Tuesday, 21 June 2011


The US economy is valued at approximately $15 trillion dollars. The population is estimated at 310 million, of which an estimated 14% (45 million) lives below poverty (about one-third of Hispanics and Blacks live below poverty). Although the US was the world's richest country in the late 1940s, the income distribution was not much different that it has been in the past 60 years.

The bottom 25% of the population earned just 4% of all income, while the top 25% of people earned 47% of income, and approximately half of all families did not earn what the Labor Department considered 'adequate income'. From the late 1950s when poverty was around 22% until the early 1990s, US poverty levels were decreasing and the expansion of the middle class in the 1960s was a significant factor to the country's prosperity. Paradoxically, America's prosperity in GDP terms has continued since the 1960s, but income inequality and lack of progress in upward social mobility also set in after the end of Vietnam.

One of the key statistic in rising poverty is that there has been a corresponding rise in income inequality between the top 20% of the population and the bottom 80%, as the chart below indicates with figures before the 2008 recession.

US income pyramid:
Percent of US Population         Percent of Total US Income
0.1%                                           10%
1 %                                             20%
19 %                                           50.5%
79.9 %                                        19.5%                        

The mainstream media, government and institutions have always tried to convince people that if they are not living the 'American Dream' - having a nice house in the suburbs, receiving a decent salary, enjoying an annual vacation and having enough money for a comfortable retirement - it is their fault because the system offers opportunities to achieve the dream. This is an argument as old as the first industrial revolution in England when the businessmen and politicians faulted the rest of population for suffering low living standards. If the system works for the top ten percent of the population, than the bottom 90 percent have the problem not the system.

The problem with those at the bottom of America's income pyramid is that they lack necessary education, the right skills for the current marketplace, the right personal traits and attitude, the right location where the jobs are currently available. In essence, the slackers on the bottom of the pyramid need a personality makeover, everything from the dress that a woman wears or the necktie a man wears to how to smile and when during a job interview. The tragedy here is that psychologists contribute to this institutional mythology and inculcate into society the idea that it is the fault of the individual for failing to be a part of the top 20% income earners instead of the bottom 20%.

Other than too much education or the 'wrong kind', a soiled necktie on a man or too much aftershave lotion, the wrong lipstick on a woman or lack of appropriate smiling, what structural factors accounts for economic inequality? Research indicates that the American Dream is becoming as likely as winning the lottery. The growing income gap between business executives on the one hand, middle class and workers that make up the bottom 80% of the income earning population.

One catalytic factor is fiscal policy. The fact is that government tax policy is designed to make the rich richer, while taxing the bottom 80% of the population inordinately, despite the fact that this is the segment that own just 20% of the wealth. Another factor is social policy that had its run from the New Deal under FDR to the Great Society under LBJ, but has been drifting into oblivion in the last 40 years. Health and education have become very expensive and underfunded, partly because the state is transferring funds from social welfare to corporate welfare.

The income pyramid is no accident in the US any more than it is in Germany, or Russia. It is not the fault of individuals that they have fallen to the bottom of the pyramid, for there is something wrong with institutions when people in 21st century America have more education, more skills, more mobility, yet, there is one job  opening for every 100 applicants, and in some cases thousands of applicants. Government policy created it, and under the neo-liberal model, that pyramid is becoming narrower at the top where only a small percentage is enjoying the American Dream (the German or Russian equivalent to the American Dream), thinner in the middle, and much broader at the very bottom. What needs to change is not the individual, but the system that keeps pushing more and more people to the bottom of the pyramid.

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