My last two posts, here and here, have dealt with the contention by Richard Reeves that the real inequality gap in the U.S. is not between the top 1% (the wealthy) and the bottom 99% but rather between the top 20% (the upper middle class) and the remaining 80%.
The top 20% are the highly educated doctors, lawyers, business managers, successful entrepreneurs, academics, journalists, etc. who thrive in the global economy, largely shielded from the intense market competition faced in the non-professional occupations. Basically the upper 20%, with incomes of $112,000 and up, have it made.
The question is then, how do we give a boost to the people in the middle- and lower-income brackets so that more of them can enjoy much of the same prosperity as the top 20%?
The answer is to:
Make the economy grow faster than the slow 2% annual GDP growth we have had since the end of the Great Recession in June 2009. With sensible tax and regulatory reform, we should be able to achieve a growth rate of 2.5% per year. This will create more jobs and better paying jobs.
Improve educational opportunities by, for example, making early childhood education widely available to low-income families, attracting the best teachers to the poorest schools with targeted bonus pay, and funding college more fairly by requiring that all student debt repayment be income-based.
Fundamentally reform the American healthcare system in order to reduce healthcare costs from the current 18% of GDP to about 12% which is the average for other developed countries. This will save the American economy $1 trillion per year in unnecessary and extravagant costs, which could be put to much better use for higher worker pay, expanded social services and shrinking annual deficit spending.
Conclusion. The U.S. is a very prosperous country but clearly we can do an even better job to improve the quality of life for many more Americans.
Like everyone else, I am trying to understand how such a sleazy and personally obnoxious individual as Donald Trump was elected President of the United States. We know that his core supporters are white working-class voters. We also know that our relatively stagnant 21st century economy has been very difficult on blue-collar workers.
But here is another thread. The author, Richard Reeves, in the new book “Dream Hoarders” makes a strong case that the real inequality gap in the U.S. is not between the top 1% (the wealthy) and the bottom 99% but rather between the top 20% (the upper middle class) and the remaining 80%.
The top 20% consists of households with an income above $112,000 per year (see chart). Such households saw a $4 trillion increase in incomes between 1979 and 2013. A third of this income rise went to the top 1%. But this still left $2.7 trillion for the next 19%. The lower 80% saw an income rise of $3 trillion over this same period.
The top 20% are the highly educated doctors, lawyers, business managers, academics, think tankers, journalists, etc. These are the people who flourish in a global economy, largely shielded from the intense market competition faced in the nonprofessional occupations.
Donald Trump tapped into the anxiety of the lower 80%. He received 58% of the total white vote but 67% of the votes of whites without a college degree.
The upper middle class tend to perpetuate their inherent advantages. They tend to have stable marriages and live in the best neighborhoods with the best public schools. They can afford to send their kids to the best colleges. Most of their kids will remain in the upper middle class.
Conclusion. Such a thriving and self-perpetuating upper middle class can cause severe resentment amongst the bottom 80% who have to work much harder to make ends meet. How should this very difficult problem of entrenched elitism be addressed? Stay tuned!