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America, we have a problem

·12 min read

America, we have a problem.

A problem? Which one: COVID-19? Washington?

Well, to me there’s really just one issue that supersedes the rest.

Simply put: Money isn’t distributed equally enough in America anymore.

Companies have been stiffing employees, a dynamic that’s getting worse decade after decade, which is tearing our country apart. What I’m describing of course is the income gap and the wealth gap, (the latter partly the result of that long-standing, sub-standard pay.) As it turns out, the pandemic and the fight for racial equality has exacerbated and highlighted these issues, respectively. (More on that in a minute.)

Before you start calling me a socialist or communist, note that this is basically what President Trump has been preaching. Yes, Senator Bernie Sanders, too. (More on those two in a minute, as well.)

Income inequality persists in America. (Getty)
Income inequality persists in America. (Getty)

The income and wealth gaps aren’t a fraud or hoax. The numbers don’t lie. In fact, let’s run through some of them.

According to a report earlier this year from the non-partisan Pew Research Center, the richest families in America now take home 48% of aggregate income in the U.S. versus 29% in 1970, (with the top 5% fairing best of all.) Middle-class income fell from 62% to 43% over the same period.

As for the wealth gap, it’s “sharper than the income gap and is growing more rapidly,” according to Pew. America’s wealthiest families hold 79% of the nation’s wealth versus 60% in 1983. Or, “...upper-income families [have] 7.4 times as much wealth as middle-income families and 75 times as much wealth as lower-income families. These ratios are up from 3.4 and 28 in 1983, respectively.”

America’s 400 richest people— the top 0.00025% of the population — “have tripled their share of the nation’s wealth since the early 1980s,” according to a study on wealth inequality by University of California at Berkeley economist Gabriel Zucman. “Those 400 Americans own more of the country’s riches than the 150 million adults in the bottom 60% of the wealth distribution, who saw their share of the nation’s wealth fall from 5.7% in 1987 to 2.1% in 2014,” according to the Washington Post.

It’s also worth noting that our economic inequality is the highest of any developed nation, which comes as no surprise to me. (In Denmark, workers at McDonald’s make $22 an hour, and yet a Big Mac costs only 27 cents more.) Yes, we’ve made a deal with the devil in our country, low wages in exchange for cheap goods, with the 1% getting a more than healthy cut.

It’s not getting any better either. The Congressional Budget Office noted recently that income is projected to be less evenly distributed in 2021 than it was in 2016. The study projects that the average difference in income between pairs of households in 2016 is $70,700 versus $77,800 next year (in 2016 dollars.) Economists will tell you all these numbers are approaching thresholds last seen in the late 1920s. Comforting, no?

One key flashpoint is the minimum wage. First, in case you didn’t know it, the federal minimum wage was hiked to its current rate of $7.25 an hour, in July 2009. That’s right, no raise for 11 years! And fyi, that $7.25 an hour works out to $15,080 a year.

Try living on that.

Now here’s where things get even more shocking: In 1968 the minimum wage was $1.60, which sounds low, except that in 2020 dollars that’s actually $11.79, which works out to be $24,523 a year.

So Americans making minimum wage are essentially taking home 38% less today than they did 52 years ago. That’s insane, right?

No, actually it’s unconscionable.

Small wonder the percentage of households receiving SNAP benefits (the new name for food stamps) who work has increased from about 27% in 2000 to about 31% recently, meaning the government (aka, you, the taxpayer) is subsidizing companies that are underpaying their employees.

You hear some people say that the minimum wage doesn’t matter because not so many people are actually paid that low. Not true really, plus it’s widely seen as a benchmark, and if it really didn't matter, then why do some fight so hard to prevent it from being raised?

Oh, because it hurts businesses and kills job growth, they say.

Not really.

Last year, I wrote about how the minimum wage did nothing to stifle wage growth, which you can read here, but I want to expand the argument. To that end, consider Washington state which has a minimum wage of $13.50, the highest in the nation. It must have a terrible economy, right? Nope, in fact the opposite.

Washington has been the nation’s fastest growing state since 1977, and chalking up the fastest growth rate in 2018. It was ranked as the third best state economy last year by U.S. News & World Report, (along with other high-wage states like Oregon, Colorado and California.) Sure Washington has Amazon, Microsoft, Starbucks, and Costco which have become juggernauts, but that’s exactly the point isn’t it? (In Seattle the minimum wage is $16 for large companies, btw.) Despite (or maybe even because of) a high minimum wage, growth in Washington has been the best in the nation.

So while wages of workers on the lowest rung of the economic ladder have dropped precipitously, (a national disgrace if you ask me), other facets of our economy are popping along quite nicely.

Sales and rentals of RVs have been surging (especially during the pandemic) according to the CEO of Thor Industries. Prices for RVs range from $10,000 to $300,000. Yacht sales are brisk, again even during the pandemic. Total boat sales hit $42 billion last year. Swimming pools? Sure. There are now some 5.1 million inground pools in the U.S., which is 4.1% of the 124 million American households, according to Aqua Magazine. Ask the manager of an Alpin Haus store in upstate New York, which sells boats, RVs, and pools, what’s moving best right now and he’ll tell you “basically everything.” (Don’t bother asking him for Jet Skis, he’s sold out.)

This image is a 40' luxury bus motor home interior view looking from the front to rear.
This image is a 40' luxury bus motor home interior view looking from the front to rear. Credit: Getty

What if, somehow, some way, every rich person bought a foot smaller boat, RV or pool and that money went to higher wages?

