Last week, Janet Yellen, the nominee to replace Ben Bernanke as chair of the Federal Reserve, highlighted the rising trend of income inequality and the threat it poses to the economy during her Senate confirmation hearing.
“This is a very serious problem, it’s not a new problem, it’s a problem that really goes back to the 1980s, in which we have seen a huge rise in income inequality… For many, many years the middle and those below the middle [have been] actually losing absolutely.” Yellen said. “And frankly a disproportionate share of the gains, it’s not that we haven’t had pretty strong productivity growth for much of this time in the country, but a disproportionate share of those gains have gone to the top ten percent and even the top one percent. So this is an extremely difficult and to my mind very worrisome problem.”
Yellen is not the first, but is one among a growing chorus who believe that income inequality is a growing detriment to the future of humanity.
Yale professor and economist Robert J. Shiller, who was among three Americans who won the Nobel prize for economics in 2013, believes that rising economic inequality in the United States and other countries is “the most important problem that we are facing now today.”
The Dalai Lama has also weighed in on the topic, tweeting, “Economic inequality, especially that between developed and developing nations, remains the greatest source of suffering on this planet.”
The top 10 percent of Americans took half of the country’s income home last year, the largest amount ever recorded. Meanwhile, the majority of Americans experience poverty and stagnation, based on recent research from a variety of sources, including Harvard University.
Income Inequality in the U.S: Perception vs. Reality
Income inequality has grown significantly in the past 40 years in the United States and has been studied by many scholars and institutions. While inequality has risen among most developed countries, and especially English-speaking ones, it has been the highest in the United States.
Most of the growth has been between the middle class and top earners, with the disparity becoming more extreme the further one goes up in the income distribution. A 2011 study by the U.S. Congressional Budget Office found the top-earning 1 percent of households increased their income by about 275 percent after federal taxes and income transfers from 1979 to 2007, compared to a gain of just under 40 percent for the 60 percent in the middle of America’s income distribution.
Other sources find that the trend has continued since then. In spite of this data, only 42 percent of Americans think inequality has increased in the past ten years.
A YouTube infograpnic video, ‘Wealth Inequality in America,’ compiled from comparative charts based on a survey of more than 5,000 Americans conducted by a Harvard Business School professor and an economist, has been making its way around the Web.
Information in the video was obtained via participants’ responses to questions about how they thought wealth was distributed in the United States among five ‘demographic’ groups – bottom, second, middle, fourth and top.
The infographics reveal what Americans think is the state of wealth distribution in the U.S., what the ideal situation would be, and the real state of wealth distribution in the country.
Nine out of ten – 90 percent – of those asked did not predict the real picture of the way wealth is distributed the U.S.
The Gap Widens
In 2012, the gap between the richest 1 percent and the remaining 99 percent was the widest it’s been since the 1920s.
Incomes of the wealthiest 1 percent rose nearly 20 percent, whereas the income of the remaining 99 percent rose 1 percent in comparison
Yellen surmised many causes for rising income inequality, including technology, globalization, and the decline of unions. “The solutions involve a multitude of things, including education, maybe early childhood education, job training, other things,” she said. “While the Federal Reserve can’t change all of those problems, she argued, what it can do is try to bring about a strong economic recovery that creates jobs and gives people more opportunities to rise up the ladder.”
Yale’s Robert Shiller, known for developing a widely used measure of home prices, who was awarded the Nobel Memorial Prize in Economic Science last month,said rising inequality is the most critical issue facing the U.S and the world today.
And Lawrence Mishel, who heads the Economic Policy Institute, told the New York Times that a shrinking minimum wage cut into the earnings of the nation’s least-skilled workers while falling trade barriers, deregulation and the decline of labor unions eroded the income of the middle class. He said the rise of the top 1 percent is mostly about executive pay and the growing footprint of finance.
The same article also explores recent ideologies that say technological advances or lower college graduation rates could be the culprits in the stagnation of the middle class coming at the same time as the so-called 1 percent’s rise to unprecedented heights.
“I don’t think the college to non-college wage premium gives you any insight into why such a large share of the economic gains has accrued to such a tiny share of the population,” said David Card, a noted labor economist at the University of California, Berkeley.
Yet the question lingers: what exactly is the root of the problem if not these factors?
Some attribute it to greed.
For centuries, various world cultures and religions have urged people to turn away from greed, Steve Suranovic, associate professor of economics and international affairs at George Washington University, noted in “Greed,Capitalism and the Financial Crisis.”
“So if not greed, then what? The typical solution to greed is to invoke its opposite, altruism. Across the world in churches, synagogues, and mosques, people learn that the right and proper way to live is not to be self-centered and greedy, but to be altruistic; to give to others,” Suranovic writes.
In his research, Suranovic found a variety of ethical teachings from many different viewpoints that warn against the detrimental effects of greed. The Koran states, “whoever is saved from the greediness of his soul, these it is that are the successful”. The Tao Te Ching states, “when there is no desire, all things are at peace.” In the Bhagavad Gita, the Lord Krishna declares, “There are three gates leading to this hell—lust, anger and greed. Every sane man should give these up, for they lead to the degradation of the soul.” Finally, Sulak Sivaraksa, a leading Buddhist writer, states that “corporatism depends on greed …and is … an anathema to the goals of Buddhism.”
The Dalai Lama doesn’t mince words: “Yet true happiness comes from a sense of peace and contentment, which in turn must be achieved through the cultivation of altruism, of love and compassion, and elimination of ignorance, selfishness, and greed.”
Humanity would be wise to heed the wisdom of the preceding sources and learn to overcome greed while practicing compassion.