Diagnosis unmatched by prescription
Janet Yellin, who chairs the Board of Governors of the Federal Reserve System, delivered an unusual and important speech two days ago about the growing gap between the richest Americans and everyone else.
Speaking at a conference at the Federal Reserve Bank of Boston, Yellin offered “Perspectives on Inequality and Opportunity from the Survey of Consumer Finances.” She said,
It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.
It’s fair to assume that was a rhetorical question and the answer is, no, the widening gap between the ultra-rich and the rest of the population is a threat to democracy and the economic futures of most people.
While the trend of wage stagnation for working Americans goes back to the 1970s, Yellin focused on the most recent period of economic history, 1989 to 2013. This is useful because it includes the recent economic meltdown as well as the so-called “recovery.”
Yellin illustrated her talk with an obligatory set of graphs (she’s an economist after all), including this one depicting changes in net worth (i.e. wealth) for the wealthiest 5% of Americans, the next 45%, and the bottom half of the population.
As the chart makes obvious, the wealthiest 5% of Americans saw their share of the nation’s wealth climb from about 55% to about 65%, while the next 45% saw its share go from from 45% to 35% and the share held by bottom 50% approaching zero percent.
It’s good to know the nation’s top economist is alarmed.
The second half of Yellin’s speech concerned what she called “four building blocks of opportunity,” access to early education, access to higher education, ownership of private businesses, and inheritance. The first three could be useful ways for individuals and families to do better in a time of widening inequality, but do not affect tax policy, deindustrialization, political and business attacks on organized labor, and the growth of the finance sector’s share of the economy, i.e. the factors driving the equality gap to historic highs.
For a more incisive analysis of what went wrong, I recommend the latest issue of Dollars and Sense, especially an article by Gerald Friedman on “What Happened to Wages?” He writes,
From the dawn of American industrialization in the 19th century until the 1970s, wages rose with labor productivity, allowing working people to share in the gains produced by capitalist society. Since then, the United States has entered a new era, in which stagnant wages have allowed capitalists to capture a growing share of the fruits of rising productivity.
I recommend examining Friedman’s charts alongside Yellin’s. And try to follow Yellin’s fourth piece of advice: inherit a fortune.