Neo-Liberal Economic Policies in the United States:

Although most discussions of the impact of neo-liberal economic policies focus on the countries of the Global South, these policies have been implemented in the United States as well.  This began in 1982, when the Chairman of the US Federal Reserve, Paul Volcker, launched a vicious attack on inflation in the US money supply: and caused the deepest US recession since the Great Depression of the late 1920s-1930s.

 

However, these neo-liberal policies have been implemented in the US perhaps more carefully than in the Global South.  Instead of imposing these changes "in your face," these policies have been hidden "under" the various and sundry "cultural wars" (around issues such as drugs, abortion, marriages for gays and lesbians, gun control, etc.) that have been used to divert people's attention away from the real issues.  In other words, if Americans can have their attention focused in "other" directions, then both the corporations and their friends in government can enact laws and policies: tax cuts for the rich, for example: that both work for the corporations and the rich, against the economic interests of the large majority of Americans.  Thus, while there is a lot of attention focused on ____________ (gay marriage is the latest), the overwhelmingly large number of people are not aware of the extent to which economic changes are going on in the country; changes, as I detail below, are hurting the overwhelmingly large number of Americans in this country.

 

It is believed that the implementation of these neo-liberal economic policies and the cultural wars are part of a two-part project:  the first part is to improve the economic well-being of the already well-off, as already suggested.    But there is another, a second part that is perhaps even more important.  These laws and policies are also being used to attack our unions and other organizations that can mobilize people to fight back.  In other words, the corporations, their friends in government and the elite in general, are using these policies to attack the American public, in an effort to prevent re-emergence of the collective solidarity among the American people that we saw in the late 1960s-early 1970s, of which the internal breakdown of discipline within the US military, in Viet Nam and around the world, was probably the most crucial.[1]  Let me put it this way:  the "cultural wars" are being waged to divert our attention away from the improving economic well-being of the already well-off, and to keep us from noticing that these same policies are also disemboweling our organizations, so that even when we wake up, when we recognize the systematic attack on our economic well-being, we will be unable to fight back:  the longer we wait to see this, the weaker the position we will be in from which to fight back.

 

In other words, the elite saw the upsurge of the "60s" as being a threat to the established social order, both internationally and in the United States itself, and they don't want that to happen again.  This fear of "the left" is perhaps even greater today, because it is an internal challenge to their efforts to keep dominating the world, their Empire.  The elites thought they had achieved "nirvana" with the fall of the Soviet Union, which had previously created its own empire to challenge that of the US, and US elites were ecstatic, believing that they could now dominate the world without any problem.  Yet the US Empire is being challenged to a greater and greater extent outside of and external to the US:  think of the deer-in-headlights reaction to the recent Chinese missile test where they destroyed one of their old satellites in space (which was the Chinese way of saying, "YOUR satellites, upon which the US military is dependent, are not safe"); think of the massive media reaction to developments in Venezuela under Hugo Chavez; the resistance in Iraq; or the challenge by Iran, etc., etc.  And both the Republicans and Democrats want to maintain the US Empire: and they are worried that they can no longer dominate the rest of the world like they thought they could as recently as early 2003.

 

In the face of these external challenges: making the Empire's domination less stable: the elites are not wanting people from within the US to join with people around the world to challenge their efforts to dominate the rest of the world, too.  They do not want people in the US to question this domination: they want us to remain asleep, to allow them to be able to maneuver unhindered.  But what we find, when we look, is that they are destroying the economic well-being, the social security, on which our country prides itself.  And this crazed desire to dominate the world threatens the well-being (socially, culturally, politically, and economically) of all of us.  This threat to the people in the US is different than even those in the other "advanced" capitalist countries.  Obviously, Americans can continue to "do nothing" against this threat: but doing nothing has some pretty extreme social consequences than need to be considered.  Conscious political decisions have been made that produced social results that make the US experience: at the center of a global social order based on an "advanced" capitalist economy: considerably if not qualitatively different from experiences in other more economically-developed countries.

 

So, what has been the impact of these policies on workers in the US?

 

To answer this question, this paper focuses on several interrelated issues:  (1) it discusses the current economic situation for workers; (2) it provides a historical overview of US society since World War II; (3) reports the results of US Government economic policies; and (4) comes to a conclusion about the foreseeable future, but also argues the need for qualitative social change.

 

 

 

1)  The Current Situation for Workers and Growing Economic Inequality

 

Steven Greenhouse of The New York Times published a piece on September 4, 2006, writing about entry-level workers, young people who were just entering the job market.  Mr. Greenhouse noted changes in the US economy; in fact, there have been substantial changes since early 2000, when the economy last created many jobs.

  

Median incomes for families with one parent age 25-34 fell 5.9% between 2000-2005.  It had jumped 12% during the late '90s.  (The median annual income for these families today is $48,405.)

 

Between 2000-2005, entry-level wages for male college graduates fell by 7.3% (to $19.72/hr).

 

Entry-level wages for female college graduates fell by 3.5% (to $17.08).

