Today, the top one per cent of incomes in the United States accounts for one fifth of US earnings. The top one per cent of fortunes holds two-fifths of the total wealth. Just one rich family, the six heirs of the brothers Sam and James Walton, founders of Walmart, are worth more than the bottom 40 per cent of the American population combined ($115 billion in 2012).That there is a disparity in wealth is generally not challenged, nor that it has been growing--after all, wages have largely been stagnant, when adjusted for inflation, for decades. The real question is why the growing disparity? Turchin writes:
In his book Wealth and Democracy (2002), Kevin Phillips came up with a useful way of thinking about the changing patterns of wealth inequality in the US. He looked at the net wealth of the nation’s median household and compared it with the size of the largest fortune in the US. The ratio of the two figures provided a rough measure of wealth inequality, and that’s what he tracked, touching down every decade or so from the turn of the 19th century all the way to the present. In doing so, he found a striking pattern.
From 1800 to the 1920s, inequality increased more than a hundredfold. Then came the reversal: from the 1920s to 1980, it shrank back to levels not seen since the mid-19th century. Over that time, the top fortunes hardly grew (from one to two billion dollars; a decline in real terms). Yet the wealth of a typical family increased by a multiple of 40. From 1980 to the present, the wealth gap has been on another steep, if erratic, rise. Commentators have called the period from 1920s to 1970s the ‘great compression’. The past 30 years are known as the ‘great divergence’. Bring the 19th century into the picture, however, and one sees not isolated movements so much as a rhythm. In other words, when looked at over a long period, the development of wealth inequality in the US appears to be cyclical. And if it’s cyclical, we can predict what happens next.
An obvious objection presents itself at this point. Does observing just one and a half cycles really show that there is a regular pattern in the dynamics of inequality? No, by itself it doesn’t. But this is where looking at other historical societies becomes interesting. In our book Secular Cycles (2009), Sergey Nefedov and I applied the Phillips approach to England, France and Russia throughout both the medieval and early modern periods, and also to ancient Rome. All of these societies (and others for which information was patchier) went through recurring ‘secular’ cycles, which is to say, very long ones. Over periods of two to three centuries, we found repeated back-and-forth swings in demographic, economic, social, and political structures. And the cycles of inequality were an integral part of the overall motion.Turchin first examines the impact of immigration and cheap labor:
First, we need to think about jobs. Unless other forces intervene, an overabundance of labour will tend to drive down its price, which naturally means that workers and their families have less to live on. One of the most important forces affecting the labour supply in the US has been immigration, and it turns out that immigration, as measured by the proportion of the population who were born abroad, has changed in a cyclical manner just like inequality. In fact, the periods of high immigration coincided with the periods of stagnating wages. The Great Compression, meanwhile, unfolded under a low-immigration regime. This tallies with work by the Harvard economist George Borjas, who argues that immigration plays an important role in depressing wages, especially for those unskilled workers who compete most directly with new arrivals.(Underline added).
... This connection between the oversupply of labour and plummeting living standards for the poor is one of the more robust generalisations in history. Consider the case of medieval England. The population of England doubled between 1150 and 1300. There was little possibility of overseas emigration, so the ‘surplus’ peasants flocked to the cities, causing the population of London to balloon from 20,000 to 80,000. Too many hungry mouths and too many idle hands resulted in a fourfold increase in food prices and a halving of real wages. Then, when a series of horrible epidemics, starting with the Black Death of 1348, carried away more than half of the population, the same dynamic ran in reverse. The catastrophe, paradoxically, introduced a Golden Age for common people. Real wages tripled and living standards went up, both quantitatively and qualitatively. Common people relied less on bread, gorging themselves instead on meat, fish, and dairy products.
Much the same pattern can be seen during the secular cycle of the Roman Principate. The population of the Roman Empire grew rapidly during the first two centuries up to 165AD. Then came a series of deadly epidemics, known as the Antonine Plague. In Roman Egypt, for which we have contemporary data thanks to preserved papyri, real wages first fell (when the population increased) and then regained ground (when the population collapsed). We also know that many grain fields were converted to orchards and vineyards following the plagues. The implication is that the standard of life for common people improved — they ate less bread, more fruit, and drank wine. The gap between common people and the elites shrank.
