Is inequality an inherent characteristic of free market capitalism? Is it ever acceptable? How much is too much- and what do we do about it? These were the questions and topics of an event I attended on Monday at the New America Foundation entitled The United States of Inequality, Causes, Costs, and Consequences.
The panelists (Timothy Noah, Slate Magazine; Raymond Brescia, Assistant Professor of Law, Albany Law School; and Tom Woodruff Executive Vice President of Service Employees International Union) didn’t come to a consensus about the causes of increasing inequality or what actions need to be taken. Collectively, however, they did acknowledge the high costs of inequality for the whole country, not just for individuals and families affected by stagnant wages and declining housing values. Greater income inequality leads to greater social inequality with more communities divided and blighted by job loss and high foreclosure rates.
The great American dream has always been the hope that parents can offer their children a better life than what they were given. For the first time in America, parents believe that this dream has fallen out of reach. The panel yesterday provided an opportunity to examine the factors that are keeping that dream out of reach for so many Americans.
Even if inequality is an inherent part of our capitalistic system, the United States is winning-or losing- that inequality race among industrialized nations. According to “The Great Divergence in Pictures: A Visual Guide to Income Inequality”, “…nowhere has the income-inequality trend been more dramatic than in the United States.” Income inequality in 2005 was higher in the United States than Germany, Norway, Japan, Singapore, the United Kingdom and Canada, all nations with high proportions of income going to the top one percent of households. Shockingly, in 2008, the bottom quintile of income earners took home only 3.4% of income, according to the Census Bureau. The richest one percent earned 18% of income in the United States, with the remaining 99% earning 82% of total income.
Securities have bounced back since the stock market fell, but homeowners have yet to see their housing values rebound. Many Americans’ wealth is bound up in the value of their homes, of which one in seven mortgages are more than 90 days late on their payments and one in four mortgages are underwater (the mortgage is worth more than the actual house), according to Mr. Brescia of Albany Law School. Five hundred thousand properties have gone through mortgage modifications, which have allowed some homeowners to make more financially feasible payments. But 500,000 mortgages are not enough when there are 54 million mortgages held in the United States and one in seven is delinquent.
Tim Noah, author of the upcoming book United States of Inequality, says that these factors will drive inequality for years to come. The wealthy have been able to reacquire their assets through stock market gains since the 2008 crash, but the average homeowner, whose wealth is tied up in the value of their home, remain the walking wounded of the housing market bubble.