 

Entry-level wages for male high school graduates fell by 3.3% (to $10.93)

 

Entry-level wages for female high school graduates fell by 4.9% (to $9.08)

  

Yet, the percentage drop in wages hides the growing gap between college and high school graduates.  Today, college grads earn 45% more than high school graduates, where the gap had "only" been 23% in 1979:  the gap has doubled in 26 years.[2] 

 

A 2004 story in Business Week found that 24 percent: one of every four: of all working Americans received wages below the poverty line.[3]  In January 2004, 23.5 million Americans received free food from food pantries.  "The surge for food demand is fueled by several forces: job losses, expired unemployment benefits, soaring health-care and housing costs, and the inability of many people to find jobs that match the income and benefits of the jobs they had."  And 43 million people were living in low-income families with children.[4] 

 

A 2006 story in Business Week found that US job growth between 2001-2006 was really based on one industry:  health care.  Over this five-year period, the health-care sector has added 1.7 million jobs, while the rest of the private sector has been stagnant.  Michael Mandel, the economics editor of the magazine, writes:

  

... information technology, the great electronic promise of the 1990s, has turned into one of the greatest job-growth disappointments of all time.  Despite the splashy success of companies such as Google and Yahoo!, businesses at the core of the information economy: software, semi-conductors, telecom, and the whole range of Web companies: have lost more than 1.1 million jobs in the past five years.  These businesses employ fewer Americans today than they did in 1998, when the Internet frenzy kicked into high gear.[5]

  

In fact, "take away health-care hiring in the US, and quicker than you can say cardiac bypass, the US unemployment rate would be 1 to 2 percentage points higher."[6] 

 

There has been extensive job loss in manufacturing.  Over 3.4 million manufacturing jobs have been lost since 1998, and 2.9 million have been lost since 2001.  Additionally, over 40,000 manufacturing firms have closed since 1999, and 90% have been medium and large shops.  In labor-import intensive industries, 25 percent of laid-off workers remain unemployed after six months, two-thirds of them who do find new jobs earn less than on their old job, and one-quarter of those who find new jobs "suffer wage losses of more than 30 percent."[7] 

 

The AFL-CIO details the American job loss by manufacturing sector in the 2001-05 period:

 

Computer and electronics:  543,000 workers or 29.2 percent

 

Semiconductor and electronic components: 260,100 or 36.7 percent

 

Electrical equipment and appliances:  152,500 or 26 percent

 

Vehicle parts: 153,400 or 18.6 percent

 

Machinery: 289,400 or 19.9 percent

 

Fabricated metal products: 235,200 or 13.3 percent

 

Primary metals:  144,800 or 23.5 percent

 

Transportation equipment: 246,300 or 12.1 percent

 

Furniture products: 58,500 or 13.4 percent

 

Textile mills: 158,500 or 43.1 percent

 

Apparel 220,000 or 46.6 percent

 

Leather products: 24,700 or 38.3 percent

 

Printing: 159,300 or 19.9 percent

 

Paper products: 122,600 or 20.4 percent

 

Plastics and rubber products: 141,400 or 15 percent

 

Chemicals: 94,900 or 9.7 percent

 

Aerospace: 46,900 or 9.1 percent

 

Textiles and apparel declined by 870,000 jobs 1994-2006, a decline of 65.4 percent.[8] 

  

As of June 2006, there were only 14.259 million manufacturing workers, down from 19.426 million at the high point in 1979.  This means that only 9.86 % of all US employment was in manufacturing: down from 21.6 % in 1979.[9]  The number of production workers in this country at the end of 2005 was 9.378 million.[10]  This was only slightly above the 9.306 million production workers in 1983, and was considerably below the 11.463 million as recently as 2000.[11]  As Daniel Altman puts it, this is "the biggest long-term trend in the economy:  the decline of manufacturing."  He notes that employment in the durable goods (e.g., cars and cable TV boxes) category of manufacturing has declined from 19% of all employment in 1965 to 8% in 2005.[12]  And at the end of 2005, only 13% of all manufacturing workers were in unions.[13] 

 

In addition, over the past two years, 2004-05, "the real hourly and weekly wages of US manufacturing workers have fallen 3 percent and 2.2 percent respectively."[14] 

 

The minimum wage level has been unchanged for the past nine years.  The US minimum wage has remained at $5.15 an hour since September 1, 1997.  Since the last increase, the cost of living has risen 26 percent.  After adjusting for inflation, this is the lowest level of the minimum wage since 1955.  At the same time, the minimum wage is only 31 percent of the average pay of non-supervisory workers in the private sector, which is the lowest share since World War II.[15]

 

In addition to the drop in wages at all levels, fewer new workers get health care benefits with their jobs:[16]  in 2005, 64% of all college grads got health coverage in entry-level jobs, where 71% had gotten it in 2000: a 7% drop in just five years.  Over a longer term, we can see what's happened to high school grads:  in 1979, two-thirds of all high school graduates got health care coverage in entry-level jobs, while only one-third do today.[17]  It must be kept in mind that only about 28% of the US workforce are college graduates: most of the work force only has a high school degree, although a growing percentage of them have some college, but not college degrees.

