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The Income Gap and the Egyptian Revolution

By       Message william czander       (Page 1 of 1 pages)     Permalink

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There is widespread agreement that the revolution in Egypt and the toppling of Hosni Mubarak's 30 year reign as president was the result of growing income inequality and rising prices. What does this mean for America?

Believe it or not income inequality in America is greater than Egypt's and closer to that of developing countries like Africa's Cote d'Ivoire (Ivory Coast) and Central America's Nicaragua.

Up until the 1980's the entire workforce in America experienced slow but equitable economic growth. Since 1919, the wage gap between the top one percent and the workforce basically remained stable. However, in the early 1980's, the gap between this richest one percent and the rest of the workforce grew significantly.  

The disparities between rich and middle and poor, ballooned accordingly. In 1979, the top 1 percent averaged 8 times more than middle-income families and 23 times more than the poorest 20 percent. By 2005, this top 1 percent grew to 21 times the income of middle-income families and 70 times the average income of the poorest 20 percent. In 2007 the 400 highest-earning households in American saw their income increase 31 percent from 2006, and since 2001 their income doubled and their tax contributions dropped. What was the annual income of this elite group?   According to Bloomberg News (2010) it was $345 million.

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In the past 25 years the definition of what is wealth has undergone a significant change. In 1982, the first year of the Forbes wealthiest 400 list, it took about $159 million in today's dollars to make the list; in 2008, the minimum amount of wealth needed to make the list was $1.3 billion, (Arango & Creswell, 2008).

This meant that during this quarter-century, the average income of the top layer more than tripled, rising 228 percent from $319,000 to $1.1 million. During the same period, the average income of the poorest fifth grew only 6 percent and the average income of the middle fifth grew 21 percent, less than one percent a year.   In recent years this gap has been growing at a faster pace, for example from 2003 to 2005, the average household in the top one percent enjoyed an increase of $465,700 in annual income; while the average household in the bottom 20 percent saw an increase of only $200, and those in the middle fifth saw a rise of just $2,400.

A Congressional Budget Office report provided other metrics for gauging the staggering growth of economic inequality. The total 2005 income of the top three million Americans was equivalent to the total income of the bottom 166 million.

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The aggregate of wealth in America has also grown. For example, the wealthiest fifth of the population now collects 55 percent of total national income, considerably more than the total combined income of the bottom 80 percent, this is the highest such figure ever recorded in American. Another study by Norton and Ariely maintained that the richest 20 percent control 84 percent of the nation's wealth and the poorest 40 percent of households only controlled 0.3 percent of the nation's wealth (Bookman, 2010).   In 2009 the rich were less rich however the poor are quickly getting poorer and their ranks were swelling as the middle class disappeared.   Studies have determined that in countries where the income gap is great and growing, the poor suffer to a greater degree than in countries where the gap is small and this is certainly true in America where in 2009 39 million people lived below the poverty rate a little over $10,000 income per year, with estimates that this number would increase annually at 12 percent. This puts this vast population of the poor in America in dire straits, where they will be in poorer health and will die at a significantly younger age then their wealthy co-citizens.

A recent report by the International Monetary Fund destroys the myth that the current economic crisis--the worst in almost a century--was caused by wild risk taking among executives who were associated with credit --default swaps, securitized packaged mortgages, derivative products, fancy financial instruments, government intervention in the housing market or Main Street greed. It concludes, rather, that the global brush with economic depression was the result of the colossal gap in incomes between rich and working Americans. The sadly obscure paper argues that a dramatic concentration in wealth at the top--at levels not seen anywhere else in the industrialized world--created a fundamental imbalance that brought the entire system down on itself. The document shows that the origins of America's last financial implosion, in 1929, were almost identical to those of 2008. In both cases, income inequality was the culprit. And even in the collapse's wake, the chasm between the top 10 percent and the remaining 90 percent appears to be widening further.

What are the consequences of this growing gap between the rich and poor? Story (2010) suggests that income disparities before the crisis of 1929 and 2008 were strikingly similar and were the greatest in approximately the last 100 years. She says, "In 1928, the top 10 percent of earners received 49.29 percent of total income. In 2007, the top 10 percent earned a strikingly similar percentage: 49.74 percent. In 1928, the top 1 percent received 23.94 percent of income. In 2007, those earners received 23.5 percent." This suggests that when the rich are lining their pockets they do so at the expense of the poor. We see ample evidence in 2008 as the wealthy benefit from outsourcing, off shoring and other cost cutting activities and American workers lose good paying jobs and benefits or become unemployed and the ranks of the poor swell. Mubarak and his wealthy cronies failed because they had too few puppets. He had no tea party-ites or right wing demigods who love the "rich and famous."

References

 

Arango, T. & Creswell, J. (2008). Goodbye to All That. New York Times, Sunday Business, October 5, 2008, p. 1.

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Bloomberg News (2010) Top-Earning U.S. Households Averaged $345 Million in '07. 2/18/10. New York Times Business, B11.

Bookman, J. (2010) Show me the money? Here it is October 8, 2010, Retrieved from: Jay click here

Story., L. (2010) Income Inequality and the Financial Crisis. 8/21/2010 NY Times Retrieved from: http://www.nytimes.com/2010/08/22/weekinreview/22story.html?_r=1

 

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He has taught in MBA programs for almost 35 years in 2002 he left academe to work for Home Depot where he witnessed the absurdity of corporate life. He is now semiretired and serves on the faculty as an adjunct professor at several institutions. He (more...)
 

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