Rich-Poor Divide Is Larger, But Does That Make The Poor Poorer?

by Categorized: Economy, Poverty, Public finance, Wealth Date:

When Greenwich billionaire Edward Lampert moved to Florida earlier this year, did you feel better off?

That question is at the heart of a report out Thursday that shows Connecticut went from being one of the states with the highest income equality in the ’70s, to one of the most unequal states.

The report by the Connecticut Association for Human Services and Connecticut Voices for Children says:

“In 1977-79, the gap between the richest fifth and the middle fifth of families in Connecticut was relatively low, ranking 42nd among all states, but the state ranked 7th highest in inequality by 2005-07.  Similarly, the gap between the richest and poorest fifth of households is now the 3rd worst in the country, up from 46th.”

Worse than that, more recent data based on tax returns shows that Connecticut’s top 1 percent earned an average of $766,000 a year, not including capital gains — and the gap between that group and the 95th percentile level, $225,000, is growing rapidly.

“What was once a place with prosperous middle and working classes who were within shouting distance of the upper class now stands as the epitome of rising inequality in America. The change has been drastic,” the report says.

By itself, inequality is not a wonderful thing but it’s not so bad if the presence of the rich signals prosperity across the board. Overall prosperity as measured by buying power, and not equality, is what matters most. The authors of the report apparently disagree.

It seems to me we were all worse off when Lampert, who controls Sears and Kmart, shopped for a different state and took part of his hedge fund with him. But our equality measure got better the moment his moving truck crossed into Rye, N.Y. on I-95.

Regardless, the underlying point is clear in the report, and in countless other measures. The poor in Connecticut, and much (but not all) of the middle class, are not keeping up, even with where they were a few years ago, let alone with Lampert’s pals who are still here.

For Labor Day this year, I looked at the Voices report showing that wages for the top 10 percent of earners rose faster between 2006 and 2011 than wages for the middle-earners, which rose faster than the wages for the poor. Similar conclusions.

CAHS and Voices, as the nonprofit groups are known, are pushing for a minimum wage indexed to inflation; a tax system that relies more on progressive income taxes and less on property and sales taxes, which hit poorer households harder; “shoring up” the state’s unemployment fund; and added support for programs such as the earned income tax credit, which started in Connecticut last year after years of foot-dragging in the legislature.

Those policies can help, but no government actions can fully address the simple fact that work has been devalued in our economy, compared with  capital and ideas. That’s why the top earners have pulled apart from the rest of us, and although they may have earned their millions honestly by investing and coming up with better mousetraps, the skewed pay system is hurting everyone.

The empire is collapsing not because the 47 percent want handouts, but because the ample overall income that’s being earned is not finding its way into the hands of the middle 20 percent of households. That’s due to the changing morality around pay, more than global competition, more than any failure of government. And income inequality is a sign of it, not a cause.

 

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9 thoughts on “Rich-Poor Divide Is Larger, But Does That Make The Poor Poorer?

  1. pete

    And who funds these two useless liberal organizations. We the taxpayers. Need to cut the budget DANNY BOY. Start here you clown

  2. old capitalist

    Sorry, but failure of government is the problem – Overtaxing, overspending and overregulating. You can not grow an economy by chaining it. Like gravity, capital and jobs will flow to where conditions are optimum for growth. Connecticut, much to our misfortune is following the path of California. When the rest of the Eds’ leave for Florida and Texas, these organizations can rejoice in our equality measure while the rest of us struggle trying to maintain our standard of living. Until the powers that be realize that free market capitalism is the only proven path to prosperity we will continue to decline.

  3. Dan Haar Post author

    Capitalist,

    Did you actually read the blog post? Knee-jerk anti-government comments are most heartily welcome on the Haar Report, but subject to a test of logic. The whole point is that the income that exists is dividing out more in favor of the rich than the poor than it did years ago. How exactly is that the fault of tax-and-spend policies? If I had said growth is lagging but that’s not the fault of government, we might have an intelligent debate. Growth is indeed lagging, but that’s not the subject here — distribution is. Are you suggesting that low growth in Connecticut is actually causing lower pay for workers at the same time that top executives and owners of production are paying themselves much, much more? If you are, then how could you defend such evil? If you’re not, then your argument makes zero sense.