 

Because things have gotten so bad, many young adults have gotten discouraged and given up.  The unemployment rate is 4.4% for ages 25-34, but 8.2% for workers 20-24.[18]  

 

Yet things are actually worse than that.  In the US, unemployment rates are artificially low.  If a person gets laid off and gets unemployment benefits: which fewer and fewer workers even get: they get a check for six months.  If they have not gotten a job by the end of six months: and it is taking longer and longer to get a job: then they loose their unemployment benefits.  And if they give up looking for work, which many do, they are no longer counted as unemployed:  one doesn't even count in the statistics!  

 

A report from April 2004 provides details. According to the then-head of the US Federal Reserve System, Alan Greenspan, "the average duration of unemployment increased from twelve weeks in September 2000 to twenty weeks in March [2004]."[19]  In March 2004, 354,000 jobs workers had exhausted their unemployment benefits, and were unable to get any additional federal unemployment assistance:  Shapiro notes, "In no other month on record, with data available back to 1971, have there been so many 'exhaustees'."[20]

 

Additionally, although it's rarely reported, unemployment rates vary by racial grouping.  No matter what the unemployment rate is, it really only reflects the rate of whites who are unemployed because about 73% of the workforce is white.  However, since 1954, the unemployment rate of African-Americans has always been more than twice that of whites, and Latinos are about 1 1/2 times that of whites.  So, for example, if the overall rate is 5%, then it's at least 10% for African-Americans and 7.5% for Latinos.

 

However, most of the developments presented above: other than the racial affects of unemployment: have been relatively recent.  What about longer term?  Paul Krugman, writing in The New York Times, pointed out these longer term affects: non-supervisory workers make less in real wages today (2006) than they made in 1973!  So, after inflation is taken out, non-supervisory workers are making less today in real terms that their contemporaries made 33 years ago.[21]  Figures provided by Stephen Franklin: obtained from the US Bureau of Statistics, and presented in 1982 dollars: show that a production worker in January 1973 earned $9.08 an hour: and $8.19 an hour in December 2005.[22]  Workers in 2005 also had less long-term job security, fewer benefits, less stable pensions (when they have them), and rising health care costs.[23]

 

In short, the economic situation for "average Americans" is getting worse.  A front-page story in the Chicago Tribune talks about a worker who six years ago was making $29 an hour, working at a nuclear power plant.  He got laid off, and now makes $12.24 an hour, working on the bottom tier of a two-tiered unionized factory owned by Caterpillar, the multinational earth moving equipment producer, which is less than half of his old wages.  The article pointed out, "Glued to a bare bones budget, he saved for weeks to buy a five-pack of $7 T-shirts."[24] 

 

A report by Workers Independent News (WIN) stated that while a majority of metropolitan areas have regained the 2.6 million jobs lost during the first two years of the Bush Administration, "the new jobs on average pay $9,000 less than the jobs replaced," a 21 percent decline from $43,629 to $34,378.    However, WIN says that "99 out of the 361 metro areas will not recover jobs before 2007 and could be waiting until 2015 before they reach full recovery."[25] 

 

At the same time, Americans are going deeper and deeper into debt.  In 2004, total US household debt was $10.276 trillion, with home mortgage debt being $7.568 trillion and non-mortgage debt $2.141 trillion.[26]  By 2006, non-mortgage debt had reached $2.160 trillion, "that averages $7,250 for every person in the country, children included.[27]  Over a longer period of time, US household debt grew from $6.4 trillion at the end of 1999 to $11 trillion at the end of the third quarter of 2005, a 72 percent increase according to the US Federal Reserve.[28] 

 

Three polls from mid-2006 found "deep pessimism among American workers, with most saying that wages were not keeping pace with inflation, and that workers were worse off in many ways than a generation ago."[29]  And, you might notice, nothing has been said about increasing gas prices, lower home values, etc.  The economic situation for most working people is not looking pretty. 

 

In fact, bankruptcy filings totaled 2.043 million in 2005, up 31.6 percent from 2004,[30] before gas prices went through the ceiling and housing prices began falling in mid-2006.  Yet in 1998, writers for the Chicago Tribune had written, "... the number of personal bankruptcy filings skyrocketed 19.5 percent last year, to an all-time high of 1,335,053, compared with 1,117,470 in 1996."[31] 

 

And at the same time, there were 37 million Americans in poverty in 2005, one of out every eight.  Again, the rates vary by racial grouping:  while 12.6 percent of all Americans were in poverty, the poverty rate for whites was 8.3 percent; for African Americans, 24.9 percent were in poverty, as were 21.8 percent of all Latinos.  (What is rarely acknowledged, however, is that 65 percent of all people in poverty in the US are white.)  And 17.6 percent of all children were in poverty.[32]

 

What about the "other half"?  This time, Paul Krugman gives details from a report by two Northwestern University professors, Ian Dew-Becker and Robert Gordon, titled "Where Did the Productivity Growth Go?"  Krugman writes:

  

Between 1973 and 2001, the wage and salary income of Americans at the 90^th percentile of the income distribution rose only 34 percent, or about 1 percent per year.

