Alan Krueger: Rising Income Inequality Causing 'Unhealthy Division In Opportunities'

The wealth gap in the U.S. has gotten to such a high level that maintaining it without hurting the economy is unsustainable, according to Alan Krueger, the chairman of the White House Council of Economic Advisers.

"The rise in inequality in the United States over the last three decades has reached the point that inequality in incomes is causing an unhealthy division in opportunities," Krueger said during a speech at the Center for American Progress, a left-leaning think tank. "And is a threat to our economic growth."

Krueger's assertion is backed by numerous reports. The World Economic Forum's Global Risks Report found that income inequality is a threat to economies worldwide. A recent IMF report also indicates that widening income inequality is bad for economic growth.

The rising gap between the rich and the poor has become a large part of the public discourse in recent months thanks in large part to the Occupy Wall Street movement. The top one percent of Americans saw their incomes grow by 275 percent between 1979 an 2009, according to the Congressional Budget Office. At the same time, the bottom one-fifth of earners only experienced income growth of 20 percent.

The comments may come as no surprise from Krueger, a labor economist whose research has often dovetailed with other progressive perspectives. He famously co-authored a paper in 1992 arguing that that a boost in the minimum wage doesn't always increase unemployment, pushing against the beliefs of many mainstream economists.

Krueger noted in his speech that between 1979 and 2009, the percentage of income that went to the top 1 percent is bigger than the total income of the bottom 40 percent of earners. His claims mirror other reports. The richest 400 Americans, according to Forbes, have a combined net worth that is more than that of the bottom 60 percent of Americans. In addition, the six heirs to the Walmart fortune had the same net worth in 2007 as the bottom 30 percent of earners.

This marked boost in income inequality has had dire effects on the nation's middle class, Krueger noted. Middle-class households would have an extra $8,900 to spend if the median household income had grown during the 2000s at the same rate it did in the 1990s, he said in his speech.

Comments

[olerealist]

01:49 PM on 01/16/2012

http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph
“A Harvard business prof and a behavioral economist recently asked more than 5,000 Americans how they thought wealth is distributed in the United States. Most thought that it’s more balanced than it actually is.

My observation: It appears that most Americans believe that the wealth of the top 20% of income earners is only about 2/3’s of what it actually is as a share of national wealth. The data graphically presented by Mother Jones is not to be missed. Tune in.

Pitty the election outcomes for the Repub's if the FACTS become generally known.

[olerealist]

01:39 PM on 01/16/2012

http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph
“A Harvard business prof and a behavioral economist recently asked more than 5,000 Americans how they thought wealth is distributed in the United States. Most thought that it’s more balanced than it actually is". 

The graph in this article suggests that the American people believe that the top 20%'s share of the total wealth of the County is ONLY TWO THIRDS OF WHAT IT ACTUALLY IS.
Pity the Repub's in 2012 elecions if wore of THE TRUTH ever gets around t main street people.

[Chris Reynolds]

03:49 PM on 01/14/2012

I am always befuddled by the term "income inequality." Just saying it is to suggest--at some level--that incomes should be equal. Clearly, however, that is by no sense a core American value, in that I hear no one complaining that Albert Pujols makes 1,000 X what a first basemen at the bottom rung of the Angels minor league organization gets paid, and Beyonce makes more than 1,000 X as much as the women who clean her hotel rooms.

Second, so long as our world continues to place high value on the sorts of non-fungible services that only a small fraction of our population can provide, and so long as countries with dramatically lower labor costs can compete head-to-head with our country to attract new manufacturing and fabrication businesses, their will be a ceiling on the price at which blue-collar labor can be sold. WIth no ceiling on a small fraction of workers (Beyonce, Pujols, brilliant financial wizards, etc), the gap between the two groups is likely not only to persist but to expand. And, I don't know anything the government can or should do to stop it.

[Sorenson]

12:22 PM on 01/13/2012

It's amazing how people can b itch and moan to no end about people taking THEIR earnings whenever it comes to the issues of taxes and the like, yet are deathly silent when the "investors" take just as big, if not BIGGER, a slice out of the fruits of labor of the workers. What is the effective difference between them? In the immediate sense, neither contribute any actual work to the company - they're not manning stations in factories, mapping out/executing chains of logistics, or organizing and selling products on the front lines of retail - yet one is demonized while the other is praised, even idolized, even as the share of the earnings it takes can be magnitudes greater than its unholy counterpart.

Think about the paycuts you took, the raises you were denied, the uncompensated overtime you did because the company "has to maximize shareholder profits." That's money out of YOUR pocket, a slice of YOUR labor, sweat from YOUR brow, going to some unknown party. At least Uncle Sam has the decency to scale his take based on how screwed you were.