    Dan

  4. old capitalist

    Dan,
    …and your response makes less tham zero sense. “income that exists is divided out more in favor of the rich than the poor” ???. Are you trying to say that the pay gap between a brain surgeon and a janitor is not equitable. How about if government did not constrain growth, there would be more income to divide. How about if government did not overtax, there would be more for companies to pay their workers, hire more and still earn a resonable return on their investment. How about if the goverment did not overegulate, the cost of compliance would not be subtracted from the amount avaialable to pay labor.
    While I’ll agree that the gap between highest and lowest levels have grown, put into perspective the pay gap between a star quarterback and a seldom used bench player. Who generates a greater return, and does not that return benefit the entire team.

    I think that “from each according to his ability an to each according to his need” has been tried before and has failed miserably, and that my friend was truly evil.

  5. Steven Cohen

    I think the reports are valuable in that many of the wealthy and many of the poor have the same mind set. They are entitled to what they get.

    We call the wealthy the “job creators” and to an extent that is true, but what they are is the catalyst to the economy as a whole. They have forgotten who got them where they are, its the people who work for them. The people who no longer get a fair days pay for a fair days work. Labor has become a cheap and disposable commodity.

    Employers used to train to get the work force they wanted, now they expect that work force will be developed at public expense through the colleges and universities, trade schools and community colleges. They don’t want to invest in the people of their company they want to invest in the physical. Many employers used to be proud to make their good in America, but they found the cheap labor commodity. As the “cheap labor” becomes not so cheap ie: people in China have discovered they were pawns in the rich mans game.
    Companies say they can’t find the good quality hard working American. The people in power are generally not like in the old days the guy that used to turn the wrench and swing the hammer companies unwilling to train the people of America are struggling to find someone to do their work. The problem is they don’t understand exactly how it is their company makes money, that hard working guy that learned to do the work you wanted done the way you wanted it done, only did it that way because that’s how the company taught him.

    Having the rich be richer doesn’t make me poorer, it just makes it more difficult to put food on the table as prices rise to fuel the ever increasing greed of those at the top.

  6. old capitalist

    Lets face it. A major factor in the growing inequality gap in Connecticut is the loss of its manufacturing base that paid higher average salaries than those in the service area, (retail, food service, services, etc.) I could be wrong but except for a relatively few highly specialized industries, I believe that CT is no longer a viable alternative for any producer of goods in a competetive world environment. Just try to imagine the amount of red tape one would encounter in trying to build a factory in this state. I have read in this publication where executives at Ct. largest manufacturing employer that is highly dependent on the defense industry stating that any place would be preferable to CT. Maybe the author of this article can enlighten me on why this is not somehow tied to government policy.

  7. Jim

    I recommend Joseph Stiglitz’s book, published just a few months back, The Price of Inequality. It contains useful a discussions of not only the causes of the trend toward greater income inequality since the 1970s and the mythology that creates the notions that the incomes of the ultrawealth reflect their contribution to society and are necessary to create jobs for other, but also the costs of inequality that are inadequately measured by statistics showing the less well-off staying even or becoming slightly wealthier.

  8. Johngaltwhereru

    Ah, the good old late 70′s, when Connecticut’s income gap between the poor and middle class was smaller.

    Never mind gas lines, massive unemployment, ridiculous interest rates, and the highest misery index of your lifetime. But the equality of misery was right up there with socialist countries.

    You know what else was going on in CT in the late 70′s? No State income tax.

    How about some of the other factors that have changed since the 70′s? How about the rise of single motherhood along with the percentage of income single mothers derive from subsidies compared to earned income? How about the increase in percentage of minorities living in the State, along with their high unemployment, low rate of high school graduation and high percentage of income coming from subsidies.

    This socialist minimum wage argument is crap. There are real reasons for these gaps, and they are a lot more serious than a childish argument that all work should be paid more equally. Real social change needs to occur, and Government cannot change it through wage policy. A higher percentage of people need to graduate high school and a lower percentage of children need to be born to single mothers. That is the best starting point to improve the financial status of those on the lower ends of the spectrum.

  9. Ray

    We should stay the course. In 10 years there will be 200 more lamperts moving to more business friendly locals and the inequality will work itself out. California is the model for fixing this. Once he ultra rich leave, so does the problem.
    Reminds me of a joke I heard. What happens when bill gates walks into a bar with 54 people? The average wealth of that bar is now a billion plus per person. Lets make sure that bar is not in CT.

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