 

But income at the 99^th percentile rose 87 percent; income at the 99.9^th percentile rose 181 percent; and income at the 99.99^th percentile rose 497 percent.  No, that's not a misprint.

 

Just to give you a sense of who we're talking about:  the nonpartisan Tax Policy Center estimates that this year, the 99^th percentile will correspond to an income of $402,306, and the 99.9^th percentile to an income of $1,672,726.  The Center doesn't give a number for the 99.99^th percentile, but it's probably well over $6 million a year.[33] 

  

But how can we understand what is going on?  We need to put take a historical approach to understand the significance of the changes reported above.

 

 (2)  A Historical Look at the US Social Order Since World War II

 

When considering the US situation, it makes most sense to look at "recent" US developments, those since World War II.  Just after the War, in 1947, the US population was about 6% of the world's total.  Nonetheless, this 6% produced about 48% of all goods and services in the world!  With Europe and Japan devastated, the US was the only industrialized economy that had not been laid waste.  Everybody needed what the US produced: and this country produced the goods, and sent them around the world.

 

At the same time, the US economy was not only the most productive, but the rise of the industrial union movement in the 1930s and '40s: the CIO (Congress of Industrial Organizations): meant that workers had some power to demand a share of the wealth produced.  In 1946, just after the war, the US had the largest strike wave in its history:  116,000,000 production days were lost in early 1946, as industry-wide strikes in auto, steel, meat packing, and electrical industry took place across the country and Canada, along with smaller strikes in individual firms.  Not only that, but there were general strikes that year in Oakland, California and Stamford, Connecticut.  Workers had been held back during the war, but they demonstrated their power immediately thereafter.  Industry knew that if it wanted the production it could sell, it had to agree to cut the workers in on the deal.

 

It was this combination: devastated economic markets around the world, the world's most developed industrial economy, and a militant union movement: that combined to create what is now known as the "great American middle class."[34]

 

To understand the economic impact of these factors, changes in income distribution in US society must be examined.  The best way to illuminate this is to assemble family data on income or wealth: income data is more available, so that will be used; arrange it from the smallest amount to the largest; and then to divide the population into fifths, or quintiles. In other words, arrange every family's annual income from the lowest to the highest, and divide the total number of family incomes into quintiles or by 20 percents (i.e., fifths).  Then compare changes in the top incomes for each quintile.  By doing so, one can then observe changes in income distribution over specified time periods.

 

The years between 1947 and 1973 are considered the "golden years" of the US society.[35] The values are presented in 2001 dollars, so that means that inflation has been taken out:  these are real dollars, and that means these are valid comparisons.

 

 

Figure 1:  US Family Income, in US Dollars, Growth and Distribution,

 

By top income of quintile, 1947-1973 compared to 1973-2001

 

 

	Lowest 20%	Second 20%	Third 20%	Fourth 20%	95th Percentile[36]
1947	$10,662	$17,205	$23,330	$33,103	$54,333
1973	$20,986	$34,629	$48,316	$66,445	$103,586
Difference (26 years)	$10,324   (97%)	$17,424   (101%)	$24,986 (107%)	$33,342   (101%)	$49,253   (91%)
1973	$20,986	$34,629	$48,316	$66,445	$103,586
2001	$24,000	$41,127	$62,500	$94,150	$164,104
Difference (28 years)	$3,014   (14%)	$6,498   (19%)	$14,184   (29%)	$27,705   (42%)	$60,518 (58%)

 

 

[Source: US Commerce Department, Bureau of the Census (hereafter, US Census Bureau) at www.census.gov/hhes/income/histinc/f01.html.  Differences and percentages calculated by author.  All dollar values converted to 2001 dollars by US Census Bureau, removing inflation and comparing real values.]

 

 

Data for the first period, 1947-1973: the data above the blank line: shows there was considerable real economic growth for each quintile.  Over the 26-year period, there was approximately 100% real economic growth for the incomes at the top of each quintile, which meant incomes doubled after inflation was removed and that the economy was really growing.

 

And importantly, this economic growth was distributed fairly evenly.  The data in the fourth line (in parentheses) is the percentage that the 1973 real income is as compared to the 1947 real income:  97%, 101%, 107%, 101%, and 91%.  In other words, the rate of growth by quintile was very similar across all five quintiles of the population.  As can be seen, it was the high-end quintile whose income growth was the smallest.

 

When looking at the figures for 1973-2001, something vastly different can be observed.  This is the section below the blank line.  What can be seen?  First, economic growth has slowed considerably:  the highest rate of growth for any quintile was that of those who topped out at the 95^th Percentile, but the highest percentage income growth over the later period was only 58%, as compared to no less than 91% in the earlier period for the same quintile.

 

Second, of what growth there was, it was distributed extremely unequally.  And the growth rates for those in lower quintiles was less than for those above them:  for the bottom quintile, their real income grew only 14% over the 1973-2001 period; for the second quintile, 19%; for the third, 29%; for the fourth, 42%; and for the 80-95%, 58%:  relatively speaking, the rich are getting richer, and the poor poorer.

