Wealth Distribution in the U.S. : Houston Indymedia

Consider this picture:

Imagine the population of the United States stretched across a football field in order of income, from poorest to richest. Now imagine a stack of $100 bills representing each person's income. (A 1-inch stack of $100 bills is $25,000.) The red line represents the heights of those stacks compared to a football field. I call this graph the "L-Curve."

The red line in the first picture is the beginning of the U. S. income distribution. On the scale of the football field the line slopes gradually from zero on the left to less than 2-inches high at the 50-yard line ($39,000), to about 4-inches high at the 95-yard line ($132,000). On this scale the entire graph is less than one pixel high, up to this point. It is not until you are well past the 99-yard line that you hit the $1 million mark: a stack of $100 bills 40-inches high. There were over 144,000 people who turned in IRS returns in 1997 with adjusted gross incomes of $1 million or more.

(If you're not quite sure how to picture a "billion", as compared to a "million," Click Here.

It is impossible to show the whole graph meaningfully on a single diagram.

Here is the top of the "L-Curve". Ordinary millionaires don't even show up! (One pixel on the vertical scale of this picture represents $250 million.) $1 billion is a a stack of $100 bills 1-kilometer (0.6 miles) high. Bill Gates' wealth increased from about $50 billion to $100 billion in one year recently, so in that year he had an income of at least $50 billion*. Bill Gates, personally, is not the point. He is one of (currently) hundreds of billionaires in this country who happens to have particularly high name recognition.

The graph illustrated in these two pictures represents income, not wealth. The distribution of wealth is even more skewed. Quoting from a recently-published book by political philosopher David Schweickart,

If we divided the income of the U.S. into thirds, we find that the top ten percent of the population gets a third, the next thirty percent gets another third, and the bottom sixty percent get the last third. If we divide the wealth of the U.S. into thirds, we find that the top one percent own a third, the next nine percent own another third, and the bottom ninety percent claim the rest. (Actually, these percentages, true a decade ago, are now out of date. The top one percent are now estimated to own between forty and fifty percent of the nation's wealth, more than the combined wealth of the bottom 95%.)

What are the implications of this picture?

I wrote a pair of articles on this subject for a small local newspaper, the Tule River Times, a shorter version for the Porterville Recorder, and another for the Friends Bulletin. (A reader of the Friends Bulletin article used it as the basis for a letter to Senator Kyl of Arizona. Senator Kyl's response is what I would consider a typical example of obfuscation.) These articles are not the last word on the subject...just a first attempt to deal with the issues. I am not an economist, but then again, most likely you aren't either. On the other hand, we both have the vote and need to come to grips with these issues to participate intelligently in the political process. There needs to be a genuine national dialog on these issues at all levels.

Think of the L-Curve when you read your daily news. What are its implications for tax structures, campaign finance reform, the IMF and WTO, abandonment of inner cities, factory closings, sweatshop labor, "guest worker" programs, US foreign policy, why we go to war, etc. How does welfare for the poor stack up against corporate welfare?

Should the goal be to get motivated and get yourself onto the vertical spike? Some people who have responded to this site see it this way, but I think that misses the point. I saw a bumper sticker recently that says it for me, at least:

Our economy produces tremendous wealth but it also produces tremendous poverty. It is a systemic, not an individual problem. There is plenty to go around, but it doesn't adequately go around. It goes to the top, and leaves the masses to fight over the crumbs. True, it has been this way through the ages, but that doesn't mean we should be satisfied with such a system. I believe we can do better.

Some doctors and lawyers and professional people, with incomes of a few hundred thousand dollars may feel "rich". They may have nicer homes and cars, and they may have attitudes that separate them from the masses. But they still must work for a living and are primarily consumers of their earnings. Whether they recognize it or not, they actually have more in common with the people at the bottom than they do with the people in the top 1/2%.

The horizontal spike has the votes. The vertical spike has the money. Who wins, when it comes to electoral politics? Who has influence? Whose interests are being represented in Washington? Can democracy meaningfully exist where the distribution of wealth, and thus the distribution of power, is this concentrated?

We recently went through an economic boom where people on the horizontal spike showed little if any improvement in their condition while those in the vertical spike showed huge gains. Can this be considered "prosperity"? Do we really want to gear up our national policies to repeat this performance?

