The word "real" for the two curves in the chart means that they are adjusted for inflation, reflecting growth in constant dollars. Notice that the bottom curve represents median, not average earnings. "Median" is the point at which 50% of workers earn less and 50% earn more. The GDP per capita is the market value of the total output of the U.S. economy divided by its population.
In a healthy economy a rising tide lifts all boats--real median wages should grow along with per-capita output. Instead, since 1980 we've had a growing gap between the two. The chart tells us this has not been happening over the last 35 years.
In fact, as Lysy explains, from 1980 to 2012 the incomes of the top 10% rose sharply, and the top .1% and .01% soared, while the average income of the lower 90% of households actually declined by 6%. These income inequalities have led to great inequalities in wealth. According to Emmanuel Saez and Gabriel Zucman, in 2012 the top 0.1 percent (160,000 families with average net worth of $72.8 million) had as much of the nation's wealth as the bottom 90% (144 million families).
The growing abyss between the very rich and everyone else is not an inevitable outcome of forces beyond our control. Instead, it results from decades of laws and policies designed to maximize the incomes of the very rich. Let's look at one very important example. In 1993 Congress, concerned about the growing gap between CEO and worker compensation, passed a law preventing corporations from deducting compensation over $1 million as a business expense.
This should have served as a disincentive for companies to pay exorbitant compensation to top executives. But the Clinton administration managed to insert a huge loophole in the law, allowing "performance-based" pay over the $1 million limit to be deductible. So the CEO/worker pay ratio in the top 350 corporations continued to soar, rising from 20:1 in 1965 to 383:1 in 2000. In 2014 it was 303:1.
The Clinton loophole had a further damaging effect. A large component of performance-based pay consists of stock options, which give CEOs the right to buy company stock at a fixed price. The idea was to align a CEO's interest with that of shareholders. If CEOs do a good job, company shares will rise in value, rewarding both shareholders and the CEOs (who can exercise their options to buy the stocks at below-market prices). What happened instead was that CEOs changed their concept of job success.
Instead of focusing on the well-being of their firms, CEOs concentrated on maximizing share price to enrich themselves when they exercised their options. They held down wages and reduced investments in plants and equipment, diverting profits to buy back company stock, thereby raising the price of the remaining shares.
Also, CEOs don't have to pay taxes on the difference between the option price and the price when they exercise their option. No wonder that, according to Nick Hanauer, "Over the past decade, the companies that make up the S&P 500 have spent an astounding 54 percent of profits on stock buybacks" (The Atlantic, 2/8/15).
The stock-option story is just one part of the narrative of a devastating class war that a plutocratic minority has successfully waged against the lower 90% since 1980. This minority has gained control over Congress and the President by making politicians of both parties abjectly dependent on them for campaign funding. The centrality of this fact is what the Sanders campaign was all about, and his campaign was a shining exception.
American plutocracy is built on the absurd belief that as long as there is economic growth and profits are being made, we all are (or will be) better off, even though most people's standard of living has been declining for 35 years. This dogma is peddled by both parties but with different packaging. The GOP wraps it in nativism, jingoism and anti-intellectualism. Democrats coat it with liberal-identity politics, appealing to feminists, the LGBT community, and ethnic minorities. The billionaire class will tolerate either package, as long as they are not threatened with redistribution.
Could Sanders have brought his revolution to Washington? As President, he would have collided with the stone wall of a corrupt Congress. But, at least, a majority of Americans would have said "ENOUGH!"