 

Why the change?  I think two things in particular.  First, as countries recovered from World War II, corporations based in these countries could again compete with those from the US: first in their own home countries, and then through importing into the US, and then ultimately when they invested in the United States.  Think of Toyota:  they began importing into the US in the early 1970s, and with their investments here in the early '80s and forward, they now are the third largest domestic US auto producer, and this year or next, will probably be the largest US auto producer!

 

Second cause for the change has been the deterioration of the American labor movement:  from 35.3% of the non-agricultural workforce in unions in 1954, to only 12.8% of all American workers in unions in 2005: and only 7.8% of all private industry workers are unionized, which is less than in 1930![37] 

 

This decline in unionization has a number of reasons.  Part of this deterioration has been the result of government policies: everything from the crushing of the air traffic controllers when they went on strike by the Reagan Administration in 1980, to reform of labor law, to reactionary appointments to the National Labor Relations Board, which oversees administration of labor law.  Certainly a key government policy, signed by Democratic President Bill Clinton, has been the North American Free Trade Act or NAFTA.  One analyst came straight to the point:

  

Since ... [NAFTA] was signed in 1993, the rise in the US trade deficit with Canada and Mexico through 2002 has caused the displacement of production that supported 879,280 US jobs.  Most of these lost jobs were high-wage positions in manufacturing industries.  The loss of these jobs is just the most visible tip of NAFTA's impact on the US economy.  In fact, NAFTA has also contributed to rising income inequality, suppressed real wages for production workers, weakened workers' collective bargaining powers and ability to organize unions, and reduced fringe benefits.[38]

 

These attacks by elected officials have been joined by the affects due to the restructuring of the economy.  There has been a shift from manufacturing to services.  However, within manufacturing, which has long been a union stronghold, there has been significant job loss:  between July 2000 and January 2004, the US lost three million manufacturing jobs, or 17.5%, and 5.2 million since the historical peak in 1979, so that "Employment in manufacturing [in January 2004] was its lowest since July 1950."[39] 

 

 This is due to both outsourcing labor-intensive production overseas and, more importantly, technological displacement as new technology has enabled greater production at higher quality with fewer workers in capital-intensive production.[40]  Others have blamed burgeoning trade deficits for the rise: "... an increasing share of domestic demand for manufacturing output is satisfied by foreign rather than domestic producers."[41]  Others have even attributed it to changes in consumer preferences.[42]  Whatever the reason, of the 50 states, only five (Nevada, North Dakota, Oregon, Utah, and Wyoming) did not see any job loss in manufacturing between 1993-2003, yet 37 lost between 5.6% and 35.9% of their manufacturing jobs during this period.[43] 

 

However, part of the credit for deterioration of the labor movement must be given to the labor movement itself:  the leadership has been simply unable to confront these changes and, at the same time, they have consistently worked against any independent action by rank-and-file members.[44]

 

However, it must be asked: are we just playing with statistics, or is this indicating something real? 

 

This point can be illustrated another way:  by using CAGR, the Compound Annual Growth Rate.  This is a single number that is computed, based on compounded amounts, across a range of years, to come up with an average number to represent the rate of increase or decrease of family incomes each year across the entire period.  This looks pretty complex, but it is based on the same idea as compound interest used in our savings accounts:  you put in $10 today and (this is obviously not a real example) because you get 10% interest, so you have $11 the next year.  Well, the following year, interest is not computed off the original $10, but is computed on the $11.  So, by the third year, from your $10, you now have $12.10.  Etc.  And this is what is meant by the Compound Annual Growth Rate:  this is average compound growth by year across a designated period.

 

Based on the numbers presented above in Figure 1, the author calculated the Compound Annual Growth Rate in family incomes by quintiles (Figure 2). The annual growth rate has been calculated for the first period, 1947-1973, the years known as the "golden years" of US society.  What has happened since then?  Compare to the annual growth rate across the second period, 1973-2001, again calculated by the author, and which are based on the latest figures available from the US Census Bureau.

 

 Figure 2:  Annual percentage of family income growth, by quintile,

 

1947-1973 compared to 1973-2001

 

 

Population by quintiles	1947-1973	1973-2001
95th Percentile	2.51%	1.66%
Fourth quintile	2.72%	1.26%
Third quintile	2.84%	.92%
Second quintile	2.73%	.62%
Lowest quintile	2.64%	.48%

 

 

[Source:        Calculated by author from gather provided by the US Census Bureau at www.census.gov/hhes/income/histinc/f01.html.]

 

 

What we can see here is that while everyone's yearly income was growing at about the same rate in the first period: between 2.51 and 2.84% annually: by the second period, not only had growth slowed down across the board, but it either grew or declined by very different rates:  what we see here is that the rich are getting richer, and the poor poorer.

