Why We Can't Make Ends Meet

In recent weeks we've heard a great deal about income equality. While this month marks the 50th anniversary of Lyndon Johnson's "war on poverty," in recent years, there seemed to be little political will to even discuss economic disparity, let alone do anything about it. It seemed our pre-occupation with building wealth led us to lose sight of issues like fairness and the real cost of growing poverty. These topics simply disappeared from the political landscape.

An unlikely but interesting coalition has brought this issue back onto the national stage. The seeds of this were planted by the attention garnered by the eclectic collection of protestors known as the "Occupy Movement," which began in late 2011. Although there was considerable confusion as to exactly what the Movement stood for, one thing they accomplished was to raise the national consciousness regarding the 1%.

More recently, as the holidays approached, a significant amount of negative press appeared highlighting the plight of employees who were working full-time at companies yet living in poverty. Some employers received particular scrutiny when they did things like run food drives for their employees - an admission that their employees didn't have enough to live on.

In November, Pope Francis, the popular and populist new "Holy Father" made clear in his paper Evangelii Gaudium, that some capitalist systems had too many excesses and, in effect, lacked morality. Then, early last month, President Obama termed income inequality the "most pressing issue of our time" and has made it the major agenda item of his second term.

But what are the facts about income inequality? Has it worsened in recent years? And if so, is this why it's so difficult to make ends meet?

In his recent writings and the film Inequality for All, former Secretary of Labor and economist Robert Reich has offered some attention-grabbing statistics to back his assertions of this growing problem. For example, in 1978, the "Typical Male worker" made $48,300 (in today's dollar); a person in the top 1% made $390,000 (a ratio of about 8 to 1). By 2010, the typical male worker made $33,500; a person in the top 1% made $1.1 million (a ratio of 33 to 1). And today, the richest 400 Americans have more wealth than the bottom 150 million Americans put together. That's half the population of the United States.

And in case you missed this news flash from 2011, six members of the Walton family (yes, the founder of Walmart) have more wealth than the bottom 30% of the US population. While these are pretty staggering numbers, the whole problem doesn't lie with the 1%.

There are many reasons why the poor and the middle class have slipped backwards. For lower skilled individuals, the minimum wage has simply not kept up with inflation. If it had, by most estimates it would be between $10-12 per hour today, not $7.25.

As we look higher up the income scale, the impact of globalization becomes clearer, especially for those lacking a college education. In the last three decades, manufacturing jobs in the US have been cut nearly in half, from 20 million to 11 million with the majority of those jobs going overseas. These were jobs that tended to pay a living wage, offered benefits and at least a modest path to a level of prosperity.

Another factor that has led to difficulties has been the breakdown of the two-parent American family. According to the Shriver Report on women released this week, women are the primary breadwinners in 40% of US households. However, as I wrote in the NY Times last June, 5 out of 8 of these families are headed by a single mother and living in poverty.

Finally, although wages have been stagnant for the middle and lower classes, expenses have not. While wage inflation has raised our average income less than 200% over the past 30 years (that's not adjusted for inflation) and some goods and services cost less in real dollars than they did in the 1980s, a few big ticket items have eviscerated those small wins. If we look at just three major categories, let's call them The 3-H's, it's easy to see what's happening to us thanks to inflation in these areas. According to a 2012
story, over the last 30 years:
  • Housing costs: Increased 400% (in some areas, much higher)
  • Healthcare costs: Increased 600%
  • Higher Education costs: Increased 1200% (when I graduated from college in the late 70's, the cost for a private college including room and board was $4000-5000. Today, the cost would be $50,000-60,000).

Unfortunately, these are not just big ticket items, they are necessities. One could argue higher education is not, but the unemployment and growing wage disparity numbers would suggest otherwise.

In the short term, nearly everyone on the political spectrum would hopefully support a few basic Band-Aids to keep things from getting worse: restore long-term unemployment insurance payments while long-term unemployment remains the worst in recorded history, and establish a minimum wage that does not doom low wage workers to a life of poverty. Given the importance of higher education in today's economy, we also need to address how it can be made more affordable.

Most importantly, we need to have a bi-partisan conversation that includes business leaders, to address what this inequality is costing us both economically and as a society. In 1914, Henry Ford made the decision to double his production workers' pay to $5 a day. Part of his reasoning was that he wanted his workers to also be his consumers and to be able to purchase the new lower cost cars they were producing. Ford's homespun logic holds true today. If we want to develop our economy, we need to spread the wealth sufficiently so that all of us can actively participate in it.