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Redistribution of wealth has gone upward, not down, since early ’80s

A Center on Budget and Policy Priorities study indicates that we are more unequal as a nation today than at any time since before the Great Depression.

Jeff Kolnick

Fox News has recently unearthed a recording of President Barack Obama from 1998 where he states his belief that government can help people. He said: “I think the trick is figuring out how do we structure government systems that pool resources and hence facilitate some redistribution — because I actually believe in redistribution, at least at a certain level to make sure that everybody’s got a shot.”

So we are back where we began four years ago, back to “Joe the Plumber” and the idea of income redistribution. Remember, Joe the Plumber? Remember when then-candidate Barak Obama stated that we need to spread the wealth around a little bit? Well once again, the right has seized on the idea of wealth redistribution as a left-wing plot hatched to destroy America and turn the nation into some sort of European socialist experiment.

It is necessary sometimes to point out that the redistribution of wealth can move in two directions. From the those with plenty of money to those who are less fortunate (as Mitt Romney and Bill O’Reilly so deeply fear) and from those with little wealth to those with more money than they can ever spend in a lifetime (as has actually been happening in the United States since the 1980s).

Oh, how the facts are bothersome. Since 1980 the distribution of wealth in the United Sates has changed dramatically. The rich have gotten richer, and the poor have gotten poorer. A recent study from the Center on Budget and Policy Priorities indicates what is widely acknowledged to be true: that we are more unequal as a nation today than at any time since before the Great Depression. The data of The Economic Policy Institute (EPI) in its “The State of Working America” analysis shows that between 1983 and 2010 the top 5 percent of income earners increased their share of the pie by 74.2 percent, while the bottom 60 percent of us had our share of national income decrease.

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In other words, the redistribution of national income went from the bottom to the top and not, as the right fears, from the top to the bottom.

Share of total wealth growth accruing to various wealth groups, 1983–2010

Source: EPI

In contrast to the last 32 years of increasing inequality, between 1935 and 1975  the United States became a more equal nation. This did not mean that the rich suffered; it just meant that they increased their riches in roughly equal proportion to the rest of us. A raft of government policies helped create this more level playing field.

During those years we had a sharply progressive income tax, and we spent that money in ways that sustained a strong middle class. We built and maintained the world’s best infrastructure, and paid the workers who did it union wages. We built and staffed the world’s greatest and most extensive public higher-education system — and then dramatically subsidized the education of millions of people with low or free tuition and a generous GI Bill. Business and corporate leaders felt some sort of compulsion to invest in America instead of where they could find the highest profits and pay the lowest wages. Indeed, in 1965, CEOs were paid only 20.1 times more than the average worker instead of today’s 231 times.

CEO-to-worker compensation ratio (options granted and options realized) 1965–2011 

CEO-to-worker compensation ratio chart
Source: EPI
Note: “Options granted” compensation series data includes salaries, bonuses, restricted stock grants, options granted, and long-term incentive payouts for CEOs at the top 350 US firms ranked by sales. “Options exercised” compensation series data include slaries, bonuses, restricted stock grants, options exercised, and long-term incentive payouts for CEOs at the top 350 firms ranked by sales. 

We also protected the right of workers to organize and bargain collectively. This last point is highly significant because collective bargaining allowed workers to reap the gains won by their increased productivity on the job. Since the full-scale assault on unions began when President Ronald Reagan fired the air traffic controllers in 1981, the share of wealth captured by workers from increased productivity halted, and that wealth has migrated to those at the very top.

Cumulative change in total economy productivity and real hourly compensation of production/nonsupervisory workers, 1948–2011

Cumulative change in total economy productivity and real hourly compensation of
Source: EPI
Note: Data are for production/nonsupervisory workers in the private sector and productivity of the total economy.

If we as a nation want to discuss income redistribution, let’s look at the facts. Since 1981 we have embarked on a national project of transferring wealth from the bottom and the middle to the very top. To accomplish this we have slashed taxes, ballooned the national debt, demonized unions and working people as greedy takers and romanticized the rich as job creators.

This project has worked well for people like Mitt Romney. It has not worked for the rest of us.

Between 1935 and 1975, we grew more equal as a nation and everyone prospered. We know how and why this happened. The only question is: Do we want to face the facts?

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Jeff Kolnick is an associate professor of history at Southwest Minnesota State University.

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