NEW PSYCHOLOGICAL EFFECTS OF POVERTY

Government measures of poverty in America tell us nothing about the long-term psychological effects of low incomes and rising inequality, which are undermining the belief that hard work pays off. Scholars have found a measurable relationship between this loss of faith and the declining interest many Americans now show in seeking a better future through education and job performance.

Gateway to Sources and Information About Income Inequality in the United States

Millions of Americans are working longer hours for lower wages, and yet almost all of the new income and wealth being created is going to the top one percent. While the top one percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. 
  Scholars, from the Nobel-Prize-winning Paul Krugman to the widely respected economist James Surowiecki, have been working to analyze these disparities. Americans are not generally aware of the extent of this income inequality. In most developed countries, there is a direct relationship between income inequality and the public's views about the need to address the issue – but not in America, where income inequality is worse but the concern is lower. The most commonly accepted measurement of income inequality, the Gini Index, ranks the United States sixth-worst among 173 nations. 
   Private-equity companies are far more obviously connected to an undue concentration of wealth at the expense of workers and communities than are collateralized-debt obligations, which were at the core of our 2008 Great Recession. Within the one percent, there is a top one percent that consists disproportionately of private-equity and hedge-fund principals.

POOR ARE LOSING CONFIDENCE

Too little attention is being paid to new analyses showing that people of all racial and ethnic groups are losing confidence in the core American principle that hard work is a means to upward mobility. This will have long-term economic costs as low-income Americans increasingly see few benefits of education or hard work for themselves and their children.

"America: The Forgotten Poor," Jeff Madrick, New York Review of Books, June 22, 2017, pp. 49-50.

CENSUS BUREAU REPORT TELLS LITTLE ABOUT POVERTY

[The Census Bureau's annual Official Poverty Measure] tells the public little about how materially deprived the poor are, how much income they actually have, how reduced their children’s chances are of developing skills for climbing into the middle class, or, most important, how many truly poor there are in America.

"America: The Forgotten Poor," Jeff Madrick, New York Review of Books, June 22, 2017, pp. 49-50.

43 MILLION IN POVERTY

In 2015, the last year for which data are available, 43.1 million people—13.5 percent of the population—were considered to be in poverty, defined as falling below an annual income threshold of $24,257 for a family of four.

"America: The Forgotten Poor," Jeff Madrick, New York Review of Books, June 22, 2017, pp. 49-50.

POVERTY RATE IS HIGH NOW

The poverty rate has been as low as 11.1 percent in the 1970s; it rose under Ronald Reagan to approximately 15 percent and then fell to about 13 percent before rising again, then fell again under Bill Clinton to 11.3 percent before rising in the 2000s.

"America: The Forgotten Poor," Jeff Madrick, New York Review of Books, June 22, 2017, pp. 49-50.

SOME FALL BELOW POVERTY LINE SEASONALLY

Census Bureau measures tell us nothing useful about the growing number of people whose average incomes are above the poverty line but who often fall under it for several months of the year. According to one sample, 94 percent of those who earn between 100 and 150 percent of the poverty line are officially poor for at least one month, for example.

"America: The Forgotten Poor," Jeff Madrick, New York Review of Books, June 22, 2017, pp. 49-50.

FOR POOREST, INCOME GROWTH NEAR ZERO

“In recent years, trends in average living standards interacted with rising income inequality to produce stagnant wages in the lower and middle income groups. . . . since 2000, the decline in average income growth was further exacerbated for the lowest income groups by a declining share of the total. So, for the bottom fifth, the growth in real income declined from 3 percent . . . to essentially zero in the last fifteen years. Of this catastrophic decline, about half was due to the slower overall growth, while half was due to rising inequality.”

William D. Nordhaus, “Why Growth Will Fall, New York Review of Books, August 18, 2016, page 66.

MULTI-MILLIONAIRE SEES REVOLUTION COMING

Multi-millionaire Nick Hanauer is no dummy. He sees the writing on the wall.

“And what do I see in our future now?

“I see pitchforks.

“At the same time that people like you and me are thriving beyond the dreams of any plutocrats in history, the rest of the country — the 99.99 percent — is lagging far behind. The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top one percent controlled about 8 percent of U.S. national income. The bottom half shared about 18 percent. Today, the top 1 percent [of the U.S. population] share about 20 percent; the bottom half, just 12 percent.

“But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.

“And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.

“No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counter-examples. None. It’s not if, it’s when.

Nick Hanauer, “The Pitchforks Are Coming for Us Plutocrats,” Politico Magazine "The pitchforks are coming . . . for us Plutocrats"

GOVERNMENT CONTRACTORS One-percenters like Boeing, Northrup-Grumman, and Lockeed Martin have charged the government billons of dollars for post-911 safety projects. Read Steven Brill’s deeply incisive article in the September 2016 issue of The Atlantic magazine at http://www.theatlantic.com/magazine/backissues/ page 61. Steven Brill, “Are We Any Safer?” The Atlantic, September 2016.

