US Set to Become the Newest Third World Country

The United States, the home of Capitalism, is about to demonstrate its ultimate failure, as the cannibalistic economic system consumes the nation’s economy from within.

The US economy is rigged toward the 1% of wealthiest citizens and corporations, this radically skews outcomes to the detriment of the economy as a whole.

As CJ Werlhman writes over at Alternet:

America has the most billionaires in the world, but not a single U.S. city ranks among the world’s most livable cities. Not a single U.S. airport is among the top 100 airports in the world. Our bridges, roads and rails are falling apart, and our middle class is being gutted out thanks to three decades of stagnant wages, while the top 1 percent enjoys 95 percent of all economic gains.

US income inequality is at its greatest for nearly a century and is rising, as the income gap between the bottom 90% and top 1% of Americans reaches its largest since 1928.  When compared globally, the US is the second most economically unequal society (behind Chile).  But what does economic inequality mean for average Americans?

Income inequalities within a developed country result in radically skewed life outcomes, including poorer health, and vastly reduced social mobility. And this is in spite of the fact that once a nation reaches the absolute economic development of the OECD countries, the income differentials between countries do not amount to much. It is absolutely the economic inequality within a country such as the US, not how rich that country is overall, that dictates the quality of life for the majority.

According to research by UC Berkeley, 1928 saw the top 1% of American’s receive 23.9% of all pre-tax income, and the bottom 90% get 50.7%.  By 1944, the impacts of redistributive efforts such as Roosevelt’s New Deal, saw this gap close dramatically; the share of the top 1% fell to 11.3% and the bottom 90% saw their share of income grow to 67.5%.  The gap continued to close until the late 1970’s, with the increasing gap since returning the US to 1928 levels this year.

So what changed?

Primarily, the ascendance of neoliberal economic policies put forward by the likes of US neoliberal economist Milton Friedman and the Chicago School, who considered redistributive policies, and other state interference in markets as a barrier to, not bringer of equality.  Friedman once wrote:

“A society that puts equality—in the sense of equality of outcome—ahead of freedom will end up with neither equality nor freedom.… On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality.[1]”

Friedman was wrong. Economic inequality matters, because inequality of income translates to inequality of outcome.

The UC Berkeley research supports the view that Friedman’s assertion was incorrect.  This point is underscored by evidence of economic inequality produced by the Organisation for Economic Cooperation and Development (OECD). What is particularly useful about the OECD data, is that it compares countries before and after redistributive policies such as taxes are applied.   

In the case of the US, the gap in absolute income compares favourably with other developed countries – the US being 10th most unequal.  But after accounting for taxes and transfers, the US rose to the second most unequal society.  Conversely, Ireland begins with the largest gap in incomes, yet applies redistributive policies to draw it down to 10th most unequal.

Read more