Naturally, the conditions affecting the labour supply were different in the second half of the 20th century in the US. An important new element was globalisation, which allows corporations to move jobs to poorer countries (with that ‘giant sucking sound’, as Ross Perot put it during his 1992 presidential campaign). But none of this alters the fact that an oversupply of labour tends to depress wages for the poorer section of the population. And just as in Roman Egypt, the poor in the US today eat more energy-dense foods — bread, pasta, and potatoes — while the wealthy eat more fruit and drink wine.
Falling wages isn’t the only reason why labour oversupply leads to inequality. As the slice of the economic pie going to employees diminishes, the share going to employers goes up. Periods of rapid growth for top fortunes are commonly associated with stagnating incomes for the majority. Equally, when worker incomes grew in the Great Compression, top fortunes actually declined in real terms. ...
Turchin goes on to address other factors that impact wealth disparity, such as the fear of revolution, which tends to frighten the elites into ensuring a more equitable share. However, other factors can also intrude:
... ‘defenders of the status quo invoke a kind of neo-Calvinist logic by saying that those at the top, by virtue of their placement there, must be the most deserving’. By the same reasoning, those at the bottom are not deserving. As such social norms spread, it becomes increasingly easy for CEOs to justify giving themselves huge bonuses while cutting the wages of workers.Perhaps the best explanation why it is harder for a rich man to enter heaven than a camel to pass through the eye of a needle.
I don't agree with Turchin's rejection of free markets. Like many others, he tends to confuse the term "free markets" with "capitalism." However, as he obliquely recognizes, wealth generally translates into political power. Thurchin fails to take the extra step of recognizing that political power translates into more wealth through rigging the rules.
In this case, the liberal elites, RINOs, Wall Street, Silicon Valley, farmers and the Chamber of Commerce have entered into their unholy alliance because bringing in more immigrant workers will depress wages at the bottom and increase wealth at the top.
Updated 4/27/2014: I've noted before how important "immigration reform" is the Democrats because it could swing Texas into the Democratic column on national elections. This article at the Wall Street Journal discusses the potential impact:
... reforming the nation's immigration laws could very well create a whole bunch of new Democrats, including in some key swing states. Let's break it down.
The rise in the Hispanic population in the United States is problematic for the GOP, but so far it's been quite slow. In 2004, Hispanics made up 6 percent of all voters. That ticked up to 7 percent in 2008 and 8 percent in 2012. Census voting and registration data shows that Hispanics make up significant chunks of the population in some key states, but they are not yet a well-organized voting bloc. This chart shows the states with largest share of Hispanics (including non-citizens). In each state Hispanic voter turnout lags their share of the citizen population, demonstrating the political potential they could have if they were better mobilized.After going through the statistics, the author notes:
But if the significant share of Hispanic non-citizens gain a path to citizenship and actually start voting, the electoral map could change much more quickly than what the slowing changing demographics of the country suggest. And that would be a bad thing for Republicans.However, I will state the unstated message in the article, which is that even if voter turnout doesn't improve as a percentage, the increase in the number of new voters will guarantee a larger number of votes for the Democrats. The RINOs are selling conservatives down the river for the sake of reducing labor costs for large companies and agro interests.
Turchin's article cited in my original post noted that the middle-class shrinks during periods of income inequality. And that is exactly what we are seeing. This Washington Post article sets out the grim statistics:
Wages for millions of American workers, particularly those without college degrees, have flat-lined. Census figures show the median household income in 2012 was no higher than it was 25 years ago. Men’s median wages were lower than in the early 1970s.
Meanwhile, many of the expenses associated with a middle-class life have increased beyond inflation. This includes college tuition, whose skyrocketing cost has laid siege to a bedrock principle of the American Dream: that your children will do better than you did.