Dream on, Serwer.

How did we get to this state of inequality? Mostly through financial engineering of our economy. Decades of tax cuts and deregulation of financial services has disproportionately benefited rich Americans. The share of Americans’ income coming from capital gains and dividend income has increased, while the relative share coming from labor income has decreased. (Sadly I delved into this seven years ago, and nothing has really changed.)

‘Our entire economy is very fragile’

Low interest rates have played a part too, particularly to boost the economy when it’s in crisis. “The problem we have had with past downturns is that they have all exacerbated inequality, and that has to do with our tools to help the economy recover, and the high level of inequality already baked into our system,” says Bill Spriggs, professor of economics at Howard University and chief economist to the AFL-CIO. “The heavy reliance on using the Fed and monetary policy has been at the core of that.” How? Low interest rates make stocks go up (helps the wealthy more) for instance, while low rates drive interest on savings accounts down (hurts lower income people more.)

Other trends have figured in as well. Technology has reduced the need for assembly line workers, toll booth operators and department store sales clerks. The next jobs at risk are order-takers at fast-food restaurants, cashiers at supermarkets and then truck drivers. (When people lose these jobs they flood into the labor market which puts downward pressure on wages.) And yes there’s been off-shoring too, with jobs going to China and Mexico.

Trump for his part, recognized this economic inequality and tapped into it masterfully. Trump won the presidency in part because he insisted he was going to get money back to working people by repatriating jobs from China, redoing trade treaties, and cutting regulations and taxes. Sanders of course said the same thing, but with different solutions.

So far Trump’s plan hasn’t worked out, at least not yet, but I’m not sure it ever will. That’s because much of that money didn’t go to China, Mexico or Canada, or to companies that benefit from, say, environmental regulation. The money went to C-suites of the Fortune 500 via massive executive pay packages. It went to Silicon Valley and the FANG companies—with their trillion-dollar market caps—which created technologies which obviated jobs. And it went to Wall Street, particularly private equity groups like Blackstone Group, Carlyle Group and KKR, and distressed hedge funds like Elliot Management, Apollo Global Management and Oaktree Capital, all of which bought and sold companies like so many monopoly pieces with little regard for employees.

And now with the COVID-19 crisis, it’s worse. Along with wages that don’t even pay the bills, these workers; truck drivers, meatpackers, Amazon warehouse employees and cashiers are being told they have to work. Now in addition to substandard pay, they risk death—never mind the dangers of enforcing mask rules in convenience stores—which the rest of us (yes, like me working remotely)—mostly avoid. That and many of these workers couldn’t afford child care when schools closed, or didn’t have fast enough Internet to home-school their kids or even health insurance when they got sick.

A few companies instituted hazard pay, but now have taken it back. Listen to Amanda O., 29, who works at a Stop & Shop grocery store in Connecticut. [She asked that we omit her full last name for fear of retaliation from her employer.]: “I make $11.50 an hour and the 10% hazard pay came out to $1.15. As of July 4th, the company decided to take away hazard pay or “appreciation pay.” They didn’t want to do it anymore [but] it’s obviously still a hazard. The owners of the store are very greedy, if you will. For some reason, when things go to hell in this country, the rich get more rich at the end of it all. It’s sad. There’s people financially hurting right now and there’s the other half, their pockets are getting bigger each day.”

Sad, as our president would say.

You’ve probably heard some make the case that unemployment payments, plus the $600 weekly emergency stipend from the federal government are more than many workers were making at their jobs, which is discouraging them from going back to work. Maybe there’s some truth to that, although I think most Americans would rather have a real job. Still, the conclusion being drawn here—that government benefits are too rich—is ass backwards. It’s not that unemployment payouts are too high (yes, the national average unemployment payment of $370 per week plus the $600, would work out to an annual salary of some $50,000, but that’s temporary of course), it’s that hourly wages are too damn low.

Fact is, that $600 was a step in the right direction some say. “This time we finally saw a very progressive response in fiscal policy because everybody gets a check,” says Spriggs of Howard University. “That was progressive, as it was capped at a higher income level and phased out and everybody got it. That was positive toward addressing inequality.”

As for the Black Lives Matter protests, the economic inequities African-Americans are subjected to is a huge subcurrent of that outrage. Survey after survey shows Blacks underrepresented in high-paying careers, in management ranks of companies and in the boardroom. And to the point of this article, Blacks are paid less than their white counterparts, particularly in the case of Black women, have higher rates of poverty and are over-represented in lower income brackets. And you know the worst part of it? I could have written the same sentences 20 years ago. Any progress has been incremental.

“We should have learned from this moment that our entire economy is very fragile because of the high level of inequality,” says Spriggs. “We would not be spending this amount of money if American workers had been decently paid, had paid-sick leave, had retirement plans, had sick days, had health insurance.”

Hard to argue with that.

“We used to call people in hourly and service jobs, unskilled labor. Now, we're calling them essential workers,” Stephanie Mehta, editor of Fast Company said to me recently. “The dialogue around the work that hourly workers do is changing, and there does seem to be a greater appreciation for the role that those workers play in our economy. A conversation around how to make sure that workers in hourly jobs and service jobs are actually making a living wage is long overdue.”

Now is the time for change.

As our nation heals, it’s incumbent upon us to make America fair again.

This article was featured in a Saturday edition of the Morning Brief on July 11, 2020. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer.

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