The Price of Inequality: How Today's Divided Society Endangers Our Future (6 page)

Between the loss on retirement accounts and the $6.5 trillion loss in housing valuations,
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ordinary Americans have been hard hit by the crisis, and poorer Americans, who were just beginning to glimpse the American dream—or so they thought, as they bought a home and saw the value of their houses rise in the bubble—have done particularly badly. Between 2005 and 2009, the typical African American household has lost 53 percent of its wealth—putting its assets at a mere 5 percent of the average white American’s, and the average Hispanic household has lost 66 percent of its wealth. And even the net worth of the typical white American household was down substantially, to $113,149 in 2009, a 16 percent loss of wealth from 2005.
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A standard of living in decline

The income measures on which we have focused so far, dismal as they are, do not fully capture the decline in the standard of living of
most
Americans. Most face not only economic insecurity but also health insecurity and, in some cases, even physical insecurity. President Obama’s health care program was designed to extend coverage, but the Great Recession and the budget stringency that followed have led to a move in the opposite direction. Medicaid programs, on which the poor depend, have been scaled back.

Lack of health insurance is one factor contributing to poorer health, especially among the poor. Life expectancy in the United States is 78 years, lower than Japan’s 83 years, or Australia’s or Israel’s 82 years. According to the World Bank, in 2009 the United States ranked fortieth overall, just below Cuba.
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Infant and maternal mortality in the United States is little better than in some developing countries; for infant mortality, it is worse than Cuba, Belarus, and Malaysia, to name a few.
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And these poor health indicators are largely a reflection of the dismal statistics for America’s poor. For instance, America’s poor have a life expectancy that is almost 10 percent lower than that of those at the top.
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We noted earlier that the income of a typical full-time male worker has stagnated for a third of a century, and that of those who have not gone to college has declined. To keep incomes from declining even more than they have, work hours per family have increased, mostly because more women are joining the workforce alongside their husbands. Our income statistics do not take into account either the loss of leisure or what this does to the quality of family life.

The decline in living standards is also manifested in changing social patterns as well as hard economic facts. An increasing fraction of young adults are living with their parents: some 19 percent of men between twenty-five and thirty-four, up from 14 percent as recently as 2005. For women in this age group, the increase was from 8 percent to 10 percent.
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Sometimes called the “boomerang generation,” these young people are forced to stay at home, or return home after graduation, because they cannot afford to live independently. Even customs like marriage are being affected, at least for the moment, by the lack of income and security. In just one year (2010), the number of couples who were living together without being married jumped by 13 percent.
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The consequences of pervasive and persistent poverty and long-term underinvestment in public education and other social expenditures are also manifest in other indicators that our society is not functioning as it should: a high level of crime, and a large fraction of the population in prison.
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While violent-crime statistics are better than they were at their nadir (in 1991),
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they remain high, far worse than in other advanced industrial countries, and they impose large economic and social costs on our society. Residents of many poor (and not so poor) neighborhoods still feel the risk of physical assault. It’s expensive to keep 2.3 million people in prison. The U.S. incarceration rate of 730 per 100,000 people (or almost 1 in 100 adults), is the world’s highest and some nine to ten times that of many European countries.
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Some U.S. states spend as much on their prisons as they do on their universities.
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Such expenditures are not the hallmarks of a well-performing economy and society. Money that is spent on “security”—protecting lives and property—doesn’t add to well-being; it simply prevents things from getting worse. Yet we consider these outlays part of the country’s gross domestic product (GDP) as much as any other expenditure. If America’s growing inequality leads to more spending to prevent crime, it will show up as an increase in GDP, but no one should confuse that with an increase in well-being.
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Incarceration even distorts our unemployment statistics. Individuals in prison are disproportionately poorly educated and come from groups that otherwise face high unemployment. It is highly likely that, if they weren’t incarcerated, they would join the already swollen ranks of the unemployed. Viewed in this light, America’s true unemployment rate would be worse, and it would compare less favorably with that of Europe; if the entire prison population of nearly 2.3 million was counted, the unemployment rate would be well above 9 percent.
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Poverty

The Great Recession made life for America’s diminishing middle class harder. But it was especially hard for those at the bottom, as illustrated by the data presented earlier in this chapter for the family trying to survive on a wage slightly above the minimum wage.

An increasingly large number of Americans can barely meet the necessities of life. These individuals are said to be in poverty. The fraction of those in poverty
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was 15.1 percent in 2010, up from 12.5 percent in 2007. And our discussion above should have made clear how low the standard of living is of those at that threshold. At the very bottom, by 2011 the number of American families in
extreme poverty—
living on two dollars a day per person or less, the measure of poverty used by the World Bank for developing countries—had doubled since 1996, to 1.5 million.
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The “poverty gap,” which is the percentage by which the mean income of a country’s poor falls below the official poverty line, is another telling statistic. At 37 percent, the United States is one of the worst-ranking countries in the Organization for Economic Cooperation and Development (OECD), the “club” of the more developed countries, in the same league as Spain (40 percent), Mexico (38.5 percent), and Korea (36.6 percent).
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The extent of poverty is illustrated by the fraction of Americans depending on government to meet their basic food needs (one in seven); and even then, large numbers of Americans go to bed at least once a month hungry, not because they are on a diet but because they can’t afford food.
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The measurement of poverty—like the measurement of income—is difficult and far from uncontroversial. Until 2011, standard poverty measures focused on income before the effects of government programs are taken into account, and those are the numbers that are given above. This is what life would be like in the absence of government safety nets. Not surprisingly, government programs
do matter.
And they matter especially in economic downturns. Many of the programs, like unemployment insurance, provide only short-term assistance. They are directed at those facing temporary hardship. With the reform of the welfare system in 1996 (Personal Responsibility and Work Opportunity Reconciliation Act ), welfare payments, too, became time limited (federal funds are generally limited to at most five years).