 

If these figures are correct, a change over time in the percentage of income received by each quintile should be observable. Ideally, if the society were egalitarian, each 20% of the population would get 20% of the income in any one year.  In reality, it differs.  To understand the following chart, one must not only look at the percentage of income held by a quintile across the chart, comparing selected year by selected year, but one needs to look to see whether a quintile's share of income is moving toward or away from the ideal 20%.

 

 

Figure 3:  Percentage of Family Income Distribution by quintile,

 

1947, 1973, 2001 (with dollars reported in 2001 dollars).

 

 

Population by quintiles	1947	1973	2001
Top fifth (lower limit of top 5%, or 95th Percentile)-- $164,104	43.0%	41.1%	47.7%
Second fifth--$94,150	23.1%	24.0%	22.9%
Third fifth--$62,500	17.0%	17.5%	14.5%
Fourth fifth--$41,127	11.9%	11.9%	9.7%
Bottom fifth--$24,000	5.0%	5.5%	4.2%

 

 

 [Source:       U.S. Census Bureau at www.census.gov/hhes/income/histinc/f02.html.]

 

 

What has been presented so far, regarding changes in income distribution, has been at the group level; in this case, quintile by quintile.  It is time now to see how this has affected the society overall.

 

Sociologists and economists use a number called the Gini index to measure inequality.  Family income data has been used so far, and we will continue using it.  A Gini index is fairly simple to use.  It measures inequality in a society.  A Gini index is generally reported in a range between 0.000 and 1.000, and is written in thousandths, just like a winning percentage mark:  three digits after the decimal.  And that the higher the Gini score, the greater the inequality.

 

Looking at the Gini index of the US one can see two periods since 1947, when the US Government began computing the Gini index for the country.  From 1947-1968, with yearly change greater or smaller, the trend is downward, indicating reduced inequality:  from .376 in 1947 to .378 in 1950, but then downward to .348 in 1968.  So, again, over the first period, the trend is downward.

 

What has happened since then?  From the low point in 1968 of .348, the trend has been upward.  In 1982, the Gini index hit .380, which was higher than any single year between 1947-1968, and the US has never gone below .380 since then.  By 1992, it hit .403, and we've never gone back below .400.  In 2001, the latest figures available from the Census Bureau, the US hit .435.  That's on your chart.  But I have found a Gini score published subsequent to 2001: and it's by the US Central Intelligence Agency or CIA.  According to the CIA, the Gini score from the US was .450 in 2004, although that is not on the chart: it must be added.  So, the trend is getting worse, and with the policies established under George W. Bush, I see them only continuing to increase in the forthcoming period.  [And by the way, this increasing trend has continued under both the Republicans and the Democrats, but since the Republicans have controlled the presidency for 18 of the last 26 years (since 1980), they get most of the credit: but let's not forget that the Democrats have controlled Congress across many of those years, so they, too, have been an equal opportunity social equality destroyer!]

 

However, one more question must be asked:  is this growing income inequality just taking place in the US, or is it a trend going on around the world?

 

We must again turn to the CIA for our data.  They compute Gini scores for family income on most of the countries around the world, and the last time checked (September 18, 2006), they had data on 122 countries on their web page and these numbers had last been updated on September 6, 2006.[45]  With each country listed, there is a Gini score provided.[46]  Now, the CIA doesn't compute Gini scores yearly, but they give the last year it was computed, so these are not exactly equivalent but they are suggestive enough to use.  However, when they do assemble these Gini scores in one place, they list them alphabetically, so that's not of much comparative use.

 

However, the World Bank does categorize countries, which means they can be compared within category and across categories.  The World Bank, which does not provide Gini scores, does put all countries into one of four categories based on Gross National Income per capita: that's total value of goods and services sold in the market in a year, divided by population size.  This is a useful statistic, because it allows us to compare societies with economies of vastly different size:  per capita income removes the size differences between countries.

 

The World Bank locates each country into one of four categories:  lower income, lower middle income, upper middle income, and upper income.[47]   Basically, those in the lower three categories are "developing" or what we used to call "third world" countries, while the upper income countries are all of the so-called developed countries.

 

The countries listed by the CIA with their respective Gini scores were placed them into the specific World Bank categories in which the World Bank had previously located them.[48]  Once grouped in their categories, median Gini scores were computed for each group.   When trying to get one number to represent a group of numbers, median is considered more accurate than an average, so the median was used, which means half of the scores are higher, half are lower: in other words, the data is at the 50^th percentile for each category.

 

The Gini score for countries, by Gross National Income per capita, categorized by the World Bank: 

 

 

World Bank category	Per capita income range, annually	Countries in category (examples)	Median Gini score
Lower income	0-$875	Bangladesh, Ghana, Modova, Sierra Leone, Zimbabwe	.410
Lower-middle income	$876-3,465	Algeria, Columbia, Honduras, Romania, and Ukraine	.411
Upper-middle income	$3,466-10,725	Chile, Estonia, Malaysia, Panama, Venezuela	.410
High income	$10,726 and above	Australia, Finland, Italy, Slovenia, US	.331

 

 

As can be seen, with a Gini score of .450, the US family income is more unequal than the medians for each category, and is more unequal than some of the poorest countries on earth, such as Bangladesh (.318), Cambodia (.408), Laos (.370), Mozambique (.396), Uganda (.430) and Vietnam (.361).[49]

 

Has the point been made?  US society has gotten much more unequal: more unequal today than some of the poorest countries on Earth: and there is nothing suggesting that this increasing inequality will lessen anytime soon.  And while Americans should be involved electorally, the election of any set of politicians: especially Democrats or Republicans: who will address these issues are few and far between, unless Americans organize across the US and force them to do so.

