Insights · October 11th, 2011
I began thinking about the long term impact of the growing gap between rich and poor, and the flat-lining of middle class incomes, several years ago. I began the chapter on The Great Divides in my 2006 book by discussing the growing wealth divide, and in a 2006 keynote for the American Red Cross I called out the looming rich poor gap as an issue for philanthropic organizations.
Since 2006, the situation has gotten worse, of course, with the collapse of 2008, and the long non-recovery recovery that has followed. But now the issue has leaped from speeches about future trends to the front pages.
For over three weeks Occupy Wall Street protestors have been rallying against a number of grievances focused on a jobless economy and the Wall Street, regulatory, corporate and other policies that they see as combining systemically to prevent improvement. The website for Occupy Wall Street claims that,
The one thing we all have in common is that We Are The 99% that will no longer tolerate the greed and corruption of the 1%. We are using the revolutionary Arab Spring tactic to achieve our ends and encourage the use of nonviolence to maximize the safety of all participants.
Street demonstrations are a quintessential American tradition and right, and thus the demonstrators are carrying on in the footsteps of many who have come before them. What makes Occupy Wall Street unique is the intent to carry on an occupation as a tactic. Momentum for Occupy Wall Street has gathered speed in the last several days with the inclusion of local labor unions in the protests, and the spread to cities in almost every state in the Union. While many mainstream media and financial commentators have expressed opinions that range from confusion to disgust, others are beginning to catch on that something is happening here. Even President Obama has said Occupy Wall Street protests are a reflection of a ‘broad-based frustration about how our financial system works’, though I am not sure he grasps how much of the frustration is with his own ineffectiveness in dealing with that financial system (along with the rest of Washington DC).
Many of the Millennial Generation are involved in this protest, lending credence to the generational theory forecast that the Millennial Generation would be an activist generation. Amongst the thousands of protestors, hundreds have been arrested or aggressively handled in some way by the police, which is evident in the following video.
So what does it mean and where do things go from here? I have two primary observations today.
First, when in recent months I have mentioned the “rich poor gap” to business audiences, I have noticed that while some are glad to hear this reality pointed out, others bristle. I will put up a chart like the one below, and explain that I am not making a political statement, rather simply pointing out that the rich poor gap, which had closed between 1946 and 1979, has been widening due to a combination of factors including economic, global, technological, tax and government policy issues, and then I ask whether we really think that a society in which such a gap continues to grow can be a functioning society?
The second observation is that a good deal of my thinking on the likely long-term negative impacts of increasing wealth disparity comes from a quite earth shaking 2007 book by Robert H. Frank, entitled Falling Behind: How Rising Inequality Harms the Middle Class. When societies become more and more unequal, they become less healthy, less happy, less productive, less capable of producing innovation, more volatile, more prone to crime, and so on. Frank concludes his fascinating analysis of the drivers and the impacts of inequality with these two very prescient paragraphs,
Income and wealth inequality have been rising sharply in the United States for several decades, exacting a heavy toll on middle-income families. When market forces cause inequality to grow, public policy in most countries pushes in the opposite direction. That was also once the pattern in the United States. But more recently, we have responded by cutting taxes for the wealthy and reducing services for the needy. Historians will someday struggle to explain this puzzling reversal.
As the economist Herb Stein once famously remarked, if something can’t go on forever, it won’t. At some point, we will take steps to limit the damage caused by rising disparities in income and wealth. With a push from intelligent political leaders, such steps can be taken sooner rather than later. For even in an age of thirty-second sound bites, American voters have demonstrated their ability to see things from a different angle.
I have little doubt that the elections of 2008 and 2010, although the winning political parties differed, were both mostly a cry for addressing the decades-long economic patterns leading to the decline of the middle class, as described by Frank among others. The OWS demonstrations are likely to continue at least into the cold of winter, and then re-emerge even more full-throated in the spring. The choice they have made to call themselves “the 99%” is brilliant marketing, and the 99% will shape the 2012 elections. I concluded the section on wealth disparity in my book Turning the Future into Revenue this way,
The bottom line is simple. We can sugercoat economic statistics, point to skyrocketing housing values [in 2006], crow about GDP growth figures that mean little to average wage earners, and the reality is that the wealth divide is growing at the present time, and in the long run is deeply problematic.