolve into oligopolies with a few firms using their power to keep competitors out and cornering the spoils of a particular industry for themselves.

In theory, consolidation can create economies of scale that reduce costs and consumer prices and save jobs at firms too weak to make it on their own. When it comes to mergers, “synergy” – cost efficiencies including combining complementary assets, eliminating duplicate activities, consolidating stores, integrating computer systems, and increasing profit margins by using increased volume to squeeze concessions out of suppliers – is an often-used word.

It’s all about eliminating redundancies, and that means jobs. Of course, it may be easier to pan for gold than to actually achieve these vaunted cost reductions because the savings are often overestimated and don’t always account for take-over premiums.

On the other hand; it is reasonable to assume that consolidation has played some role in the income stagnation suffered by American workers. This contributes to income inequality, the loss of many middle-level jobs and a record number of American workers no longer participating in the labor force as firms pursue cost efficiencies.

Big corporations hope consolidation makes it harder for new competitors to enter an industry and leads to increased market power. By controlling the market you control the customer and can raise prices unilaterally. And while coordinating pricing strategies is illegal, a smaller number of players in an industry makes tacit collusion easier.

Under current antitrust laws, two agencies -the Antitrust Division of the Justice Department and the Federal Trade Commission- can review proposed mergers and decide whether they are anticompetitive. American consumers and labor should hope these regulators have a grasp of the downsides of consolidation that is better than Roger Goodell’s understanding of due process.

Based on the regulators’ performance in the run-up to the financial crisis, the truth is that if these folks were convicted of being competent, we would be convicting innocent people. Let’s hope we are not going to sit shiva over the notion of competition that rewards hard work and promotes innovation and meritocracy.

Originally Published: November 11, 2015

Time to limit immigration of low-wage workers

Posted on by j.giglio

Politicians often remind us that we are a nation of immigrants. For much of America’s history,
immigration strengthened the nation’s economy. But that’s far less clear today.

In an era of global competition, the intake of low-wage immigrant workers who benefit big businesses at the expense of workers by depressing wages and increasing income inequality should be limited. The  war on terror also raises concerns about just who is coming to our country.

The French philosopher Auguste Conte is reputed to have said “demography is destiny.” American demographics have certainly changed dramatically over the last several decades.

According to the Census Bureau, in 2013 there were 41.3 million immigrants (legal and illegal) living in the United States, an all-time high and double the number in 1990, nearly triple the 1980 number, and quadruple the 1970 count of 9.6 million. Immigrants make up nearly 13 percent of the population, the highest share in 93 years. In 1970, fewer than one in 21 residents were born abroad. Today it is about  one out of eight.

When you add in their U.S.-born children, this group numbers about 80 million, or one-quarter of the overall U.S. population. The U.S. represents the destination of choice for the world’s migrant population. With less than 5 percent of the world’s population, we attract nearly 20 percent of its migrants .

In 2013, close to 47 percent of immigrants (19.3 million) were naturalized U.S. citizens. The remaining 53 percent (22.1 million) included lawful permanent residents, legal residents on temporary visas such as students and temporary workers, and illegal immigrants. The latter category is estimated at 11-12 million and represents about 3.5 percent of the American population.

Mexican-born immigrants accounted for approximately 28 percent of all immigrants to the U.S., making them by far the largest immigrant group in the country. India was the second largest, closely trailed by China, the Philippines, Vietnam and El Salvador. All told, the top 10 countries of origin accounted for about 60 percent of the immigrant population in 2013.

The demographic diversity of today’s United States is in many ways a direct result of the Immigration and Nationality Act amendments of 1965, which shifted U.S. immigration policy from a historic ethnic European population bias to one that favored a new stream of immigrants from developing countries in Asia and Latin America. Under the old system, admission to the U.S. largely depended upon an immigrant’s country of birth. The new system eliminated the nationality criteria and family reunification became the cornerstone of immigration policy.

The act was shepherded through the Senate by Ted Kennedy and signed by President Johnson at the foot of the Statue of Liberty on October 3, 1965. At the signing Johnson said, “This bill we sign today is not a revolutionary bill. It does not affect the lives of millions. It will not restructure the shape of our daily lives.”