 

However, to be able to consider whether the US social order is likely to become more unequal over time or is likely to improve, some consideration of governmental economic policies is required.

 

 

 

3)  Governmental Economic Policies

 

There are two key points that are especially important for our consideration:  the US Budget and the US National Debt.  They are similar, but different: and consideration of each of them enhances understanding.

 

 A)  US Budget.  Every year, the US Government passes a budget, whereby governmental officials estimate beforehand how much money needs to be taken in to cover all expenses.  If the government actually takes in more money than it spends, the budget is said to have a surplus; if it takes in less than it spends, the budget is said to be in deficit. 

 

Since 1970, when Richard Nixon was President, the US budget has been in deficit every year except for the last four years under Clinton (1998-2001), where there was a surplus.  But this surplus began declining under Clinton: it was $236.2 billion in 2000, and only $128.2 billion in 2001, Clinton's last budget.  Under Bush, the US has gone drastically into deficit:  -$157.8 billion in 2002; -$377.6 billion in 2003; -$412.7 in 2004; and "only" -$318.3 in 2005, the last figures available.[50] 

 

Now, that's just yearly surpluses and deficits.  They get combined with all the other surpluses and deficits since the US became a country in 1789 to create to create a cumulative amount, what is called the National Debt. 

 

B)  US National Debt.  Between 1789 and1980: from Presidents Washington through Carter: the accumulated US National Debt was $909 billion or, to put it another way, $.909 trillion.  During Ronald Reagan's presidency (1981-89), the National Debt tripled, from $.9 trillion to $2.868 trillion.  It has continued to rise.  As of the end of 2005, 16 years later and after a four-year period of surpluses where the debt was somewhat reduced, National Debt (or Gross Federal Debt) was $7.905 trillion.[51]

 

To put it into context:  the US economy, the most productive in the world, had a Gross Domestic Product (GDP) of $11.7 trillion in 2004, but the National Debt was $7.9 trillion, or 67.5% of GDP: and growing.[52]

 

In April 2006, one investor reported that "the US Treasury has a hair under $8.4 trillion in outstanding debt.  How much is that?  He put it into this context:  "... if you deposited one million dollars into a bank account every day, starting 2006 years ago, that you would not even have ONE trillion dollars in that account."[53] 

 

Let's return to the budget deficit:  like a family budget, when one spends more than one brings in, they can do basically one of three things:  (a) they can cut spending; (b) they can increase taxes (or obviously a combination of the two); or (c) they can take what I call the "Wimpy" approach. 

 

For those who might not know this, Wimpy was a cartoon character, a partner of "Popeye the Sailor," a Saturday morning cartoon that was played for over 30 years in the US.  Wimpy had a great love for hamburgers.  And his approach to life was summed up in his rap:  "I'll gladly give you two hamburgers on Tuesday, for a hamburger today."

 

What is argued is that the US Government has been taking what I call the Wimpy approach to its budgetary problems:  it does not reduce spending, it does not raise taxes to pay for the increased expenditures: in fact, Bush want to cut taxes for the wealthiest Americans: but instead it sells US Government securities, often known as Treasuries, to rich investors, private corporations or, increasingly, to other countries to cover the budget deficit.  In a set number of years, the US Government agrees to pay off each bond: and the difference between what the purchaser bought them for and the increased amount the US Government pays to redeem them is the cost of financing the Treasuries, a certain percentage of the total value.  By buying US Treasuries, other countries have helped keep US interest rates low, helping to keep the US economy in as good of shape as it has been (thus, keeping the US market flourishing for them), while allowing the US Government not to have to confront its annual deficits.  At the end of 2005, the total value of outstanding Treasuries: to all investors, not just other countries: was $8.170 trillion.[54] 

 

It turns out that at in December 2004, foreigners owned approximately 61% of all privately-held outstanding US Treasuries.  Of that, 7% was held by China; these were valued at $223 billion.[55] 

 

The percentage of foreign and international investors' purchases of the total US public debt since 1996 has never been less than 17.7%, and it has reached a high of 25.7% in June 2005, the last date of available data. By June 2005, foreigners had accumulated over $2 trillion of Treasuries.[56]

 

Since the US Government continues to run deficits, it has become dependent on other countries buying Treasuries. Like a junky on heroin, the US must get other investors (increasingly countries) to finance its budgetary deficits.

