Inequality Matters: How growing disparities erode public structures and political community

David Stockmann was director of the Office of Management and Budget under President Reagan and once a leading advocate of supply-side economics. Yet In a recent New York Times op-ed, he makes a point most frequently heard from liberals and progressives: America is in a period of rapidly and steeply rising inequality. Stockmann contends that both federal budget proposals, one by President Obama and the other by Republican Congessman Paul Ryan, would bring the nation “dangerously close to class war.” He writes:

This lamentable prospect is deeply grounded in the policy-driven transformation of the economy during recent decades that has shifted income and wealth to the top of the economic ladder. While not the stated objective of policy, this reverse Robin Hood outcome cannot be gainsaid: the share of wealth held by the top 1 percent of households has risen to 35 percent from 21 percent since 1979, while their share of income has more than doubled to around 20 percent.

Growing inequality is a matter of concern for a number of reasons. As noted in “Pulling Apart”, a 2008 report from the Center on Budget and Policy Priorities and Economic Policy Institute, “rising inequality matters not only because it raises basic issues of fairness but, just as importantly, because it adversely affects our economy and political system.” Research has found links between high levels of inequality and crime rates, health outcomes, and educational opportunities.   Since disparities in wealth are tied to discrepancies in political influence, growing inequality can lead to loss of trust in government, declining political participation, and political polarization. Perhaps most importantly, inequality erodes the bonds of social cohesion. Joseph Stiglitz, a Nobel-winning economist, describes how the super-wealthy can become disconnected from the common welfare:

The more divided a society becomes in terms of wealth, the more reluctant the wealthy become to spend money on common needs. The rich don’t need to rely on government for parks or education or medical care or personal security—they can buy all these things for themselves. In the process, they become more distant from ordinary people, losing whatever empathy they may once have had.

According to the U.S. Census Bureau, the income ratio between the top-earning 20 percent of Americans — those making more than $100,000 each year — and those below the poverty line reached 14.5-to-1 in 2009. The income ratio is up from 13.6-to-1 in 2008 and has nearly doubled from a low  of 7.69-to-1 in 1968. The percentage of income concentrated among the top income earners, and the gap between the wealthy and the poor has even surpassed levels of inequality of the 1910s.

To what extent does Oklahoma mirror the overall rise in inequality in the United States? The most reliable statistical measure of inequality is known as the Gini coefficient. The higher an area’s Gini coefficient, the more income is concentrated in a smaller segment of the population. According to US Census Bureau data (click here for 1979-1999 and here for 2009), inequality, as measured by the Gini index, has increased in Oklahoma over each of the past three decades, going from 0.419 in 1979 to 0.445 in 1989;  0.455 in 1999 and 0.460 in 2009. However, while Oklahoma had greater inequality than the nation as a whole in 1979, its Gini coefficient in 2009 of 0.460 was slightly lower than the national average of 0.468 and 32nd highest among the states.

The “Pulling Apart” report also provides state-level data on income inequality. Its findings for Oklahoma are quite striking and suggest that the state’s prosperity over recent decades has not been widely or evenly shared. The report compares the distribution of income by quintiles for three periods: 1987-89; 1998-2000; and 2004-06.  Oklahoma was among the states where the gap between the top and middle fifth of families grew the quickest between the late 1980s and mid-2000s, trailing only Connecticut and Oregon.  By the mid-2000’s, Oklahoma’s 3.0-to-1 ratio between the average income of the top fifth of families ($123,596)  and the middle fifth of families ($41,857) was the highest in the nation. The gap in pre-tax income in Oklahoma between the top fifth of families ($156,712) and the bottom fifth of families ($16,467) in 2004-06 was 9.5-to-1, the tenth highest in the nation.

Public policies at both the federal and state level need to take income and wealth inequality more seriously, both because of its harmful effects and because current policies have significantly contributed to the problem. As Stockmann emphasizes, rising inequality didn’t just happen; it is at least in part a result of “ultralow rates of taxation on capital gains” and “ultralow rates of interest at the Federal Reserve”, which together fueled financial speculation and unsustainable levels of household and business debt.

A better policy approach would support investments in common and higher education and expanding opportunities for low- and moderate-income families to save and invest. It would protect and strengthen the social safety net that provides basic financial security for struggling families. And it would certainly reject tax policies that cut taxes for highest income households and raise taxes for those with low and moderate-incomes. The road to reducing inequality will be long and difficult, but it is one we need to travel if Oklahoma, and America, is to fulfill the dream of shared prosperity.