An Absolute Must-Read Krugman

Krugman on the Class Warfare being waged upon the poor and Middle Class. You really need to read the whole article, but here are some key points for the time-challanged:

The reason most Americans think the economy is fair to poor is simple: For most Americans, it really is fair to poor. Wages have failed to keep up with rising prices. Even in 2005, a year in which the economy grew quite fast, the income of most non-elderly families lagged behind inflation. The number of Americans in poverty has risen even in the face of an official economic recovery, as has the number of Americans without health insurance. Most Americans are little, if any, better off than they were last year and definitely worse off than they were in 2000.

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America has never been an egalitarian society, but during the New Deal and the Second World War, government policies and organized labor combined to create a broad and solid middle class. The economic historians Claudia Goldin and Robert Margo call what happened between 1933 and 1945 the Great Compression: The rich got dramatically poorer while workers got considerably richer. Americans found themselves sharing broadly similar lifestyles in a way not seen since before the Civil War.

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The broader picture is equally dismal. According to the federal Bureau of Labor Statistics, the hourly wage of the average American non-supervisory worker is actually lower, adjusted for inflation, than it was in 1970. Meanwhile, CEO pay has soared -- from less than thirty times the average wage to almost 300 times the typical worker's pay.

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In fact, while modest moves up and down the economic ladder are common, true Horatio Alger stories are very rare. America actually has less social mobility than other advanced countries: These days, Horatio Alger has moved to Canada or Finland. It's easier for a poor child to make it into the upper-middle class in just about every other advanced country -- including famously class-conscious Britain -- than it is in the United States.

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It's no coincidence that ringing endorsements of greed began to be heard at the same time that the actual incomes of America's rich began to soar. In part, the new pro-greed ideology was a way of rationalizing what was already happening. But it was also, to an important extent, a cause of the phenomenon. In the past thirty years, right-wing foundations have devoted enormous resources to promoting this agenda, building a far-reaching network of think tanks, media outlets and conservative scholars to legitimize higher levels of inequality.

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At the same time, there has been a concerted attack on the institutions that have helped moderate inequality -- in particular, unions. During the Great Compression, the rate of unionization nearly tripled; by 1945, more than one in three American workers belonged to a union. A lot of what made General Motors the relatively egalitarian institution it was in the 1960s had to do with its powerful union, which was able to demand high wages for its members. Those wages, in turn, set a standard that elevated the income of workers who didn't belong to unions. But today, in the era of Wal-Mart, fewer than one in eleven workers in the private sector is organized -- effectively preventing hundreds of thousands of working Americans from joining the middle class.

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Under Bush, the economy has been growing at a reasonable pace for the past three years. But most Americans have failed to benefit from that growth. All indicators of the economic status of ordinary Americans -- poverty rates, family incomes, the number of people without health insurance -- show that most of us were worse off in 2005 than we were in 2000, and there's little reason to think that 2006 was much better.

So where did all the economic growth go? It went to a relative handful of people at the top. The earnings of the typical full-time worker, adjusted for inflation, have actually fallen since Bush took office. Pay for CEOs, meanwhile, has soared -- from 185 times that of average workers in 2003 to 279 times in 2005. And after-tax corporate profits have also skyrocketed, more than doubling since Bush took office. Those profits will eventually be reflected in dividends and capital gains, which accrue mainly to the very well-off: More than three-quarters of all stocks are owned by the richest ten percent of the population.

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It's easy to get confused about the Bush tax cuts. For one thing, they are designed to confuse. The core of the Bush policy involves cutting taxes on high incomes, especially on the income wealthy Americans receive from capital gains and dividends. You might say that the Bush administration favors people who live off their wealth over people who have a job. But there are some middle-class "sweeteners" thrown in, so the administration can point to a few ordinary American families who have received significant tax cuts.

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What about the claim that the Bush tax cuts did wonders for economic growth? In fact, job creation has been much slower under Bush than under Clinton, and overall growth since 2003 is largely the result of the huge housing boom, which has more to do with low interest rates than with taxes. But the biggest irony of all is that the real boom -- the one in the 1990s -- followed tax changes that were the reverse of Bush's policies. Clinton raised taxes on the rich, and the economy prospered.

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Today, we're completely out of line with other advanced countries. The share of income received by the top 0.1 percent of Americans is twice the share received by the corresponding group in Britain, and three times the share in France. These days, to find societies as unequal as the United States you have to look beyond the advanced world, to Latin America. And if that comparison doesn't frighten you, it should.

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In the end, the effects of our growing economic inequality go far beyond dollars and cents. This, ultimately, is the most pressing question we face as a society today: Will the United States go down the path that Latin America followed -- one that leads to ever-growing disparity in political power as well as in income? The United States doesn't have Third World levels of economic inequality -- yet. But it is not hard to foresee, in the current state of our political and economic scene, the outline of a transformation into a permanently unequal society -- one that locks in and perpetuates the drastic economic polarization that is already dangerously far advanced.