 

To keep the money flowing in, the US must keep interest rates high: basically, interest rates are the price that must be paid to borrow money.  And as you might have noticed, the Federal Reserve has raised interest rates 15 out of their last 18 meetings: and will probably resume raising them shortly.  And, as known, the higher the interest rate, the more costly it is to borrow money domestically, which means increasingly likelihood of recession: if not worse.  In other words, dependence on foreigners to finance the substantial US budget deficits means that the US must be prepared to raise interests rates which, at some point, will choke off domestic borrowing and consumption, throwing the US economy into recession.

 

Yet this threat is not just to the United States: according to the International Monetary Fund (IMF), it is a threat to the global economy.  A story about a then-recently issued report by the IMF begins, "With its rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy...."  The report suggested that net financial obligations of the US to the rest of the world could equal 40% of its total economy if nothing was done about it in a few years, "an unprecedented level of external debt for a larger industrial country" according to the report.  What was perhaps even more shocking than what the report said was which institution said it:  "The IMF has often been accused of being an adjunct of the United States, its largest shareholder."[57] 

 

What might happen if investors decided to get out of US Treasuries and, say, invest in Euro-based bonds?  The US would be in big trouble, and if investors really shifted their money, the US could be observably bankrupt.

 

Why would investors rather shift their investment money into Euro-bonds instead of US Treasuries?  Well, obviously, one criteria is how solid is the US economy?  To get a good idea of how solid a country's economy is, one looks at things such as budget deficits, but perhaps even more importantly balance of trade:  how well is this economy doing in comparison with other countries?

 

The US international balance of trade is in the red and is worsening:  -$723.6 billion in 2005.  In 1991, it was -$31 billion.  Since 1998, the US trade balance has set a new record for being in the hole every year, except 2001, and then breaking the all time high the very next year!  -$165 B in 1998; -$263 B in 1999; -$378 B in 2000; only -$362 B in 2001; -$421 B in 2002; -$494 B in 2003; -$617 B in 2004; and - $723 B in 2005.

 

And the US current account balance, the broadest measure of a country's international financial situation: which includes investment inside and outside the US in addition to balance of trade: is even worse:  it was -$805 B in 2005, or 6.4 percent of national income.  "The bottom line is that a current account deficit of this unparalleled magnitude is unsustainable and there is no hope of it being painlessly resolved through higher exports alone," according to one analyst.[58] 

 

So, economically, this country is in terrible shape: with no solution in sight.

 

On top of this: as if all of this is not bad enough: the US Senate just passed and sent to the House a Defense spending bill for $478 billion dollars for the military in FY 2006 (October 1, 2006-September 30, 2007).  According to Stockholm International Peace Research Institute, in 2004, the US "defense" spending was equivalent to 46.7% of all military spending in the world, meaning that almost more money is provided for the US military in one year than is spent by the militaries of all the other countries in the world combined.[59] 

 

And it doesn't include the $500 B spent so far, approximately, on wars in Afghanistan and Iraq.

 

In short, not only have things gotten worse for American working people since 1973: and especially after 1982, with the imposition of neo-liberal economic policies by institutions of the US Government: but on-going Federal budget deficits, the escalating National Debt, the need to attract foreign money into US Treasuries, as well as the massive amounts of money being channeled to continue the Empire, all suggest that not only will intensifying social problems not be addressed, but will get worse for the foreseeable future. 

 

 4) Conclusion

 

This article has argued that neo-liberal economic policies advanced by the US Government and multinational corporations have caused the situation for working people in the United States to be getting worse: and there is no end in sight.  The current situation and historical change have been presented and discussed.  Further, an examination and analysis of directly relevant US economic policies have been presented, and there has been nothing in this analysis that suggests a radical, but necessary, change by US elected officials is in sight.  In other words, American workers are in bad shape generally: and it is worse for workers of color than for white workers: and there is nothing within the established social order that suggests needed changes will be effected.

 

The struggle against neo-liberal economic policies in the US: which, in my opinion, is absolutely necessary: by necessity means challenging the continued existence of the US Empire.  The efforts of particularly the Bush Administration to dominate the world, colluded with by most Democratic legislators, is disemboweling the US economy, while attacking working people in the US and working people around the world.  At the same time, money being thrown down the rat hole of the US military and related projects is needed money that cannot be used to address the many social problems in the US and around the world.  The point should be obvious:  the US cannot solve the problems of the US society alone, much less those of people around the world, and maintain the Empire.  The American people must decide which side they are on.

 

Yet, let me be clear.  Any program challenging the Empire cannot be in some futile hopes of "saving" American workers at the expense of workers around the world:  this can only be in solidarity with workers around the world.  That means white workers around the world have to attack any remnants of racial oppression, and build solidarity with peoples of the world: and we have to attack all forms of oppression.  We have to create a global economy that is both ecologically sustainable and economically sustainable, and can exist in harmony with the planet, at a level of consumption sustainable if carried out by all the people of the world.

 

Kim Scipes is a long-time labor activist and a member of the National Writers Union, AFL-CIO.  He currently teaches sociology at Purdue University North Central in Westville, Indiana.  His on-line "Current Labor Issues" bibliography can be accessed at http://faculty.pnc.edu/kscipes/LaborBib.htm.  He can be reached at kscipes@pnc.edu.

 

 

 

 

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