House Divided: The IWE Gap

     A major division in America today is the growing gap in IWE: income, wealth, and education.  In some respects the gap is Marxist, except the working and middle classes have been gaining while the rich have gained greatly.  It’s the gap between the Haves and Have Lots, the top 1% and maybe 10%.   

     Several studies have shown that long-standing income and wealth gaps in the U.S. started to narrow during the Great Depression and continued into the 1970s.  Among several factors that changed this, the Reagan Administration encouraged private wealth-building, and a few did.  The 1990s saw great economic growth in general, but the rich pulled way ahead of others. This was due to the explosion in digital technologies and the success of new products, services, and startup companies.  It was also caused by the growing disparity between the wages of employees and the income, bonuses, and investment returns of business executives. 

     Then came the economic bust of 2008 and the Great Recession.  Nearly 8 million Americans lost their jobs; that number of new jobs was not again reached until 2014.  The Great Recession was not just one of those periodic business downturns, but rather a structural shift in the American economy.  Many workers and lower-level managers never got their old jobs back or found new jobs that paid as well.  They got left behind in the recovery enjoyed by the upper middle class and the rich.  By 2011, the top 10% of the population held 72% of all private wealth while the bottom 50% owned just 2%.  Said another way, the top 1% may own as much as 38% of private wealth, or more than all the assets of the bottom 90%.

     More than ever in the past, the growing income and wealth gap in the U.S. is caused by and in turn affects the education achievement gap.  Those parents and communities that have benefited from superior schools strongly back education, because an education is the surest way for the better-off to pass class and financial advantages on to their children.  But less advantaged parents and communities, especially in inner city and remote rural districts, can undervalue and undermine the schools in many ways.    

     It has been estimated that only 30% of Americans now achieve a level of education higher than their parents.  In the past, Americans expected to do better than their parents in all sorts of ways.  Now more and more young people doubt that they will earn as much as their parents did.  They question the future validity of the “American Dream.” 

     Education translates directly to better incomes for students in the future.  For example, in 1995 an American who did not finish high school typically earned a bit less than $25,000 a year; by 2014, that median annual income in constant dollars barely rose.  With a high school diploma, one could earn over $32,000 in 1995, and actually earned less by 2014.  Meanwhile, a person with a bachelor’s or higher degree made over $51,000 in 1995 and made slightly more by 2014. 

     Many Americans of all ages who lacked competitive skills and suffered serious financial reverses in spite of the Great Recovery have become bitter and resentful.  They particularly resent the government and its subsidies to those people who feel “entitled” to benefits that they have not otherwise earned.  Occasionally they may resort to violence, but they will not likely engage in civil war as class warfare – not unless they believe that they have to rise in revolt to protect their self-respect and interests.   

     Addressing the gaps in income, wealth, and education to avert social tensions and violence, let alone another civil war, is the biggest domestic challenge in the U.S.  Yes, we want general economic growth, but who will benefit the most?  With their great wealth, will the top 1% act like 18^th century French aristocrats and expect extraordinary privileges?  Will they dominate the political process?  Could they be the “Deep State”?  And how will income and wealth inequality impact all American consumers, who account for some 70% of our annual GDP?

© 2017 Stephen M. Millett.  All rights reserved.