Americans divided: Is this land one of 'haves' and 'have-nots'?

Published: Friday, Oct. 28 2011 9:25 a.m. MDT

Tamra Bell 52, back right, and her four children Stephanie Stayton, 28, left front, Robert 21, left back, and Courtney 23, attend the Occupy Indy protest in Indianapolis on Saturday, Oct. 8, 2011.

Associated Press

The divide between the rich and the poor in America is at an all-time high, according to a new study from the Congressional Budget Office, with the top 1 percent of the population controlling most of the wealth. Despite that dramatic shift of wealth, a second reports shows Americans are more inclined to identify themselves as "haves" than "have-nots."

Between 1979 and 2007, after-tax income for the top 1 percent of households grew by 275 percent while income for the bottom 20 percent increased by just 18 percent, the Congressional Budget Office reported. For the middle class, income increased by less than 40 percent.

There's no consensus among Americans, though, about whether or not the nation is economically divided, according to the Pew Research Center for the People & the Press. Forty-five percent of Americans believe society is divided between "haves" and "have-nots" while 52 percent do not.

The number of people who believe income inequality is a problem in America has risen over the past 30 years — 14 points since 1984. But not nearly as fast as the gap between the rich and the poor.

Forty-eight percent of people count themselves among the more fortunate, according to the report, compared to 59 percent 20 years ago. Thirty-four percent label themselves as "have-nots" — up from just 17 percent in 1988.

In an article for The Journal of the American Enterprise Institute last week, Reuters columnist James Pethokoukis called income inequality a "myth."

"Really?" he wrote. "Just think for a second: If inequality had really exploded during the past 30 to 40 years, why did American politics simultaneously move rightward toward a greater embrace of free-market capitalism? Shouldn't just the opposite have happened as beleaguered workers united and demanded a vastly expanded social safety net and sharply higher taxes on the rich? What happened to presidents Mondale, Dukakis, Gore, and Kerry? Even Barack Obama ran for president as a market friendly, third-way technocrat."

Pethokoukis went on to cite five studies that conclude inequality among Americans to be "exaggerated both in magnitude and timing." A 2010 study by the University of Chicago, for example, found the rise in income inequality is considerably less alarming when one accounts for the impact of taxes. In 2008, another study by the same university found inflation affects the rich and the poor differently. When adjusted for inflation, the paper argued, inequality in America has remained roughly unchanged over the past 20 years.

"No doubt the past few years have been terrible," Pehokoukis wrote. "But the past few decades have been pretty good — for everybody."

In an article published Wednesday in The Atlantic, on the other hand, Derek Thompson argued the University of Chicago studies represent a "minority opinion."

"Almost everything we know about wages and prices tells us that the typical household has suffered a Lost Decade for market wages," he wrote. "Just as important, the price of necessities — such as health care, a college education, a house and energy to heat your home and run your car engine — is growing faster than our incomes."

Thompson pointed out that growing inequality between the classes isn't unique to the United States. The worldwide phenomenon can be attributed to two factors: technology and trade.

"In the long run, tech tends to grow economies," he wrote. "In the short run, it can create a lot of carnage. If humans don't find skills that aren't more easily performed by non-human bots, they'll either go without work or have to work low-skill service jobs that haven't been automated yet."

Similarly, greater trade with labor-abundant economies like China reduces the wages of workers in capital-abundant economies like the United States.

"The tradability of services threatens even white collar workers," Thompson wrote. "With better information technology, more services are tradable and susceptible to the same forces that sucked American manufacturing and IT jobs out of the U.S."

EMAIL: estuart@desnews.com

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