[donk970]

04:54 PM on 01/13/2012

You hit the nail on the head. There's a world of difference between income earned through your own labor and income earned from the labor of others. This distinction has been completely lost in the economic conversation. Most of the CEO's of these big companies couldn't do the jobs of any of their employees if their lives depended on it but frequently get paid orders of magnitude more. Why? Because the CEO has one, very rare set of qualifications for that job. The typical CEO understands a decent amount about business and lacks the empathy that would prevent him (or her) from laying off thousands of people. Most CEO's are people who can lay off a thousand people right before Christmas, take a million dollar bonus for doing it and still sleep at night. A normal person wouldn't be able to do that and that's why boards of directors hire these guys for such outrageous amounts of money. And, of course, these are the guys that the M&M party is calling the "job creators".

[Chris Reynolds]

04:00 PM on 01/14/2012

I have many clients who are "investors." When they invest, they put new money into a business, typically a young and growing one not yet able to obtain traditional types of financial assistance (e.g., bank loans). The money they invest is placed at risk; i.e., they could (and often do) lose it all. Some clients have ten losing or break-even equity investments for every winner, hoping that the occasional winner produces a return that will cover the other ten investments and then some. That is, they may lose $10 million on each of nine investments and then, on the tenth, make $250 million when a fledgling company in which they originally invested goes public. The nine companies that were failures were not failure because of my clients' investments; they were failures in spite of those investments, investments that helped launch the company, build or acquire additional facilities, and employ additional workers. It is hard for me to understand why the workers employed by the companies in which they invested would be anything other than grateful for the willingness of those investors to place their money at risk.

[OldTulsan]

10:53 AM on 01/13/2012

Upward mobility dying

http://www.counterpunch.org/roberts10082010.html
Paul Craig Roberts: America's Third World Economy

"For a number of years I reported on the monthly nonfarm payroll jobs data. The data did not support the praises economists were singing to the “New Economy.” The “New Economy” consisted, allegedly, of financial services, innovation, and high-tech services.

This economy was taking the place of the old “dirty fingernail” economy of industry and manufacturing. Education would retrain the workforce, and we would move on to a higher level of prosperity.

Time after time I reported that there was no sign of the “New Economy” jobs, but that the old economy jobs were disappearing. The only net new jobs were in lowly paid domestic services such as waitresses and bartenders, retail clerks, health care and social assistance (mainly ambulatory health care services), and, before the bubble burst, construction.

The facts, issued monthly by the US Bureau of Labor Statistics, had no impact on the ”New Economy” propaganda. Economists continued to wax eloquently about how globalism was a boon for our future.

The millions of unemployed today are blamed on the popped real estate bubble and the subprime derivative financial crisis. However, the US economy has been losing jobs for a decade. As manufacturing, information technology, software engineering, research, development, and tradable professional services have been moved offshore, the American middle class has shriveled. The ladders of upward mobility that made American an “opportunity society” have been dismantled..."

[Linda from Deerfield]

11:04 AM on 01/13/2012

Thank you -- keep up the good work. It was really frustrating -- bizarre even -- to listen to the media join in the deception. I could only imagine that each outlet must have decided they could not afford to be the one who crashed the market by reporting reality, because of reliance on advertisers, and thus there seemed to be a mutual agreement to pretend. Doing the leg work to uncover this well kept secret before the meltdown is what saved my husband and me from being hurt. Even now, the truth of it seems rarely explored, in favor of more nonsense.

[OldTulsan]

11:23 AM on 01/13/2012

You're welcome.

Too many people are still unaware of offshore outsourcing, and some of those who are spout the talking point that the jobs are offshored because of regulations.

[voyager48]

11:18 AM on 01/13/2012

"New Economy jobs are in fact the easiest to outsource of all. Just about any aspect of IT is now going to offshore programmers and administrators working for between $8-15 per hour while local companies charge between $50-100 for the same services. many simply front the operation, charge the $100 and pay some overseas schmuck $15. Nice work if you can get it! But not for long. What this is in in effect doing is forcing everyone down to the lower rate. Free market forces at their finest - welcome to the internet age.

The government of all people should understand this and be planning and managing accordingly. Yet we are on a diverging path which will end with only service workers, front companies and investors. And yet they encourage illegal immigration that puts even more pressure on the bottom strata and sit by while manufacturing jobs go off-shore.

[Ashok Hegde]

01:34 PM on 01/13/2012

Billing an offshore resource usually means $25-35/hour. Not $100.

Firms are mature with offshoring...you can't just bill them at western rates. Come on.

[OldTulsan]

05:55 PM on 01/13/2012

I'm a retired system administrator of process control systems. I remember debating in the USENET alt.computer.consultants newsgroup that once a company started offshoring white-collar jobs, others would have to offshore to stay competitive.

