The growth of inequality

Obama, beset with problems, has been trying to redirect attention to the economic situation, and more particularly to the need to check the growth of social inequality and strengthen the middle classes. This is not an area where he can feel at ease. Recovery seems to be returning, but redistribution of wealth in the US is at the levels of the 1920s, when distances between social classes were huge. The decline of the lower and middle classes, which has been sharp since the 1980s and the hegemony of Reagan, has continued under the recent Democratic presidents, Clinton and Obama. Neither of these presidents’ records can be compared to that of Lyndon Johnson, with his Great Society and his war on poverty.

In his first term, Obama said: “There is no dividing line between Wall Street and Main Street. We rise or fall together as a single nation.” But the program intended by this speech, whatever it was, has sunk like a stone. Today we see exceptional profits piling up in banks and companies, while the disposable income of middle-class households remains frozen, and unemployment diminishes with desperate slowness. The subtle economist Robert Shiller of Yale University notes that the American majority perception of the country as a land of equal opportunity has changed. The bank bailouts have poisoned the air. Many citizens share the feeling of “not even having a lawyer. All the rich have lawyers and lobbies.”

The statistics are embarrassing. Since 2007, inequality of income has reached levels not seen since before the Great Depression. The percentage of income received by the richest 1 percent of the population rose to 23 percent of the total from the 10 percent of previous decades. The top 5 percent controls some 75 percent of American financial wealth. The Gini index, which measures inequality on a scale from zero (perfect equality) to one (perfect inequality) has shown a sharp increment to 0.45, similar to the pronounced inequalities of the poorest emerging countries. Meanwhile the real average income of US households has sunk back to the levels of 1999. This means that the lower middle classes have had to tighten their belts (quite a lot) as a result of loss of income and assets.

The economists Paul Krugman and Robin Wells make a daring claim: in 2007 the US was a land of extraordinary inequality, which peaked just before it fell into the worst recession since the Great Depression. “Probably not a coincidence,” they say. For them, extreme inequality in the distribution of income led to extreme political polarization, and this hindered a political response to the crisis. Obama can well complain of precisely the same thing: of the obstacles the Republicans systematically place in the way of his economic policy. Inequality generated a polarized political system (the Republicans having drifted to the right, not that the Democrats have turned to the left) in which the Republican Party has done everything it can to block each and every initiative taken by a moderately liberal president to do something in favor of Main Street, generation of employment and greater disposable household income.

The indignation felt by so many people is due not so much to the unusual harshness of the present economic circumstances as to the unequal way in which large segments of society have been affected. This is what is driving protests throughout the world, above and beyond particular local or private concerns: a malaise about the future, about the difficulty of access to opportunities, about the concentration of power in the hands of financial, political and media elites. Nouriel Roubini has written that every economic model that fails to address the problem of inequality, by means of mechanisms for the availability of public goods and for equality of opportunities, will eventually face a crisis of moral authority and legitimacy. This is a stage we have now reached.