But the law did change the immigration flow. For example, the European and Canadian share of legal immigration fell from 60 percent in the 1950s to 22 percent in the 1970s. By contrast, the Asian share of legal immigration rose from 6 percent in the 1950s to 35 percent by the 1980s and 40 percent in 2013.

Years later, Theodore White, the Pulitzer Prize-winning journalist and historian called the legislation “noble, revolutionary and one of the most thoughtless of the many acts of the Great Society.”

The evidence now suggests that immigrants are entering the U.S. faster than the economy can absorb them. An oversupply of low-wage immigrant workers has saturated the job market and depressed wages, thereby exacerbating income equality and the wage stagnation that has been a fact of life in the United States for over 40 years.

The time has come to tailor American immigration policy to the 21st century and put the economic interests of American workers at the center of immigration policy. For starters, this means limiting the entry of low-wage workers before the second coming.

originally published: May 23, 2015

The slide of the ‘average’

Posted on by j.giglio

Much more has been written than read about the divisive subject of income and wealth inequality in America over the last decade. It is the reading equivalent of a dance marathon, painting a gloomy picture of American society. If we are to address it successfully, we must start by enacting policies that recognize the importance of the middle class rather than simply relying on the invisible hand of the free market.

Earlier this year, the number one book on the Amazon bestseller list was “Capital in the Twenty-First Century” by French economist Thomas Piketty. Its central message is a call for wealth redistribution to reduce inequality, an approach that has never been popular in America, a country where economic growth comes first and distribution last.

Despite President Obama’s repeated statements that inequality is the “defining challenge of our time,” things continue to slide for the average American. For those living close to the ground, inequality is alive and well in America.

While there is disagreement about how to measure inequality, most studies focus on income, wages and wealth. For example, the bottom quarter of American households have seen almost no increase in real income for the last 25 years.

The top one percent of Americans, however, seems to be getting on quite well. They have seen their real incomes almost triple during the same period. Their share of national income has reached 20 percent and they own nearly 35 percent of the country’s wealth, figures not seen since the Roaring Twenties. The rich are running up the score.

As few as 16,000 families have a combined wealth equal to 5 percent of America’s gross domestic product, a level of concentration reminiscent of business monopolies. There’s also the legitimate concern that as the economic power of the richest one percent increases, their political power increases with it and they shape the rules governing our economy and society. Can you imagine this group raising taxes on themselves to finance new investments in education, job retraining and infrastructure that are routinely suggested as solutions to the inequality problem.

Americans are witnessing the Matthew effect. To paraphrase Matthew 25:29 in the King James version of the bible: “that to those who have, more will be given, while to those who have less, even that will be taken away.” Or in popular parlance, the rich get richer and the poor get poorer.

This widening gap between the rich and the poor brings with it all kinds of bad implications. Rising income and wealth inequality and the lack of opportunity to move up the income ladder threaten the nation’s economic growth and fundamental values; the middle class is growing thinner and thinner.

A strict free-market capitalist, the economic equivalent of a religious fundamentalist, argues that because inequality puts more resources into the hands of capitalists, it promotes savings and investment that in tum generate economic growth and increase the size of the economic pie. Just lower taxes on rich folks, cut the federal deficit, and deregulate and they will invest in the economy, creating millions of new jobs and lifting the unemployed out of poverty. This holds a grain of truth, but just.

While the issue of what is to be done about economic inequality is not one that lends itself to easy answers, especially in our politically polarized environment, we must start with policies that recognize the important role the middle class plays in driving economic growth.

originally published: July 19, 2014

Extreme wealth inequality threatens the nation

Posted on by j.giglio

One of the salient characteristics of the last 20 years has been the unprecedented growth in income and wealth inequality, and the extent to which both have flowed to the proverbial1-percenters.

Market capitalism has generated enormous wealth, but the distribution of the spoils of capitalism has gone awry. While there are many ways to measure inequality, consider that in today’ s Gilded Age, the wealthiest 1 percent of American households enjoy a higher total net worth than the bottom 90 percent and the top 1 percent of income earners receive more pretax income than the entire bottom half.