People on the vertical spike can use their influence single-mindedly and very effectively. A single billionaire can get the undivided attention of any politician he wants, any time he wants. If he doesn't get what he wants he can, in fact, "fight city hall," the statehouse, and the federal government. People on the horizontal spike must pool their limited individual power and organize to have any effect at all. This is a very difficult thing to manage, in practice.

The mainstream media has been bought up by the people in the "vertical spike." The primary channels for information and expressed opinion are controlled and filtered by a small, powerful group on the vertical spike whose interests are not representative of the majority of Americans. Even when there is no direct political message the programming is tailored to the perspectives and sensitivities of large corporations. The business of media is to sell advertising. Programming is simply the hook to hold an audience until the next commercial. Serious examination of ideas of any kind is seen as counterproductive because it may alienate or bore part of the potential audience. The result is non-stop sensationalistic binges of O.J., Princess Di, Monica, and Elian. The growing media monopoly dilutes and distorts the national dialog, and thereby destroys the basis for democracy. We must find ways to rebuild community and learn to talk to each other directly.

When taxes are cut, whose taxes are cut and whose programs are cut? What kinds of taxes are being cut and what kinds of taxes (whether they are called taxes or not) are being imposed? Sales tax and use fees tax primarily the horizontal spike. The pre-Reagan progressive income tax drew more from the vertical spike.The flat tax would shift the burden downscale even more. The sales pitch for this shift usually focuses on "simplification." Simplification is unrelated to the issue of where the money is coming from. The proposal to eliminate the income tax entirely would be disastrous. The vertical spike would thereby escape virtually all of its tax obligations and the burden would be born almost entirely by the horizontal spike, both through increases in other forms of taxation and reduced services. The income tax originally taxed ONLY the vertical spike. This is the direction tax reform needs to take if it is to be truly considered "reform."

Can the people on the horizontal spike take control of their own destinies and truly make this a nation governed in the best interests of the people? If so, how?

Is the L-Curve "good" or "natural" or "inevitable"? What are the alternatives? The economy is a complex system, but it is essentially a human invention. It can be "managed" (or influenced) in many ways. If it is not managed intentionally, then it is managed (or manipulated) by those who hold political and economic power, typically to their own advantage. It is not enough to create a strong economy. It is just as important to ask how the benefits of the economy are distributed through the population. A truly democratic society needs to find ways to manage the economy to benefit the population as a whole. This is not being done.

Links to related sites.

(Data sources: Census Bureau / Internal Revenue Service / Economic Policy Institute)
Note: these data sources are notably lacking in data within the top 1%. Census data goes up to $300,000 and IRS data goes up to $1 million. Information to plot the vertical spike had to be obtained from news articles and other sources of commentary. If information on the top 1% is not known or easily obtained, statements about the socioeconomics of income and wealth are suspect. Michael Parenti has written an illuminating article on this topic.

*Since I first posted this site, several people have quibbled over various technical points. Here are a few of the issues raised:

"Increase in net worth" is not the same thing as "income," according to one reader. However, I recently received a comment from economist John Maher who wrote, "I believe the first reader's comment is incorrect. Increase in net worth IS income according to the renowned economist, John R. Hicks in Value and Capital. Hicks is right."

The income of very wealthy people typically varies radically from one year to the next. Sometimes years of huge earnings are followed by years with similarly huge losses.

The published wealth of billionaires is typically estimated by their holdings in their own companies. These estimates do not included their typically vast diversified investments.

Income on paper, from growth of investments, needs to be distinguished from "taxable income." It's true that there are differences among different kinds of income, so they aren't strictly comparable, but political and economic power derives from income whether it is taxable or not.

My response to all of these kinds of questions, in short, is that the truth of my central thesis is not dependent on the exact height of the graph or shadings of definitions. As one correspondent put it, there is a "money spike" and there is a "population spike." There are two classes in this country. One class derives concentrated power from its concentratedwealth. The other class has power only in numbers. That power is effective only to the extent that it can be mobilized through organization.

Until we come to terms with these issues, phrases such as, "We the people...," and, "of the people, by the people, and for the people," are hollow clichés.

This is a continuation of the previous graph. On the scale of this picture each pixel (dot) represents 250 meters (273 yards), so the football field is invisible. The height of the vertical spike varies from year to year. The height shown represents the increase in Bill Gates' net worth in his best year ($50 billion).