Saturday, July 24, 2010

The Steep Costs of Inequality

One thing that is absolutely clear is that the so-called Great Recession has impacted the wealthy and the poor differently. Hunger has long been a problem among the nation's poor, but in 2008 a record 50 million Americans did not have enough to eat ; almost one in four children were reportedly undernourished. Bank foreclosures have also reached epidemic proportions. According to a survey conducted by the Mortgage Bankers Association, 1.2 million households lost their homes from 2005 to 2008, despite an increase of 3.4 million in the studied population; over 1 million households are expected to lose their homes in 2010 alone. The result is a spike in the homeless population; the National Alliance to End Homelessness estimated in early 2009 that the current recession would force an additional 1.5 million people onto the street over the next two years.

Needless to say, none of these calamities have been visited on the rich, many of whom have barely noticed the recession.

Businesses who cater to the rich, such as Louis Vuitton and Tifanny's, have been doing gangbusters, with an increase in sales of over 20 percent in the first quarter of this year. But the real wins are among the uber-rich, who have increased their net worth by 20 percent in 2009. In 2008, the average Fortune 500 CEU took home $10.5 million in compensation.

Why should it matter that the gap between the "haves" and "have-nots" is increasing? The skewed distribution of wealth and income has direct consequences for the health of our economy. An article published by the Nation in 2008 includes a chart by the Institute for Policy Studies that plots massive wealth gaps against major economic crashes over the past century. As can be seen, periods with the smallest gap between rich and poor and the highest marginal tax rate are associated with economic prosperity, while the greatest gaps in wealth and lowest marginal tax rates(late 1920s and late 2000s)were immediately followed by economic crises. Obviously, correlation is not causation, but we can surely establish that lowering the top tax bracket is not the economic panacea that supply-siders would like us to believe.

Click here to link to the article and see the full-sized chart.

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