A recent poll conducted by the Washington Post and the Miller Center at the University of Virginia found that 40 percent of those calling themselves middle class felt less financially secure than they were just a few years ago. Forty-five percent said they worry “a lot” about having enough money stashed away for retirement, and 57 percent said they worry about meeting their bills. Less than half said they expect their kids to do any better.
Fewer Americans find themselves in the heart of the middle class with every passing year.
In the mid-1970s, the majority of Americans were in the middle, with 52 percent earning the equivalent (in today’s dollars) of $35,000 to $100,000. Today, according to census figures, the share of households earning under $35,000 is virtually unchanged, 35 percent. The shift has occurred in the other two categories. Households with incomes over $100,000 have doubled, to 22 percent, while less than 44 percent are in the middle cluster.
The Johnsons’ $90,000 income is higher than the national household median of $51,000, as well as the $66,500 median in Virginia. But in the broader Washington region that Culpeper is part of, where the median income is $88,000, the Johnsons are just about average.
“On the one hand, $90,000 sounds like a lot to most middle-class Americans, because most Americans don’t earn that,” said Joseph Cohen, a sociologist at Queens College in New York City. “But the fact is, the median-income American does not do well in a lot of respects. One $5,000 home repair can wipe out their surplus for a year. A medical event, an auto repair or a temporary job loss can exert a large shock.
“America is a place where luxuries are cheap and necessities costly. A big-screen TV costs much less than it does in Europe, but health care will sink you.”Glenn Reynolds had noted that this is not necessarily without design, because there is no room for the middle-class in the Democrats' Top/Bottom coalition. The article Reynolds links to, by Aaron Renn at City Magazine, observes:
The plight of the middle class in cities like Chicago can’t be blamed entirely on liberal policies. The global economy has clearly benefited the talented, the educated, and the already wealthy, often at the expense of those in formerly middle-class occupations, like manufacturing. And it’s unlikely that the forces unleashed by globalization will diminish. One might expect, then, that big-city Democratic leaders like Emanuel or de Blasio would make a strong appeal to middle-class constituents.
They haven’t, because for liberal mayors, middle-class decline is convenient and politically advantageous. Much of America’s moneyed elite has already shifted its allegiance to the Left, especially in cities. Wealthy, educated urbanites hold generally liberal social values and can afford the higher taxes “blue” cities like Chicago impose—especially when those taxes help pay for the upscale amenities they desire. Even when the mayoral administration is less friendly, the urban elite tends to get its needs met. At the same time, the urban poor have remained loyal to the Democrats, no matter how little tangible improvement liberal policies make in their lives. And the various unions, community organizers, and activist groups that advocate for the poor profit handsomely from the moneys directed toward liberal antipoverty programs.
This is the Democratic Party’s new top-bottom coalition, one in which the traditional middle class—white ethnics, blue-collar manufacturing and trade workers, small business owners, and others—has no part. These “left-outs” are the urban equivalents of Reagan Democrats. Their instinct to vote Democratic may remain, but the economic interests that once bound them to the party have largely disappeared, leaving them politically unaffiliated. They are open to voting for a compelling Republican, such as Rudolph Giuliani—particularly if the city in which they live appears to be spiraling downward.
In other words, these independent-minded, urban middle classes are quintessential swing voters. They can create political trouble for an unsympathetic mayor—and that’s why leaders in Chicago, New York, and elsewhere aren’t going to lift a finger to try to halt their flight. Indeed, in Chicago, even the black middle class is bailing. The city’s leadership appears unconcerned.
To the extent that the middle class abandons Chicago and New York, the Democratic Party’s stranglehold in such places will only tighten. In this light, the dramatic changes in Chicago since 1970 shouldn’t be seen as merely an accident of fate, but rather as a political result directly tied to the interests of the Democrats running America’s third-largest city. Urban liberal politicians may see value in continuing to beat the “tale of two cities” drum. Just don’t expect any of these big-city mayors to reach out to the middle class any time soon.