Friday, September 02, 2005


William Fisher

“The rich got richer and the poor got poorer” is a sentence most often used to describe the economic plight of underdeveloped countries.

But last week, it was being used to describe the economy of the world’s lone superpower: The USA.

The U.S. Census Bureau released new figures that many economists say reflects the negative impacts of President George W. Bush’s “Ownership Society”.

Four measurements tell the tale: Household incomes, the poverty rate, the rising percentage of total income received by the top 20, 5, and 2 percent of Americans, and the number of Americans without health insurance.

Last year, America’s poverty rate rose to 12.7 percent of the population, the fourth consecutive annual increase. That means there were 37 million people living on incomes below $19,157 or less for a family of four, up 1.1 million in 2003.

This income inequality was near all-time highs in 2004, with 50.1 percent of income going to the top 20 percent of households. Only the top five percent of households experienced real income gains in 2004. Incomes for the other 95 percent of households were flat or falling.

The poverty threshold differs by the size and makeup of a household. For example, a family of four with two children was considered living in poverty if its income was $19,157 or less. For a family of two with no children, it was $12,649. For a person 65 and over living alone, it was $9,060. These figures must also be viewed against the background of the cost of living in each state or location, which varies widely around the country.

Asians were the only ethnic group to show a decline in the proportion in poverty -- from 11.8 percent in 2003 to 9.8 percent last year. The poverty rate among the elderly declined as well, from 10.2 percent in 2003 to 9.8 percent last year.

The last decline in overall poverty was in 2000, when 31.1 million people lived under the threshold -- 11.3 percent of the population. Since then, the poverty rate has increased steadily from 11.7 percent in 2001, when the economy slipped into recession, to 12.5 percent in 2003.

The situation may in fact be worse, because it is unclear whether the Census Bureau counts alien immigrants. If so, the data would be skewed even more heavily toward greater poverty.

Median household income, meanwhile, stood at $44,389, unchanged from 2003 -- the longest stretch of income stagnation on record.

Among racial and ethnic groups, African Americans had the lowest median average income and Asians the highest. Median income refers to the point at which half of households earn more and half earn less.

Regionally, the South had the lowest median incomes, with the, Northeast and the West the highest.

The increase in poverty came despite strong economic growth -- the economy grew a solid 3.8 percent -- which helped create 2.2 million jobs last year. But these new jobs were overwhelmingly in the services sector, where salaries are far lower than in manufacturing. Manufacturing jobs were disappearing, and the American workforce continued to lack the skills needed to fill the service sector jobs that did pay higher salaries.

A majority of Americans now must seek two jobs to replace the income lost from one.

Moreover, much of the growth in economic wealth over the last few years has been purely in financial assets going to the rich in the form of capital income -- interest, rents, and dividends, many economists say.

The official net percentage of people without health insurance grew by 800,000 -- up from 45 million to 45.8 million. But the Census Bureau said the percentage of uninsured remained relatively steady only because of an ''increase in government coverage, notably Medicaid and the state children's health insurance program, that offset a decline in employment-based coverage.''

But Medicaid and similar programs are experiencing punishing cuts because cash-poor states cannot afford to fund them. That will leave the poor with even fewer health resources.

The view of the economy from the White House and Capital Hill is obviously a very different picture than that seen from below the poverty line. During its last session, congress passed a law backed by the Administration and the credit card industry, making it far more difficult for average Americans to use bankruptcy to get out of debt. It also passed a so-called ‘tort reform’ law ensuring that the poor – and everyone else – who have a lot more trouble suing product manufacturers.

And the credit-card companies are encouraging borrowing to increase the likelihood of defaults – which are just as profitable because of the exorbitant interest and fees charged for debit balances.

When Congress returns next week, it will be pushing to repeal the estate tax (which affects only the wealthiest families), extending tax cuts for investment income (another gift to the richest Americans), and yet again resisting efforts to raise the minimum wage (which has been at $5.15 an hour since 1997 while inflation has risen at least by 3% a year).

Lawmakers will also be taking up proposals for deep budget cuts in programs intended to assist the poor --like Medicaid, food stamps and federal student loans.

At the same time, the White House and Congress remain paralyzed over the Social Security issue. The public has robustly rejected President Bush’s pitch that private investment accounts would increase retirement and disability income for the next generation of retirees. Republican congress members, with an eye on the 2006 elections, are increasingly distancing themselves from the president. Democrats have simply taken a ‘just say no’ position, putting forth no proposals of their own, and angering many rank-and-file Democrats in the process.

During the last few years, the U.S. economy has been driven far more by consumer spending than by investments from the wealthy recipients of the Bush tax cuts. But what happens to that engine of growth as the poor get poorer?

That, economists say, is a no-brainer. As their salaries dwindle, and their credit cards get maxed out, they will simply stop spending. And more and more of them will descend even further into a financial abyss – and become the government’s responsibility, at untold cost to all taxpayers.

Given the huge deficits posted by politicians who profess to be committed to fiscal responsibility, present and future taxpayers will be severely burdened to finance the debt piled up by the government.

At least half that debt is owned by foreigners who expect to receive interest incomes. This, in turn, puts additional pressure on the U.S. international balance of payments and depresses the value of the dollar, which in turn raises prices of many imports among the consumer baskets of the poor.

"All in all," says former Assistant Secretary of Commerce Dr. Jack Behrman, professor emeritus at the University of North Carolina business school, “America is failing in the key criterion of economic progress -- raising the standard of living of the poorest segment of society.”

The distinguished economist told IPS, “Current policies favor the wealthy and focus on financial success rather than production of real goods and services. These are a recipe for economic and social conflict rather than building a cohesive community".