"The Rich Get Richer Faster." New York Times, A24, April 18, 1995.
The gap between rich and poor is vast in the United States -- and recent studies show it growing faster here than anywhere else in the West. The trend is largely the result of technological forces at work around the world. But the United States Government has done little to ameliorate the problem. Indeed, if the Republicans get their way on the budget, the Government will make a troubling trend measurably worse.
Some inequality is necessary if society wants to reward investors for taking risks and individuals for working hard and well. But excessive inequality can break the spirit of those trapped in society's cellar -- and exacerbate social tensions.
After years of little change, inequality exploded in America starting in the 1970's. According to Prof. Edward Wolff of New York University, three-quarters of the income gains during the 1980's and 100 percent of the increased wealth went to the top 20 percent of families.
The richest 1 percent of households control about 40 percent of the nation's wealth -- twice as much as the figure in Britain, which has the greatest inequality in Western Europe. In Germany, high wage families earn about 2.5 times as much as low wage workers; the number has been falling. In Amercia the figure is above 4 times, and rising.
Interpreting these trends requires caution. Inequality rose here in the 1980's in part because the United States created far more jobs -- many low-paid -- than did Western Europe. Low-paying jobs are better than no jobs. Rising inequality in the United States has also been caused in substantial part by middle-class families that moved up the income ladder, opening a gap with those below them.
About half of Americans move a substantial distance up or down the income ladder over a typical five-year period. In a mobil society, where workers rotate among high-and low-earning jobs, earning sgaps are less frightening because any given job would be less entrapping.
But mobility has offset none of the increased inequality in income. Studies at the Maxwell School at Syracuse University show that mobility in America is not higher than in Germany. Nor does mobility here appear to be higher today than it was in the 1970's.
The best guess about the factor behind burgeoning inequality is technology; the wage gap between high-and low-skilled workers in America doubled during the 1980's. College graduates used to earn about 30 percent more than high school graduates but now earn 60 percent more. Prof. Sheldon Danziger of the University of Michigan estimates that trends in private pay rates explain about 85 percent of recent increases in inequality; Regan-Bush tax cuts for the rich and spending cuts for the poor explain much of the other 15 percent.
But even if government is not the main actor, it could be part of the solution. Changes in the Canadian economy during the 1980's also hit hard at low-wage workers. But there the Government stepped in to keep poverty rates on a downward path. In the United States, poverty rose.
House Republicans are now pushing the Federal budget in the wrong direction. At a time when employers are crying out for well-educated workers, the G.O.P. proposes to cut back money for training and educational assistance. America needs better Head Start, primary and secondary educaton. It needs to train high school dropouts and welfare motheres. The G.O.P. policy would leave the untrained stranded. That would harm the nation's long term productivity -- and further distort an increasingly tilted economy.
(Updated for 2005 - further regression.)