Since 1979, 36 percent of all after-tax gains went to the 1-percenters; over 20 percent of those gains went to the top one-tenth of 1 percent of the income distribution.

The increasingly unequal distribution of income and wealth threatens not only the social fabric of American society but the economy as well. The mega-rich cannot spend enough to offset the lost demand that results from a shrinking middle class, which slows economic growth.

Growing inequality is making a lie of the American promise that this is a country where if you work hard, you can make it into the middle class. We are witnessing the hollowing out of the middle class; it is being mothballed like an old Navy ship. The last time that income inequality in the land of plenty was as profound as it is now was immediately before the 1929 stock market crash.

Right now, more than 8.4 million Americans are collecting either state or federal unemployment benefits and one out of every seven depend on food stamps, the highest share of the population ever to do so. A shrinking few claim a disproportionate share of the nation’s wealth at the expense of everyone else.

If we could identify a single culprit to blame for this mess, it would make for a good television drama. But the story of rising income inequality is more complex. None of the major explanations are exhaustive or definitive, and making sense of them is no easy task.

Some blame globalization, a process of closer integration between different countries and peoples made possible by falling trade and investment barriers, tremendous advances in telecommunications and  drastic reductions in transportation costs that have forced American workers to compete against the huge supply of low-cost labor in the developing world and contributed to the declining influence of labor unwns.

Others point to new labor-replacing technologies that threaten both unskilled and skilled workers, while they increase demand for a select few with highly specialized skills. They argue that American public education does not provide children with the advanced skills they need to compete in this new world.

Stated differently, the pace of technological advance has outstripped the educational system’s ability to supply students with the skills they need to utilize this technology, leading to outsized earnings gains for those who have such skill. This is the so-called college wage premium.

Over the past few decades, people in developed economies who were educated enough to take advantage of the technological advances won higher wages. Others got left behind.

Finally, there are those who contend that immigration policy worsens inequality. The mass influx of low-wage workers probably reduces global inequality at the same time it increases inequality within America by reducing the wages of hard-working, semi-skilled Americans.

Many pundits contend that we can reverse the deterioration of the middle class with a series of policies such as revising the tax code, making free trade fair, investing in America’s infrastructure, rethinking training and education and strengthening labor unions.

Perhaps America can deal finally with the divisive issue of inequality after having spent decades ignoring it, but hope is not a strategy. The only thing we can be certain of is that there are no quick fixes or easy solutions, and the longer it takes to address the problem, the more painful the cure will be.

originally published: November 30, 2013

America, and its problems, make it hard to love

Posted on by j.giglio

The United States is a hard country to love right now. Economic growth has been anemic, too many Americans are looking for work, others are watching their real incomes fall, and the middle class is seeing its purchasing power decline. Income inequality is at historic highs; the ever-widening gap between low wage earners and the few who earn millions has been amply documented.

And if you pay even the slightest attention to the news, between now and the end of the year you will hear the term “fiscal cliff’ until you are numb. The term describes several big events set to occur at the end of this year. But even an agreement to keep us from heading over the cliff won’t do anything about the worst problems plaguing our country.

The end-of-year events include expiration of the Bush-era tax cuts- including current lower tax rates on capital gains, dividends, income and estates- and of stimulus measures, such as the payroll tax cut and extended unemployment benefits. Taken together, more than $600 billion of automatic spending cuts  and tax increases will take place if the President and Congress fail to reach a deal before the end of the year.

Spending cuts are scheduled to kick in automatically in January 2013 as a result of the deficit reduction super committee’s 2011 failure to reach agreement. To make matters worse, the nation’s $16.4 trillion debt limit will once again need to be raised early next year.

Failure to find a broad, bipartisan plan to address these issues would throw the economy back into deep recession. The Congressional Budget Office, expressing concern, edged with panic, says that falling off the fiscal cliff will result in gross domestic product falling by 4 percent. With an economy that is only growing about 2 percent annually, a 4 percent cut is nothing to sneeze at. The economy will start down a slope that will lead to a jump in unemployment, increase income and wealth inequalities, and increase  the already record number of Americans living in poverty.

