Gap Between Rich And Poor Growing

(AP)  The gap between rich and poor is getting bigger in the world's richest countries - and particularly the United States - as top earners' incomes soar while others' stagnate, according to a 30-nation report released Tuesday.

In a 20-year study of its member countries, the Paris-based Organization for Economic Cooperation and Development said wealthy households are not only widening the gap with the poor, but in countries such as the U.S., Canada and Germany they are also leaving middle-income earners further behind, with potentially ominous consequences if the global financial crisis sparks a long recession.

Inequality threatens the "American Dream" of social mobility - children doing better than their parents, the poor improving their lot through hard work - which is lower in the U.S. than countries such as Denmark, Sweden and Australia, the report "Growing Unequal? Income Distribution and Poverty in OECD Countries" found.

The two decades covered in the study - 1985-2005 - saw the development of global trade and the Internet, and a period of overall strong economic growth. The countries covered are mostly developed nations, especially in Europe.

The United States has the highest inequality and poverty in the OECD after Mexico and Turkey, and the gap has increased rapidly since 2000, the report said. France, meanwhile, has seen inequalities fall in the past 20 years as poorer workers are better paid.

OECD Secretary-General Angel Gurria said that the study, which took three years to complete, would be useful to policymakers because it is coming out just as the world is undergoing "the worst crisis in decades."

With several OECD countries already in recession, the "key question" raised by the report is whether governments can prevent a possible drop in top earners' incomes from sparking "a second wave" hit to the lowest-income households, Martin Hirsch, France's high commissioner for fighting poverty, said at a news conference.

Also speaking at the report's presentation, Oxford University economist Anthony Atkinson noted that the widening inequality gap had coincided with a period of strong economic growth.

"What will happen if the next decade is not one of world growth but of world recession? If a rising tide didn't lift all boats, how will they be affected by an ebbing tide?" Atkinson said.

With governments around the globe announcing trillions of dollars in rescue financing to shore up banks, "I think that citizens of OECD countries are going to expect that if you can find funds to rescue banks, then governments can fund an effective unemployment insurance scheme, and they can fund employment subsidies," Atkinson said.

Atkinson said governments need to act to support employment as a response to widening inequality and faltering economies.

"If the government can take on the role of lender of last resort, then we should think about the government taking on the role of employer of last resort. Put bluntly, governments have to step up. Step up to the plate as Roosevelt did in the Great Depression," Atkinson said.

The OECD's Gurria urged governments to address the "divisive" issue of growing inequality. He said they should do more to educate the whole work force - and not just the elite - while helping people get jobs and increasing incomes for working families, rather than relying on social benefits.

"Greater income inequality stifles upward mobility between generations, making it harder for talented and hardworking people to get the rewards they deserve," he said in a statement. "It polarizes societies, it divides regions within countries, and it carves up the world between rich and poor."

In the United States, the richest 10 percent earn an average of $93,000 - the highest level in the OECD. The poorest 10 percent earn an average of $5,800 - about 20 percent lower than the OECD average.

Social mobility is lowest in countries with high inequality such as the United States, United Kingdom, and Italy, the report said.

More information from the OECD Web site:

Briefing on report findings (English)

Executive Summary (English)
By AP Business Writers Emma Vandore and Greg Keller

[alphaa10000]

JOBS AND ECONOMIC RECOVERY-- AN EMERGENCY MANUAL

Many are puzzled about how to boost economic growth-- particularly, the difference between "tax breaks" and "stimulative spending" in government (fiscal) policy.


TAX BREAKS

On one hand, "supply-siders" believe tax breaks promote business growth by increasing supply. But the history of tax breaks is not promising-- the wealthy actually do not spend their tax breaks directly into the economy, so there is little cause-and-effect. Meantime, tax breaks greatly reduce the ability of government to pay for its mission, creating a greater budget deficit and mounting national debt. This is exactly what happened during the eight years of George Bush-- the economy stagnated for most Americans, and their real income stayed flat despite two rounds of tax cuts (mostly benefiting the wealthy). In the words of George Bush, Sr., supply side theory is "Voodoo Economics" and a non-starter.