PEW SURVEY SHOWS NEAR-UNIVERSAL INCOME LOSSES

Households in all economic tiers experienced near-universal decreases in median incomes across U.S. metropolitan areas, according to the independent Pew Foundation’s Research Center. Middle-income households lost ground financially in 222 of 229 metropolitan areas from 1999 to 2014. Meanwhile, those in the lower-income tier saw their median income slip in 221 areas and those in the upper-income households took a financial hit in 215 areas.

Pew Research Center 2014 American Community Survey

MIDWEST HAS TOP 10 MIDDLE-CLASS AREAS

The 10 metropolitan areas with the greatest shares of middle-income adults are located mostly in the Midwest, according to the independent Pew Foundation’s Research Center. Metropolitan areas with the largest upper-income shares are mostly in the Northeast or on the California coast, while the 10 metropolitan areas with the biggest lower-income tiers are in the southwest, several on the border with Mexico.

Pew Research Center 2014 American Community Survey

TRUMP’S WHITE WORKING-CLASS SUPPORTERS

[Donald] Trump’s white working class supporters — who provide somewhere between 58 percent and 62 percent of his votes, according to data from NBC and ABC polls — have suffered a stunning loss of relative status over the past 40 years. Their wages have stagnated or declined; the ascendance of minorities has threatened their cultural dominance; and the growth of an increasingly large and affluent upper middle class has pushed goods and services once viewed as theirs by right beyond their reach.

Thomas B. Edsall, “How Falling Behind the Joneses Fueled the Rise of Trump,” New York Times, July 7, 2016, Opinion Pages.

MANY ESSENTIAL EXPENDITURES HAVE BECOME UNAFFORDABLE

For those in the bottom third of the income distribution, even essential expenditures have become unaffordable: the $7,000 to $10,000 average cost of a funeral, the $33,865 average cost of a new car, the $18,000 average annual cost of child care.

Crucially important is the fact that rising inequality constitutes a double whammy. It raises the cost of sought-after goods and it increases the economic gap between the working class and the affluent, spurring nostalgia for what was (even if what was really wasn’t).

Thomas B. Edsall, “How Falling Behind the Joneses Fueled the Rise of Trump,” New York Times, July 7, 2016, Opinion Pages.

WEALTHY PULLED THE RUG OUT

“In effect, the increase in the resources commandeered by the overclass has pulled the rug out from under the once upwardly mobile white working class.”

Thomas B. Edsall, “How Falling Behind the Joneses Fueled the Rise of Trump,” New York Times, July 7, 2016, Opinion Pages.

WEALTHY CAN BID UP THE PRICES

Thomas Edsall, writing in the New York Times, noted: “Growing income inequality in the U.S. has meant that, as those at the top are able bid up the price of valued goods like housing and access to good schools, those in lower groups have struggled to maintain their positions.” [quoting an essay titled, “Keeping Up With the Joneses,” presented at the annual meeting of the American Sociological Association by Neil Fligstein, a professor of sociology at Berkeley, Pat Hastings, a Ph.D. candidate at Berkeley, and Adam Goldstein, a professor of sociology at Princeton University.]

Thomas B. Edsall, “How Falling Behind the Joneses Fueled the Rise of Trump,” New York Times, July 7, 2016, Opinion Pages.

NO MONEY FOR A CAR REPAIR BILL

A May 2015 Federal Reserve report provides a window into the financial condition of many in the working class. It found that 47 percent of Americans do not have the resources to cover a $400 bill for such unanticipated costs as a car repair or a health emergency. They would be forced to borrow from friends or family, to sell something, to go to a payday loan company or to add to their credit card debt.

Thomas B. Edsall, “How Falling Behind the Joneses Fueled the Rise of Trump,” New York Times, July 7, 2016, Opinion Pages.

U.S. MEDIAN INCOME IS $53,567

In July 2014, USA Today estimated that in the United States, where the median household income was $53,567, the minimum annual cost of living the American dream was $130,357.

Thomas B. Edsall, “How Falling Behind the Joneses Fueled the Rise of Trump,” New York Times, July 7, 2016, Opinion Pages.

BRITISH EXIT FROM EUROPEAN UNION RATTLES WEALTHY 

A measure of consumer sentiment dropped sharply in July, as wealthy Americans were rattled by a decision by the U.K. to leave the European Union. The University of Michigan said . . .  its consumer sentiment index fell to 89.5 in July, a three-month low, from 93.5 in June. Economists polled by MarketWatch anticipated a reading of 92.5.

Fidelity Alerts, July 15, 2016

FORMER UKRAINIAN PRESIDENT’S ADVISER NOW PLAYS SAME ROLE FOR TRUMP

            “In December 2013 Russian leaders made financial aid to [Ukrainian President Viktor] Yanukovych’s government contingent upon clearing the streets of protestors. The government’s subsequent escalation of repression – first the suspension of the rights to assembly and free expression in January 2014, and then the mass shooting of protestors in February – turned the popular movement into a revolution. On February 22 [2014], Yanukovych fled to Russia. (Two years later, his political strategist, Paul Manafort, would resurface in the US, playing the same role for [billionaire presidential candidate] Donald Trump.)”

Timothy Snyder, “The Wars of Vladimir Putin,” New York Review of Books, June 9, 2016. Timothy Snyder is the Housum Professsor of History at Yale University. His most recent book is Black Earth: The Holocaust as History and Warning.