The New Great Divergence

For some reason I was thinking a while back about the fact that decades ago, there was not this huge divergence of the United States from the rest of the wealthy industrialized world. America is the richest country in the world, the story went, and everybody wanted to be American.

Whether that was true or not, once upon a time people looked to Americans when they wanted to point to the world's highest standard of living. Not any more. Now America's middle classes are falling behind the rest of the world. And while  America is the best place to be rich, it's the worst place to be poor:

The findings are striking because the most commonly cited economic statistics — such as per capita gross domestic product — continue to show that the United States has maintained its lead as the world’s richest large country. But those numbers are averages, which do not capture the distribution of income. With a big share of recent income gains in this country flowing to a relatively small slice of high-earning households, most Americans are not keeping pace with their counterparts around the world.

“The idea that the median American has so much more income than the middle class in all other parts of the world is not true these days,” said Lawrence Katz, a Harvard economist who is not associated with LIS. “In 1960, we were massively richer than anyone else. In 1980, we were richer. In the 1990s, we were still richer.”

That is no longer the case, Professor Katz added.

Median per capita income was $18,700 in the United States in 2010 (which translates to about $75,000 for a family of four after taxes), up 20 percent since 1980 but virtually unchanged since 2000, after adjusting for inflation. The same measure, by comparison, rose about 20 percent in Britain between 2000 and 2010 and 14 percent in the Netherlands. Median income also rose 20 percent in Canada between 2000 and 2010, to the equivalent of $18,700.

The most recent year in the LIS analysis is 2010. But other income surveys, conducted by government agencies, suggest that since 2010 pay in Canada has risen faster than pay in the United States and is now most likely higher. Pay in several European countries has also risen faster since 2010 than it has in the United States.

The American Middle Class Is No Longer the World’s Richest (NYT) Here's the BBC summary:

Last week we noted that a pair of academic researchers said the US was starting to look less like a democracy and more like an oligarchy, where a wealthy elite determines public policy. Here's another bit of cheer in that regard. According to a New York Times report, the rich in the US are getting richer, but the poor and middle classes are falling behind some of their Western peers.

"Middle-class incomes in Canada - substantially behind in 2000 - now appear to be higher than in the United States," David Leonhardt and Kevin Quealy write. "The poor in much of Europe earn more than poor Americans." The UK median income is still behind that of the US, but it's catching up fast - a 19.7% increase since 2000. This is the same increase as Canada's, whereas the US number was up by only 0.3%. (It's worth noting that Germany's middle class is also stagnating - at 1.4%.)

The Times reporters based their conclusions on a survey of household incomes in about 20 countries over the course of 35 years, taking into account inflation, differences in taxes, government benefits and cost of living in different locations. "With a big share of recent income gains in this country flowing to a relatively small slice of high-earning households, most Americans are not keeping pace with their counterparts around the world," they write. The reporters point to three reasons why all but the wealthiest American may be falling behind:

First, educational attainment in the United States has risen far more slowly than in much of the industrialized world over the last three decades, making it harder for the American economy to maintain its share of highly skilled, well-paying jobs…

A second factor is that companies in the United States distribute a smaller share of the bounty to the middle class and poor than similar countries elsewhere…

Finally, governments in Canada and Western Europe take more aggressive steps to raise the take-home pay of low- and middle-income households by redistributing income.

The struggle for middle- and lower-class Americans is reflected in public opinion polls, the reporters write, which generally show greater dissatisfaction with their government than in other Western nations.

If the US middle class has it bad, the poor have it worse. "The American poor now clearly trail the poor in several other rich countries," Leonhardt and Quealy write. "At the 20th percentile - where someone is making less than four-fifths of the population - income in both the Nethe rlands and Canada was 15 percent higher than income in the United States in 2010.

Canada passes US in middle-class wealth (BBC) Meanwhile, the masses will continue to chant "USA, USA, USA! And that doesn't even take into account the fact that education and health care are predatory industries in the United States that cost multiple times what they cost anywhere else. We also pay more for cell phone and internet access for the some of the slowest service in the developed world. And our infrastructure and transportation hubs look like a third-world country.

For a final comic note, check out this: Soon Only Two Types of Americans Will Exist (Which will you be?). The article starts out with all the statistics about the disparities of wealth, exploding poverty, lack of jobs, and so on. What's the reason behind all this? Offshoring. Financialization? Monopoly? Nope, the welfare state! That's right, all those poor people on welfare is the root cause, according to some idiot named George Gilder, who will explain it all to you:

Gilder explains how, "The welfare culture is destroying the very fabric of American families." He notes, "The political elite's war on private industry will only result in catastrophe."

Yes, the "political elite" (who?) is sure putting on a war against "private industry" aren't they (how?). That must be why Americans, who have the stingiest welfare state and among the lowest taxes in the industrialized world are so much poorer than the middle classes of other countries.

Relative to our GDP, U.S. taxpayers are paying less than OECD nations as a group and are also paying less than the other "major seven" OECD nations individually. Tax revenues in the U.S., represented by the bright red line in the below chart, only totaled around 24 percent of GDP as of 2012, compared to 34 percent for all OECD machines as of 2011 (the latest available year for full-OECD data), represented by the thick, bright-blue line.

America's Relatively Small Tax Burden (US News & World Report)

Corporate Tax Rates Plummet as Profits Soar (The National Memo)

Your taxes are really low in one chart (Washington Post)

So reading shit like that, you understand why the poorer Americans get, they will never understand the true cause of our impoverishment.

BONUS: The average U.S. CEO is paid 331 times as much as their average employee. A new Demos report finds that the fast food industry, currently the subject of vast protests, "has the greatest CEO-to-worker pay disparity in our economy, with ratios exceeding 1,000-to-1." (Gawker)