With that in mind, the President has been meeting with Congressional, business and labor leaders to develop a consensus over the fiscal impasse and avoid the fiscal cliff.

The short story is that the President wants to raise marginal tax rates on high earners, those Americans making an annual salary of $200,000 or couples bringing in $250,000, and close loopholes. Speaker John Boehner has said he is open to more tax revenues, but not from higher tax rates. He wants to close loopholes and make serious spending cuts. Who knows, maybe they’ll even consider Mitt Romney’s proposal to limit income tax deductions.

We have seen this play before where politicians regale us with lots of rosy rhetoric. In 2011, those same politicians could not reach an agreement to raise the debt ceiling without a broader agreement to cut the deficit and put our fiscal house in order.

So they agreed on the Budget Control Act of 2011, extending the Bush era tax cuts that were due to expire Jan. 1, 2012 and generally kicking the can down the road. The result was the loss of our AAA bond rating with one of the credit rating agencies. If dysfunctional behavior were a crime, American prisons would be overflowing with elected officials.

The President has a strong hand despite the Republican control of the House of Representatives. He can allow the Bush-era tax cuts to expire, the marginal tax rate on ordinary income to increase to 39.6 percent and the maximum capital gains tax rate to rise to 20 percent at the end of the year.

He can then tum around and propose cutting taxes for those earning less than $200,000. After all, raising taxes on high earners was a cornerstone of the President ‘s campaign, and Republicans in Congress are unlikely to vote against tax cuts.

One thing is certain: even though a majority of Americans want their benefits left untouched, they will have to endure cuts in popular expenditures like defense and entitlement programs.

Ad hoc solutions may address the debt and deficit problems, but they don’t do anything about unemployment, wage stagnation and narrowing the gap between winners and losers in American society. Until those problems are addressed, the United States will remain a tough country to love.

originally published: November 24, 2012

The biggest tax increase in American history

Posted on by j.giglio

Unless you have been away from planet Earth for the past two years, you know that under the Budget Control Act of 2011, many of the tax breaks established during President George W. Bush’s administration are set to expire on Dec. 31.

The act, passed in 2011 after Republicans and Democrats failed to come to an agreement over raising the nation’s debt ceiling, was intended to achieve $1.2 trillion in savings with automatic spending cuts of about $110 billion mandated each year for the next 10 years. The law is the latest blow back from the White House and Congress’ inability to deal with our fiscal and economic problems.

In addition, new Medicare related taxes are scheduled to take effect for those in higher income brackets in 2013, and the payroll tax holiday is set to expire at the end of the year. In total, the changes could amount to the biggest tax increase in American history.

Federal Reserve Chairman Ben Bernanke calls it “a massive fiscal cliff’ and the media have dubbed it “taxmageddon.”

If the Bush tax cuts are allowed to expire, the maximum capital gains tax rate will increase to 20 percent, while the maximum rate on ordinary income will jump to 39.6 percent. The next day a fiscal discipline known as sequestration will cut about $110 billion a year from federal programs.

Payroll tax rates, which were cut as a temporary stimulus in 2011 and 2012, will increase from 4.2 percent on wages up to $110,000 to 6.2 percent. After these cuts expire, Americans earning around $50,000 annually can expect to pay about $80 more in monthly taxes.

Some estimate that the average American can expect to pay about $3,500 more as a result of all the tax cuts due to expire while we are singing Auld Lang Syne. This is not the way to jump start consumer spending.

But wait, there’s more. Under the Affordable Care Act, starting in 2013 high income individuals with a modified adjusted gross income above $200,000 or married joint filers with a modified adjusted gross income above $250,000 will pay an additional 3.8 percent tax on net investment income, such as most long-term capital gains, interest (excluding municipal bond interest), and dividends that exceed those threshold amounts. This will greatly inconvenience the one percenters.