The government is an accomplice to bringing feudalism to the U.S.

[vobox3343]

10:53 AM on 01/13/2012

That's why we can't afford to elect anyone but President Obama. The only one who really cares. Why must folks continue to vote against their better interest? I just don't get it.

[OldTulsan]

10:58 AM on 01/13/2012

Voters are locked into voting for candidates of the two-party duopoly which doesn't represent the working class.

The two-party duopoly has a stranglehold on ballot access laws. Not even the Green Party has ballot access laws.

[Linda from Deerfield]

10:43 AM on 01/13/2012

Ok, I think I've got the gist of the conservative comments here -- there's something in the air or water that has made most Americans incapable of carrying their own weight and all the policy in the world isn't going to fix it, so just get ready to start stepping over the destitute as you walk down the street.

[OldTulsan]

10:50 AM on 01/13/2012

The 1% has offshored millions of white-collar and blue-collar jobs, and now complain that people aren't working.

[Ashok Hegde]

01:36 PM on 01/13/2012

It's not the 1% who did this - it's competition in general. You want diapers which cost 30-40% less? Guess what, it'll be made in China.

You want IT projects which cost 30-40% less? Guess what, you'll need Indian resources.

People want the best price...so, multinationals have to find the best input costs. The best sources of labor involve using offshore...for sure.

You can't pay unskilled and semi-skilled people $50,000/year, and expect consumers to simply pay those costs. If given an option, a consumer wants better prices, and that leads to the competition which is killing the US middle class.

[katiedone]

10:35 AM on 01/13/2012

The focus of corporations is to make a profit and provide revenues to stockholders. Stockholders want a higher return on their investments. The appearance of greed is justified by stockholders as they are the risk-takers and deserve a return. The disparity is the reduction in the quality of life of workers as the return on their investment of time and work is no longer paying off. There are two sides to investment that "people" should at least consider.

[donk970]

05:02 PM on 01/13/2012

Yep - those higher returns come from someplace, usually the pockets of the workers who make those returns possible.

[OldTulsan]

10:22 AM on 01/13/2012

Opportunity inequality leads to income inequality...

http://www.oecd.org/document/14/0,3343,en_2649_37443_44575438_1_1_1_1,00.html
Obstacles to social mobility weaken equal opportunities and economic growth, says OECD study

"10/02/2010 - It is easier to climb the social ladder and earn more than one’s parents in the Nordic countries, Australia and Canada than in France, Italy, Britain and the United States, according to a new OECD study. Intergenerational Social Mobility: a family affair? says weak social mobility can signal a lack of equal opportunities, constrain productivity and curb economic growth.

Climbing the social ladder depends on a range of factors such as individual ability, family and social environments, networks and attitudes. But public action – particularly education and to some extent tax policies - can play an key role in helping people achieve a higher income and social status than their parents.

Across all countries family and socio-economic background is a major influence on a person’s level of education and earnings, but the impact of parental education, or lack of it, on a child’s future prospects is particularly marked in southern European countries and the UK..."

[redonthehead]

09:59 AM on 01/13/2012

I love the pot shots at inherited wealth. It is my goal to have something to leave to my two daughters. Inherited wealth rarely lasts for more than two generations anyway.

Those of you suggesting that Walton's kids didn't earn their money, neither did you. What right do you or worse the government have to that money?

[CoralReef]

10:08 AM on 01/13/2012

This is how my family works.

My mom's inherited money went to college and schooling for me and my brothers (i was the only one who finished). What I inherit from my mom will go to my childrens future with the condition that what I leave them will go to their childrens future! And so on.. That plan has been told to me for as long as I can remember!

Good for you for doing that for your daughters. Start brainwashing them now for what that money can be used for. My moms gonna set up a trust for my oldest brother with me overseeing everything since he is the least responsible and she doesn't want him blowing it on BS!

[rosiebag]

09:52 AM on 01/13/2012

It is not fair, some people work hard to get ahead, therefor they hame more. I want some of it, because I deserve what is not mine, HOPE AND CHANGE,give me something for nothing

[vobox3343]

10:58 AM on 01/13/2012

What does the hard work look like that gets you ten to twenty million a year? That person must look pretty weathered and stressed from the hard work. Unfortunately, everyone I see with that kind of money, doesn't look like they've worked a day in their life. By the way dearie. you can't work yourself rich. That's as big a lie as the Republican trickle down lie - many have gone to their graves, hardworking, poor and still dead.