Looking at these programs, and simultaneously examining more carefully the different needs of various groups in society—those in the rural sector face lower housing costs; the elderly face higher medical costs—yields a more nuanced picture of poverty, one in which there are fewer rural poor, more urban poor, fewer poor children, and more poor elderly than in the older measures, which didn’t take into account the different circumstances of different groups of the poor. Under this new measure (as well as by the old), the numbers in poverty have been increasing rapidly, by some 6 percent just from 2009 to 2010 alone, and the numbers in poverty under the new measure are even higher than under the old, so that almost one out of six Americans is now in poverty.
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It may be true that “the poor always ye have with you,” but that doesn’t mean that there have to be
so many
poor, or that they should suffer so much. We have the wealth and resources to eliminate poverty: Social Security and Medicare have almost eliminated poverty among the elderly.
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And other countries, not as rich as the United States, have done a better job of reducing poverty and inequality.

It is particularly disturbing that today almost a quarter of all children live in poverty.
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Not doing anything about their plight is a political choice that will have long-lasting consequences for our country.

O
PPORTUNITY

Belief in America’s essential fairness, that we live in a land of
equal opportunity
, helps bind us together. That, at least, is the American myth, powerful and enduring. Increasingly, it is just that—a myth. Of course, there are exceptions, but for economists and sociologists what matters are not the few success stories but what happens to
most
of those at the bottom and in the middle. What are their chances of making it, say, to the top? What is the likelihood that their children will be no better-off than they? If America were really a land of opportunity, the life chances of success—of, say, winding up in the top 10 percent—of someone born to a poor or less-educated family would be the same as those of someone born to a rich, well-educated, and well-connected family. But that’s simply not the case, and there is some evidence that it’s getting less so.
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Indeed, according to the Economic Mobility Project, “there is a stronger link between parental education and children’s economic, educational, and socio-emotional outcomes” in the United States than in any other country investigated, including those of “old Europe” (the UK, France, Germany, and Italy), other English speaking countries (Canada and Australia), and the Nordic countries Sweden, Finland, and Denmark, where the results were more expected.
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A variety of other studies have corroborated these findings.
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This decline in opportunity has gone hand in hand with our growing inequality. In fact, that pattern has been observed across countries—countries with more inequality systematically have less equality of opportunity. Inequality persists.
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But what’s particularly disturbing about this relationship is what it bodes for the country’s future: the growing inequality over recent years suggests that the level of opportunity in the future will be diminished and the level of inequality will be increased—unless we do something. It means that the America of 2053 will be a much more divided society than even the America of 2013. All the social, political, and economic problems arising out of inequality that we discuss in subsequent chapters will be that much worse.

It is at the bottom and the top where the United States performs especially badly: those at the bottom have a good chance of staying there, and as do those at the top, and much more so than in other countries. With full equality of opportunity, 20 percent of those in the bottom fifth would see their children in the bottom fifth. Denmark almost achieves that—25 percent are stuck there. Britain, supposedly notorious for its class divisions, does only a little worse (30 percent). That means they have a 70 percent chance of moving up. The chances of moving up in America, though, are markedly smaller (only 58 percent of children born to the bottom group make it out),
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and when they do move up, they tend to move up only a little. Almost two-thirds of those in the bottom 20 percent have children who are in the bottom 40 percent—50 percent more than would be the case with full equality of opportunity.
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So too, with full equality of opportunity, 20 percent of the bottom would make it all the way to the top fifth. No country comes close to achieving that goal, but again both Denmark (with 14 percent) and the UK (with 12 percent) do much better than the United States, with a mere 8 percent. By the same token, once one makes it to the top in the United States, one is more likely to remain there.
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There are many other ways of summarizing the disadvantageous position of the poor. The journalist Jonathan Chait has drawn attention to two of the most telling statistics from the Economic Mobility Project and research from the Economic Policy Institute.
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•
  Poor kids who succeed academically are less likely to graduate from college than richer kids who do worse in school.
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•
  Even if they graduate from college, the children of the poor are still worse-off than low-achieving children of the rich.
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None of this comes as a surprise: education is one of the keys to success; at the top, the country gives its elite an education that is comparable to the best in the world. But the average American gets just an average education—and in mathematics, key to success in many areas of modern life, it’s subpar. This is in contrast to China (Shanghai and Hong Kong), Korea, Finland, Singapore, Canada, New Zealand, Japan, Australia, Netherlands, and Belgium, which perform significantly above average on
all
tests (reading and mathematics).
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A stark reflection of the inequality of educational opportunity in our society is the composition of students in America’s highly selective colleges. Only around 9 percent come from the bottom half of the population, while 74 percent come from the top quarter.
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