The Price of Everything - Eduardo Porter [59]
But for all its incentive power, is the vast income gap between financiers and farmworkers useful in any way? The United States grew rapidly over the past three decades. Gross domestic product per person increased about 69 percent since 1980, as inequality soared to levels not seen since the 1920s. Yet it also grew fast—83 percent—between 1951 and 1980, when inequality measured as the share of national income going to the very top of the population declined.
One study concluded that each percentage-point increase in the share of national income channeled to the top 10 percent of Americans since 1960 led to an increase of 0.12 percentage points in the annual rate of economic growth. But even at this higher rate, it took thirteen years for the bottom 90 percent of Americans to recover the share of income they had sacrificed to speed up the economy.
The United States remains the rich country with the most skewed income distribution. According to the OECD, earnings of the richest 10 percent of Americans are 6 times those of the 10 percent at the bottom of the pile. That compares with a ratio of 4.2 in Britain and 2.8 in Sweden.
Still, Americans are less economically mobile than the citizens of many other countries. There is a 42 percent chance that the son of an American man in the bottom fifth of the income distribution will be stuck in the same economic slot. The equivalent odds for a British man are 30 percent, and 25 percent for a Swede.
Even if inequality were an undoubted motor of economic growth, we might invoke other reasons to put some limit to the concentration of riches at the top. Intense inequality breeds mistrust, envy, and hostility across income groups. Equity fosters a sense of solidarity and shared purpose that makes for good social glue.
Rising income disparities push less fortunate families out of desirable neighborhoods as the rich snap up the real estate. In cities like Manhattan, central Boston, or San Francisco, the only people on moderate incomes are those who clean the homes, cook the food, and care for the kids of the rich before going home at night to a cheaper location.
Between 1970 and 2000, house prices in central San Francisco rose 1 percent to 1.5 percent a year faster than in the rest of the country, and it became a city of the rich. The share of families that made more than $136,000 a year, in today’s money, rose from 10 percent to 31 percent, more than double the national rate of increase. People of middle income were elbowed out. In 1970, some 70 percent of families in San Francisco made less than $90,000, in current dollars. In 2000, the share was about half.
Geographic segregation fosters educational segregation. School finances depend on property taxes, which in turn depend on property prices. Given that people’s wages are closely dependent on the quantity and quality of their education, families that are forced into areas with inferior schools will lag further behind.
Ultimately, inequality’s power as a goad for growth depends on its being perceived as fair, or at least not entirely illegitimate. Today, many Americans doubt the rich “deserve” their pay. This is especially true of bankers, who somehow managed to cause a catastrophe like we had not seen in decades and still made off with an enormous bonus.
THE VANISHING MIDDLE
There was a time when the United States offered workers a shot at prosperity. My father’s parents were not highly educated. My grand-father grew up on a farm in Winnipeg and may not have finished elementary school. As a young man, he worked in Chicago’s slaughterhouses. But he moved to Phoenix, got a union job at the Salt River Project power plant, and trained as an electrician. In the 1970s, when I spent summers with my American grandparents, they lived in a house with a front yard, a backyard, a den with an eight-track system, central air-conditioning, a car, a pickup truck, and a trailer. In Mexico, where I lived at the time, electricians