[donk970]

05:14 PM on 01/13/2012

The guy who makes millions a year is almost universally someone who gets other people to do the actual work and then takes all the profits. Do you really think that the CEO of GlaxoSmithKline, for example, actually creates the drugs himself? He wouldn't know where to even start. Does that CEO work a hundred times harder or longer than the researchers who actually create product? Not likely. Did he risk tens or hundreds of millions of dollars of his own money on the company to justify that huge salary? Probably not. So what, prey tell, makes a corporate CEO worth orders of magnitude more than any other employee? Here's what CEO's have that us ordinary mortals don't. The high paid CEO can lay off a thousand employees right before Christmas, take a million dollar bonus for doing it and go home and sleep like a baby. In short he's a well educated sociopath. That's it. Thats why boards of directors are willing to pay such outrageous amounts of money for a CEO.

[OldTulsan]

09:51 AM on 01/13/2012

Workers' share of national income is at an all-time low:

http://research.stlouisfed.org/fred2/series/PRS85006173
FRED« Nonfarm Business Sector: Labor Share

While corporate profits are increasing:

http://research.stlouisfed.org/fred2/series/CP
FRED« Corporate Profits After Tax

Mainly because of reduced wages and benefits:

"JPMorgan’s July 11 “Eye on the Market” newsletter put it, “Reductions in wages and benefits explain the majority of the net improvement in [profit] margins… US labor compensation is now at a 50-year low relative to both company sales and US GDP.”

The two-party corporate-­controlled duopoly just put three more job-killin­g NAFTA-styl­e trade agreements in place with Columbia, Panama, and South Korea.

[Bart DePalma]

09:25 AM on 01/13/2012

Like other progressives and socialists, Krueger has it backwards.

Krueger's theory is that income inequality leads to a poor economy, when in reality it is the poor economy and decimation of the labor force which leads to poverty and income inequality.

How do we address the poor economy and the decimation of the labor force? Given that the Obama administration has presided over the only recovery-less recession since WWII, a good start would be to fire Krueger and his boss.

https://thecitizenpamphleteer.wordpress.com/2011/05/15/of-government-spending-and-economic-recoveries/

https://thecitizenpamphleteer.wordpress.com/2012/01/12/decimating-the-american-labor-force/

[redonthehead]

09:21 AM on 01/13/2012

HP continues to beat the drum.

The article doesn't propose solutions just whines that the rich are, well, rich.

To a liberal, the solutions always seems to be to bring the wealthy down rather than bring the poor up.

[CoralReef]

09:36 AM on 01/13/2012

F&F

[Ashok Hegde]

01:42 PM on 01/13/2012

Here's the problem - "bringing the poor up" is a tough topic. No one who is liberal seems to want to touch it. Because, it would involve massive behavior modification. We'd have to change the way people live - what they eat, when they study, how much they goof off, their sexual behavior, etc, etc. We'd have to rip apart 'everyday life' for the poor, and teach them more prudent behavior.

Doing so would sound invasive, and elitist to some...and hence, any attempt to will be countered with cries of "social engineering".

You hear this mantra, that people are suffering due to "no fault of their own". Yet, the stats on american life are clear. Obesity rates? Hours of television and video games per day? Amount of reading? High school graduation rates? Rates of single parents? Rates of unplanned pregnancies?

All of this is killing the dream...and no one wants to touch this topic.

[CoralReef]

09:16 AM on 01/13/2012

I don't have much, but what I do have is mine and I'm proud of that. I don't want what I didnt earn. I don't buy what I can't afford. I live below my means. I'm not jealous of the rich for what they have, I (more or less) pity them b/c they honestly miss out on the simple things in life that are free..

Whenever I do start feeling bad about life or p*ssed off i have to spend money to maintain my car or pay for dental work, I remember those are the problems of the developed world. For that I am lucky!

I could have been born in a 3rd world country.. I could have been born in a country where running water is a luxury, a long life is living into your 50's, modern medicine is nonexistant, and laws don't protect women..

Income inequality s*cks, but it will always be there. There will always be someone out there who is willing to work harder than another, work the extra hours, and that are smarter. There will always be someone out there wanting something for nothing and someone out there looking for a handout, There will always be the dreamers who keep reaching until they finally make something of their lives. Just like there will always be someone hanging on for the ride! That is life; it has nothing to do with capitalism or socialism.

[redonthehead]

09:25 AM on 01/13/2012

Wish I could add something to your excellent post. Fanned

[CoralReef]

09:40 AM on 01/13/2012

Aww Thanks! I just said the same on one of your posts!

Too bad i'm sure i'll be called a cold hearted conservative that has had life handed to them on a silver plate! Which totally isn't the case. I just like to work hard b/c I know it will pay off (and it finally has started to)!

[vobox3343]

11:11 AM on 01/13/2012

And then there will be the sheeple who will allow others to tell them they haven't worked hard enough and should be completely satisfied with their lot. What utter garbage. I've had relatives who worked harder than any folks on this planet who had to deal with your "We have no work for coloreds, thank you" Please stop your ignorant ranting.