STIMULUS SPENDING

On the other hand, stimulative spending by government massively increases demand, and has a very good history, notably during recovery from the Great Depression of the early 1930s. This policy was proposed (most famously) by John M. Keynes, a British economist. Keynesian stimulus measures can be used widely, but are most often considered during acute economic contractions (recession), when debt and uncertainty sharply reduce demand, and many demand sectors approach free-fall.

Keynesian stimulus is altogether different than supply-sider budget tweaking and tax cuts. Since the Wall Street meltdown was a major financial crisis, that demanded an anti-contraction measure equal to the current recession. However, because of GOP opposition, the stimulus bill that did pass was much too small-- on the order of one-third to one-half the size it should have been-- and its limited effects by now are generally complete. Although, immediately post-stimulus, the American economy did start recovery and jobs creation did resume, that recovery has been all but killed in its cradle by GOP opposition (a party-line NO), and we now have lingering recession.

As the GOP and Tea Party like to point out, $787 billion is considerable spending in normal times, but in a major recession, even that figure may not be enough stimulus to halt the contraction of demand. Of course, both the timing and amount of stimulus are critical-- if applied casually or too late, the stimulus may not be effective in halting the gathering effects of a recession. This is a serious matter, because if the withering of demand does not stop, it becomes a years-long ordeal or even full-blown depression.


WHAT TO DO

Demand-based (Keynesian) measures are especially suited to major emergencies like this one, and there is a solid record of success. In WW2, massive government stimulus spending created sufficient demand to pull the American economy out of the Great Depression into postwar prosperity.

Recession is a crisis of confidence. Now that Wall Street fraud has exposed a network of over-leveraged debt (aka criminal fraud), and zero confidence in the banking system, no sector of the economy wants to spend, and cannot project even its own growth.

Today, the threat clearly continues. In a recession that is allowed to worsen, demand does not merely stall, but begins to plummet from gathering economic shock. Rather than wait for the sirens, we desperately need a Keynesian stimulus measure powerful enough to reverse economic trends now threatening us.

That means it is absurd to the point of high burlesque that the GOP and Tea Party members of congress still counsel collective hand-wringing about a national debt and budget deficits they created during eight years in power. As former VP Cheney once observed, "... Reagan proved deficits don't matter."

As New York Times conservative pundit David Brooks said, for the GOP to argue for trimming the budget in the middle of a recession is "insane". The solution is to boost demand spending, and it must come in massive stimulative measures, now-- without a pause for GOP Reagan-era delusions to evaporate.

Said Brooks, "The problem with (the GOP) and the problem with Limbaugh in terms of intellectual philosophy is they are stuck with Reagan... They are stuck with the idea that government is always the problem. A lot of Republicans up in Capitol Hill right now are calling for a spending freeze in a middle of a recession/depression. That is insane. But they are thinking the way they thought in 1982... (and) that is just insane..."

The current crisis is a crisis of free-falling demand, not supply. American demand spending must be restarted, or we ultimately face depression. What we need now is economic stimulus-- a jobs-based, massive stimulus to create demand-- and before it is too late.

[McHineguy]

All of you have valid points but the biggest problem here in America is quite a small word. GREED. Greed has ravaged America like a cancer. And we are spreading it all over the world. Even the Europeans, who are a semi-socialist society are becoming just like us. A few years ago they were appalled at our hire and fire mentality, well they are adopting it. They were disgusted at the gap between the greedy and the poor, well now they are not. I hope that as Americans we can see how we are poisoning the world with our greed and put this ugly disease into remission. We have the rescources and we can provide the leadership. Let''''s do it America!!! Let''''s stamp out poverty in our country first so we can once again show the world what America and Americans are really all about. Stop the greed!!!!!!!


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Posted by tonfrac at 05:26 PM : Oct 22, 2008

Nice thoughts, nice words. But its hard to be charitable when the government is commanding/forcing charity through the tax system. And its hard to be patriotic when the government chatises me for improving my lot. Im not greedy, Im just protecting what little they leave me. And I dont want to give them anymore because they waste it so terribly.

