For some time now, we
have thought about the meaning of income levels in our society. Our main point in
this essay is not so much the preciseness of the numbers, although we consulted
several sources. This multi-part essay is one attempt to put lots of discussion
into one format. In our professional settings (a
financial advisor’s office and a community college) and in informal
conversations, we sense that most of us have only a vague notion of economic
realities in our country. Despite comprehensive books about inequality, despite
newspaper articles about factory closings or about new business ventures,
despite national political campaigns, most of us are fuzzy about how our
situation compares with others and about our own prospects for economic
stability and about the reliability of our economy’s promise: “Hard work will
be rewarded.”
In
normal conversations people do not speak too specifically about their income.
Even in those situations where personal income is revealed, many people lack an
up to date perspective on how their family compares to others. For example,
$85,000 per year was once considered a good income, but for most Americans
today this amount is often not enough to dispel economic stress.
Does
our $85,000 income example include a pension
or a retirement account? Probably
not, because as each year goes by many more families have no guaranteed
pension. That means families who deserve a secure retirement have to dedicate
about 15% of earnings toward retirement savings. Social security benefits,
under both Democrats and Republicans, have been reduced, and continue to trend
in that direction. Thus, an individual’s own savings becomes more important for
security in retirement.
In
addition to concern about retirement, our $85,000 family is likely stressed
these days because of health care
insurance. There has been a 25% increase in insurance cost over the last five
years for the middle class, even though the insurance mechanisms have
supposedly been reformed.
And
finally, there is college education
for this family. Its cost was not proportionately a big part of a family’s
budget even 20 years ago.
So,
if a seemingly secure family is budgeting for retirement in a responsible way, has
adequate health care insurance and is saving for college, there is not much
left over on an $85,000 income.
The Gaps
It
is true that the overall U.S. economy has doubled within the past 35 years. It
is true that the average income has increased. The income gap, however, is
growing. When it comes to income increase, 70% of it now goes to those in the
top 10% of income. More dramatically, the top 1/10% is gaining income far ahead
of all others, including the next top 4.9%.
For half of all U.S. families, their
share of the growing economy has shrunk significantly. This bottom 50% of
families earns 12.5% of the country’s total income. The top 1% in income
actually gets 20% of the total income in our country.
In addition to an income gap there are
parallel social gaps. We stress that there is not an easy cause-effect
relationship between these other gaps and the income gaps. That is, it is wrong
to say that if every family changed their behavior on this-or-that, those
families would increase their income. Or that if somehow a family would simply
move from here to there, that family would increase its income. It is wrong to
say that if only government had this social policy instead of that social policy,
families would get with it and they would improve their income.
Nonetheless, some social and cultural
gaps strongly parallel income gaps. Specifically, there is general
correspondence (though not hard cause-and-effect) between income and one’s
geography, one’s cultural setting, one’s educational level and one’s family
stability.
To be continued…
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