Posted by Bob Lord
Think inequality is not our greatest challenge? Check out these two articles: ILO: U.S. Inequality Now Literally Off The Chart and Labor's Share Plummets, Capital's Share Soars: New Fed Data.
Really, the headlines say it all, but there are a few important points beyond the headlines.
The measure for a country's inequality is its Gini coefficient, which ranges from 0 (each household has the same income) and 100 (one rich family gets everything and all others get nothing). The U.S. now stands at 47.7, almost halfway to the most extreme inequality possible. Inequality in other developed countries falls between 20 and 35. Actually, in terms of wealth inequality, we literally are halfway there. The Walton family has as much wealth as slightly less than half the population combined.
The U.S. now is in a class by itself on inequality. It is the only country where inequality is already high and rising. There are countries with lower yet rising inequality. There are countries with inequality at levels comparable to the U.S., but their inequality has leveled off or is now falling. We're the only one in both categories. Where will that leave us in just a few years?
Turning to the allocation of income between labor and capital, we're in record territory there as well. Here's David Cay Johnston's closing:
In 2004, economist Michael R. Pakko wrote in a St. Louis Fed publication about what appeared to be a decline in labor’s share of national income.
“The allocation of national income between workers and the owners of capital is considered one of the more remarkably stable relationships in the U.S. economy,” Pakko wrote, adding:
As a general rule of thumb, economists often cite labor’s share of income to be about two-thirds of national income … labor’s share of national income has averaged 70.5 percent over the past 50 years and has remained within a narrow range of that average. Only time will tell if a significant shift in income allocations is underway. However, a long-run perspective suggests that it would indeed be unusual for labor’s share to deviate far from its historic value.
Time has now told.
Here is another prediction: Labor’s share will continue to move downward because current government rules, federal and state, favor capital at the expense of labor.
Got that? A remarkably stable relationship in the U.S. economy, the distribution of income between capital and labor, is no longer. Labor's share is now plummeting.
And Johnston is right, labor's share will continue to fall. And as that occurs, our inequality will become even worse.