Taken together, it makes for a grotesque austerity program, especially when stagnant wages and high unemployment continue to plague low- and middle-income families working hard to make ends meet.

If all the provisions that make up the fiscal cliff come to pass, it would trim some 4 percent from the economy’s already paltry growth rate.

Between now and the end of the year, we will be entertained by both parties’ posturing as compromises are discussed to avoid the cliff. It will all sound good, but the litmus tests should be whether they do harm to the middle class and exacerbate the nation’s rising income inequality.

The top one percent of American society captured more than half of the income gains from 1993 to 2008. In 2010, the first full year of the so-called economic recovery, they captured 93 percent of all economic gains.

This inequality is more than a fairness issue; it is holding back economic growth by restraining consumer spending, one of the driving forces in our economy.

An agreement to avoid the fiscal cliff is possible, but a more likely scenario is that we will witness another master class in buying time and kicking the can down the road. These issues have been marinating for years and it is naive to expect that a presidential election can change our dysfunctional federal government.

So for all the happy talk we’re likely to hear about the fiscal cliff, the actual response to it is likely to be somewhere between a punt and a bunt. And that would be bad news for all of us.

originally published: November 17, 2012

The political chasm between the rich and working class

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We’re often told that the typical third world country is characterized by a small percentage of the population hogging a huge share of wealth and power. Everyone else, the story goes, lives in varying degrees of penury and has little political influence.

For a long time, Americans liked to think of their country as the antithesis of this cliche, but socioeconomic trends over the past three decades are changing that.

It’s generally understood that we live in a time of growing inequality. We now know, for example, that there is a large and growing gap between rich and poor. And money has corrupted our political system so it only benefits a privileged few, resulting in the concentration of political power at the top.

The presidential debates should focus on this subject, but both candidates are too busy shoring up their bases and trying to ingratiate themselves to the precious undecided voters who tip the scales in tight elections. These gladiatorial contests ignore rising inequality and the erosion of the middle class, ambiguously defined as households making an average annual income ranging from $30,000 to $90,000.

Since the mid-1970s, we have seen the living standards of most Americans stagnate. Average wages have remained flat or declined.

Today, the wealthiest 1 percent of American households has a higher total net worth than the bottom 90 percent combined. That same top 1 percent also has more pretax income than the bottom 50 percent.

Income inequality has reached the highest level since the Great Depression and shows no signs of moderating. During the first full year of tepid recovery from the most recent recession, the top 1 percent of earners realized 93 percent of all income gains.

The fruits of our economy flow increasingly to a tiny minority of corporate CEOs, top-tier symbolic analysts in the legal and financial professions, sports stars and entertainment-industry celebrities who can leverage their market power into membership in a new class of super-rich.

Meanwhile, most American families are trying to keep body and soul together, seeing little or no improvement in their living standards, despite the fact the both parents are often working. This is crazy in an economy in which consumer spending is an important source of economic growth.

New research indicates that the growing gap between rich and poor may retard future growth, shortening economic expansions by as much as one third.

The increasing concentration of income has spawned a second Gilded Age. With it comes the ever­ greater ability of the new super-rich class to buy political influence through contributions to increasingly costly election campaigns, endowments for issue-oriented think tanks and control of advertising media.

It all translates into special tax breaks, such as allowing the hedge fund manager who makes millions to treat his or her income as capital gains, or the major corporation making billions in profits to have little or no tax liability. Both are egregious examples of corporate welfare that results from the unholy marriage of big corporations and big government.

Occupy Wall Street and the Tea Party crowd share a common resentment of how big government and corporate America are in bed with each other. They see the fat cats running the show, while they’re getting hammered.

We are told that’s the way the cookie crumbles in an age of international competition, rapid technological advances and the relentless drive to cut short-term costs. Sure, capitalism is unrivaled in its ability to produce material well-being. But no economic recovery is sustainable unless we can distribute its fruits more widely.

Growth is important, but recovery is little more than an illusion unless the economy can produce a more equitable distribution of wealth. That’s why we should insist that the presidential candidates give us practical proposals to help the middle class share in any future economic recovery.

originally published: October 20, 2012