While Wall Street continues its unprec-edented run, the bull market is leaving most Americans behind. Although news of the market's success contributes to a general perception that our economic health is strong, the vast majority of Americans own little or no stock and increasingly watch the American dream only on television.
In 1973, a family in the bottom one-fifth of the U.S. income distribution earned roughly one-seventh of the gross income of the average family in the top one-fifth. More than twenty years later, the average real gross income in the bottom fifth had shrunk by almost seven percent, while the average income in the top fifth had gained more than 30 percent. The average income in the top fifth now exceeds the average income in the bottom fifth by more than a factor of ten.
Some argue that inequity creates incentives that drive growth, ultimately helping the poor as well as the rich. During the past 25 years, however, the real median income of U.S. families has risen less than five percent, and the real wages and incomes for those in the poorest 45 percent of households has declined. Growth may have helped those above the median, but it has done nothing for those below. Furthermore, growth in the number of well-paid, low-skilled, manufacturing jobs has nearly stopped. Job numbers are growing most rapidly at opposite ends of the spectrum: well-paid, high-skilled positions, and low-paid, low-skilled positions. In this kind of a job market, real upward mobility is extremely difficult.
A look at incomes and wages, while disturbing, underestimates the problem. When wealth, as opposed to income, is measured, the divide between the "haves" and the "have-nots" is still more remarkable and getting worse. The wealthiest 10 percent of all Americans control more than 90 percent of all privately owned assets. The recent stock market boom has dramatically enriched only the most wealthy Americans. Although Americans earning less than $50,000 account for more than 74 percent of all households, these same Americans own less than 19 percent of all stock. So, while the upper crust is raging ahead on the back of a bull, most Americans are waving from the back of a donkey.
Students at Dartmouth and other Ivy League schools, who will very likely find themselves in the top 10 percent of the income distribution in years hence, might not find this news a cause for personal alarm. The social consequences, however, of an ever-widening gap between rich and poor, accompanied by an ever-shrinking opportunity to cross that divide, are potentially dire. Such inequality cannot help but add social strain and tension to our lives, and surely to the lives of our children and grandchildren.
What is to be done? While current conventional wisdom suggests that a redistribution of wealth is neither politically possible nor economically wise, we should at least consider whether economic growth is, per se, a more worthy goal than a more balanced social and economic structure.
A society that embraces the motivating forces of capitalism should also ensure that those forces are within the reach of all of its citizens. Such a social policy would require great investment in structures that create opportunities for the children of lower income families. Training and education are essential. So are programs specifically designed to increase the income mobility of residents in poor neighborhoods -- microloans, job mentoring, corporate outreach, scholarships. We need to light the paths that lead out of our least hopeful neighborhoods. Unless we do so, our children will face a more troubling future.
Note: This commentary is one of a series of articles on the issue of social class difference in American society -- the subject of a year long conversation sponsored by the Tucker Foundation.
