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Rising income inequality damages the economy

You'd think the Gilded Age and industrial revolution era of 100-plus years ago — which spawned super-wealthy names like Vanderbilt, Rockefeller, Mellon, Carnegie and Morgan — would stand tall as the time when an elite group of the rich controlled a huge portion of the nation's income.

Their vast holdings proved so alarming that they prompted the start of the nation's modern income tax.

Back then the richest 1 percent controlled about 18 percent of the nation's income. Today, the richest 1 percent account for 24 percent.

What's causing America's growing income inequality?

That question is generating a lot of buzz and outrage in political and business circles for multiple reasons:

• President Barack Obama insisting this week that the Bush tax cuts not be extended for the wealthy.

• November elections coming up fast and generating plenty of populist talk, especially about the "middle class" being under financial attack.

• Compensation on Wall Street and corporate suites remaining stratospheric even after so-called financial reform legislation.

• High unemployment, the lack of rebound in quality jobs, the rise of low-paying work and more people taking two jobs to make ends meet.

One big contributor to the income inequality furor is the multiweek series called "The Great Divergence" by Timothy Noah under way in the online magazine Slate. It tries to explain how income inequality has gotten worse, not better.

Truth is, we let "executive compensation packages" — often composed of salary, stock options, big bonuses for performance, golden parachutes and plush retirement plans, along with perks like housing subsidies, cars, memberships to gyms and country clubs, free health coverage, tax advice services and "true-ups" to cover taxes, secretarial services for life, home security systems and travel on corporate jets — get grotesquely out of hand. They still are.

Meanwhile, the middle class got rudely introduced to such life-changing trends as outsourcing, permanent downsizing, pay cuts and this unusually severe recession.

How unbalanced has the nation's income growth been? From 1979 to 2007, nearly 40 percent of all income growth accrued to the upper 1 percent. That's more than the 36.3 percent share received by the entire bottom 90 percent of the population, says the Economic Policy Institute.

These trends won't change any time soon. The five fastest-growing jobs in America between May 2006 and May 2009 were mostly low-wage work. They include: food preparation and serving (paying $8.28 an hour); home health aide ($9.85 an hour); warehouse stock clerk ($10.08 an hour); medical assistant $13.77 an hour); and registered nurse ($30.65 an hour).

That RN wage, by the way, is from the Bureau of Labor Statistics, but nurses will mock me in e-mails when they read this inflated wage.

The prolonged recession may take a heavy toll on young people entering the work force who find their career choices taking ugly turns to contract or part-time work or, if a bit more lucky, full-time jobs that pay less than expected and lack benefits.

That's what can happen when so few are enjoying so much of the nation's paycheck. Let's reward great ideas and superior work. But how did we get so carried away?

Robert Trigaux can be reached at trigaux@sptimes.com.

Rising income inequality damages the economy 09/08/10 [Last modified: Wednesday, September 8, 2010 10:47pm]
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