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The Second Gilded Age Once Again

The United States: The rich and the rest:

During the 1980s the least-educated Americans fell behind those in the middle. As the computer revolution increased the demand for skilled workers and old manufacturing industries crumbled, those with just a high-school degree or less saw their relative earnings sink. Over the past decade the squeeze moved to the middle of the income distribution…. Incomes at the top, meanwhile, rose smartly during the whole period. The result was a dramatic divergence in fortunes. Between 1979 and 2007… the real disposable income after taxes and transfers of the top 1% of Americans more than quadrupled… the bottom fifth’s income rose by only 40%…. What lies behind these widening gaps? A big reason, particularly in the bottom half, is education, or rather the lack of it…. Both the soaring cost of a college education and the shortcomings of America’s schools system played a part….

This decline of work among less skilled… men has had profound social consequences…. Marriage rates have fallen, divorce has increased and the share of children born to single mothers has soared….

America’s social spending has rocketed (it is now worth some 16% of GDP), it is becoming less redistributive… in 1979 over half of all federal social spending went to the poorest fifth of households. Now it is only 36%.

Part of the trend at the top of America’s income ladder is simply the mirror image of that at the bottom….

But… America’s top 0.1% are no better educated than the top 1%…. Celebrities do not account for a large share of America’s ultra-rich. But the same factors—winner-takes-all economics coupled with an incomparably bigger global economy—explain part of the rise in the incomes of the chief executives who make up a bigger share of the very wealthy. During the 1980s CEO pay surged more in America than anywhere else…. This rise is widely put down to failures of corporate governance and a collapse in social norms which once set an informal limit on the earnings gap between bosses and workers. There is truth to both explanations, and it is not hard to find chief executives earning tens of millions of dollars despite lacklustre performance. But these effects should not be exaggerated…. A disproportionate, and growing, chunk of the very rich, however, have made their money in Wall Street rather than Main Street…. Philippon and Reshef argue that between a third and half of Wall Street’s higher pay is unjustified, deriving from rents rather than productivity…. Financiers have also been among the biggest winners from changes to America’s tax code…. Private-equity moguls have done particularly well, since the tax code allows them to classify their income as capital gains….

[T]he stratification of American society is having profound consequences. A country that prides itself on its social mobility is already less mobile than most people think and is almost certainly becoming even less so…. Most of this has to do with the difficulty of escaping from the bottom rungs of America’s income ladder…. And even the most recent studies of social mobility look at the earnings of people who were children over two decades ago. Since disparities in income, education and social behaviour now strongly reinforce each other, future mobility might be a lot lower still…

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