[tonfrac]

All of you have valid points but the biggest problem here in America is quite a small word. GREED. Greed has ravaged America like a cancer. And we are spreading it all over the world. Even the Europeans, who are a semi-socialist society are becoming just like us. A few years ago they were appalled at our hire and fire mentality, well they are adopting it. They were disgusted at the gap between the greedy and the poor, well now they are not. I hope that as Americans we can see how we are poisoning the world with our greed and put this ugly disease into remission. We have the rescources and we can provide the leadership. Let''s do it America!!! Let''s stamp out poverty in our country first so we can once again show the world what America and Americans are really all about. Stop the greed!!!!!!!

[wardoglrs]

The US looking like Argentina more & More. To bad the American people have no clue as to what there government really is If they there would have been a revolution long before now. So America are you just going to lay there like a slaughtered pig

[payasyougo]

The US government can solve this problem by each year just hiring everyone that is making minimum wage and put them each in a job where they make government wages. It will give those folks an income stream lifting them out of poverty and it shouldn''t affect the collective productivity level at all.

This, and deficit spending, should be able to continue as the solution by congress to the US problems for at least another few years.

[McHineguy]

"France, meanwhile, has seen inequalities fall in the past 20 years as poorer workers are better "

In case you missed it, France is the only "Western" economy that does suffer this problem. And we see how much of a world leader they are.

In addition, Asian countries seem to be ignored in this study. They are whipping our ***.

Finally, the bottom 50% of American wage earners pay less than 3% (yes, three percent) of the American tax bill. The top one tenth earners pay 70% of the tax bill. Taxes and rebates cant do much more to fix your perceived problem. Whats next? Comandeering money from the wealthy. Ill bet they take their money and their knowledge and leave for Australia.

Our ONLY hope is to gain fair wages from small businesses. The big guys (GM) are already dying. Small businesses cant pay more salaries until we set them free again.

Its a nice dream, the one where America has so much wealth and the businesses are so strong we can tax the rich and feed the rest. That dream is dying along with the phrase "The land of opportunity".

Please research the numbers before you vote. we cant tax our way to prosperity OR fairness.

[payasyougo]

"wealthy households are not only widening the gap with the poor, but in countries such as the U.S., Canada and Germany they are also leaving middle-income earners further behind"
----

In case you missed it, lack of initiative is a worldwide issue...

[wl7bzh]

Want to see a magic trick? Ready? 1..2..3..Poof. No more middle class-just rich and poor. Is that cool or what?

[McHineguy]

KittenPower, Heres part 2,

As for your: "final comment-do rich oilmen deserve big bucks as they pollute our environment??" Ill give you a dozen rich, cigar smoking, water poluting oilmen (does he really exist anymore?) if you will give me a few thousand crack dealing stay at home welfare moms.

But I will still go along with your plan, tax the lazy CEO who cheats and polutes and leave the hard working generous CEO alone. How will you tell the difference? While we are at it, lets give money to the deserving, hard stricken single mother but not to the drug dealing crack addict baby machines. How will you tell the difference?

If you give government the controls, who will control the government?

The problem is we end up trying to elect officials who understand what is "fair" on the farm and in the factory. They end up controlling our charities "for those who cant work". All the while trying to keep our total standard of living better than the rest of the world. You cant fix, and grow, an economy if you are busy making everything "fair".

I believe both McCain and Obama want to leave a mark on history. Is that fair to me?

Government needs to protect us and keep our communications free. Let us take care of the rest. My family does not need Big Brother deciding for us.

[McHineguy]

KittenPower, (I had to split my answer into two parts)
I dont miss the points you make. I grew up poor, married a single mother who raised two kids on her wages as a store clerk. I have close relatives who cannot work for very valid reasons. I speak from experience.

I have no illusions, the hardest workers dont earn the most money. Never have, never will, even with "wealth sharing".

I am not sure where Obamas "tax cuts" are going. But I do know he plans to raise taxes on the guys who dont pay them anyway and pass them to the rest of us. Then he and the rest of our government will decide who "deserves" the money. Doesnt sound to be based on hard work and success to me.

If you want proof this fails look at our last 40 years, since Lyndon Johnson created "The Great Society". Our non-working class (people who dont even try to work) is growing, our place in the world economy declining. Electronics, Steel, clothing, cars, furniture "Made in Asia".