United States income gap at its widest since The Great Depression

Statues of men waiting in a Depression-era breadline that are part of the FDR Memorial in Washington, D.C.

More than likely, someone in this line would have accepted less if they would be assured of coming out on top. (Photo Credit: CC BY/Tony/Flickr)

Setting aside the idealism of the Declaration of Independence, we know it to be true that not all men, women and children are created equal. According to a recent piece in Slate, America is in the middle of a “Great Divergence,” a time when the income gap between the haves and the have-nots is as large as it has been in 80 years. Not surprisingly, the last time it was this wide was during the Great Depression.

Income gap and the economics of inequality

According to emeritus Professor Finis Welch of Texas A&M in his lecture “In Defense of Inequality,” the very nature of economics and the income gap in America springs from inequality. Without it, Welch argues, there would be “no trade, no specialization, and no surpluses produced by cooperation.” If skill, effort and even sheer chance played no role in establishing incomes, he argues that life would be that much more deadening, emotionally. It’s hard to argue that this isn’t already the case for many who spend their working lives in manual labor, for instance.

Eating up what we don’t have

Being undereducated is not the only problem the have-nots of the American workforce face today, suggests Slate. Once upon a time (for most of the 20^th century), the rewards of going to college had an immediate impact on money earned. However, the demand for highly skilled labor isn’t being met sufficiently, and the working middle class is feeling the most profound effects of America’s latest Great Divergence. As wages remain in a state of stagflation, consumption remains high, according to the Cato Institute. It’s high to the point that it continues to outpace income.

Social and income inequality are intertwined

Slate writes that “Among industrialized nations, those that have achieved the greatest social equality are the same ones that have achieved the greatest income equality.” Nations like France – which happens to enjoy what the World Trade Organization calls the world’s finest health care system – have displayed a drop in income inequality while other nations have gone in the opposite direction. Jonathan Rowe argues in his essay “The Vanishing Commons” that among nations where the income gap has grown unchecked, there are more institutional borders placed between the upper class and the rest of humanity, rather than public institutions aimed at equalization. In other words, countries like the United States are very much the opposite of what an “ownership” society could be.

Happy just being on top

For the most part, the haves of America don’t appear to see the need to take ownership for the nation’s economic inequality. However, the have-nots of society seem to have trouble with arithmetic. Slate cites a 1998 study by economists Sara Solnick and David Hemenway. Subjects of the study were middle class or lower. The question posed was whether it would be preferable to earn $50,000 per year while everyone else earned $25,000, or to earn $100,000 per year while everyone else earned $200,000. All other factors being equal, 56 percent of respondents chose $50,000. If more people could abandon the idea of being on top at all costs and focus more on the income gap’s downward pull on consumer demand, America would be getting somewhere.