When I would drive over to the west side of Austin and out into the hill country suburbs, I was struck by the economic contrast with the neighborhood near my apartment—huge homes with manicured lawns and expensive cars. After twenty years of association with overseas military bases, the economic contrasts in Austin were disturbing. Where did all of the money in west Austin come from? On military bases rank does have it’s privileges, but the quality of life of the enlisted and officer ranks is not that different. All families are employed and have access to good health care, good schools, and a variety of social services. The general’s house is nicer than that of a non-commissioned officer, but the difference is orders of magnitude less than the difference between east and west Austin.
The US Military Gini
Thinking about this range of economic differences reminded me of the Gini coefficient a measure of income inequality. Gini values are usually calculated on households and can range from 0 to 1 where a value of 0 indicates all households have the same income, and a value of 1 where one household has all of the income. Given that I like to quantify things, I thought I’d compare the Gini value for the US with that of the military to see if my perception of greater income equality in the military is sound. I found a Gini index for the US for 2008 on the Census Bureau web site. It was .47. I then found the numbers of military members by rank and the military pay scales and calculated a Gini index for the military. The result was .17. My perception was correct; the US military is much more homogeneous in income than the country as a whole.
Another reason the income disparity in the US was so impressive to me was the fact that the other countries that we lived in did not seem to have the extremes of poverty found in the US. In Spain and Italy, one tended to see a large number of low-income households compared with the US average, but the extremely poor seemed fewer in number. In the northern European countries and in Japan, it appeared that the overall standard of living was as high or higher than that of the US but without the very poor or the very rich. The CIA’s list of Gini scores confirms these observations.
The table below shows the 2008 Gini for the US compared with selected countries’ scores as reported by the CIA. The US has far and away the highest Gini score of the developed western democracies. It’s interesting that the generally conservative military members defending the US live in a community that has more in common with the European social democracies than with their own country.
Figure 1: CIA Gini Coefficients for Selected Countries
Historical Levels of Income Inequality
The US income distribution has not always been as unequal as it is today. The Gini index is estimated to have been .45 at the time of the great Wall street crash of 1929 but by the end WW II, the value had dropped to an estimated value of .38 which is still higher than European countries. The trend was essentially flat during the 1950’s, but the graph below (based on a Census Bureau report) shows a consistent rise from 1967 to the present.
Figure 2
Other Ways of Looking at Income Inequality
To get an idea of what a high Gini score means, we can examine the percentages of income that the top ten percent of the population receives. The graph below is taken from a series of Slate.com articles called “The United States of Inequality” by Timothy Noah which reported on the work of economists Thomas Piketty and Emmanuel Saez. The graph shows that during the Roaring Twenties the income of the top 10% of the population rose steadily until the Wall Street crash of 1929 and the stabilized at about 45%. That is, 10% of the population received 45% of the national income in those years leaving 55% of income for the bottom 90%. With the outbreak of WWII, and continuing through the Fifties, Sixties, and Seventies, the percentage going to the top 10% dropped below 35%. Then in the period from 1979 to the present, the Great Divergence, the percentage has risen to the levels last seen before the start of the Great Depression. A recent article in the Economist reports on Piketty and Saez’ figures on the top 0.1 % which showed that in 2008 they were earning 8% of the US income which is 1000 times their representation in the population. The same article reports on a study by the Economic Policy Institute, a DC-based think-tank, that showed that in 1980 the average person in the top 1% of the population earned 10 times as much as the average of the rest of the population, and that figure soared to 20 times the average by 2008.
Figure 3
The Census Bureau also reports information like that of Piketty and Saez, but Piketty and Saez used IRS data which allowed them to look at income in a finer detail than the Census Bureau. The Census Bureau only reports the percentage of total income received by each 20% of the population—the bottom 20%, the next 20%, etc.—and at selected percentiles. Their most recent report provides the income amounts associated with different percentiles in 2009. Figure 4 provides results for different percentiles for 1967 and 2009.
We left the States in 1988. The figure below shows the changes at different percentiles from 1988 to 2009. At that time we left, the 10th percentile was $11,436 and the 95th percentile was $149,207. In the next 21 years, income at the 10th percentile increased by only $648 while income at the 95th percentile increased by $30,794 or 45 times as much. There was essentially no gain in real income in the bottom half of the population; almost all of the gains went to the top half. No wonder I was overwhelmed by the affluence evident in West Austin and in the close in Hill Country.
Piketty and Saez looked at the top 10%, the top 1%, and the top .1%. Noah reported in his Slate.com article that ”The share of national income going to the top 0.1 percent (the Stinking Rich) had increased nearly fourfold during the Great Divergence. “The [inequality] phenomenon is more extreme the further you go up in the distribution,” Saez told me, and it’s “very strong once you pass that threshold of the top one percent.” A study by Saez showed that the top .1% received a share of 7.7% or 71 times their representation in the population.
Finally, another recent article in the Economist included this interesting way of visualizing income inequality in the US.
"Jan Pen, a Dutch economist who died last year, came up with a striking way to picture inequality. Imagine people’s height being proportional to their income, so that someone with an average income is of average height. Now imagine that the entire adult population of America is walking past you in a single hour, in ascending order of income.
The first passers-by, the owners of loss-making businesses, are invisible: their heads are below ground. Then come the jobless and the working poor, who are midgets. After half an hour the strollers are still only waist-high, since America’s median income is only half the mean. It takes nearly 45 minutes before normal-sized people appear. But then, in the final minutes, giants thunder by. With six minutes to go they are 12 feet tall. When the 400 highest earners walk by, right at the end, each is more than two miles tall. "
Consequences of Income Inequality
So, is income inequality a problem with consequences or simply the result of a political and economic system that rewards people fairly based on their skills, abilities, and responsibilities? There seems, to some extent, that concern exists across the political spectrum. I recently heard Jimmy Carter being interviewed by Ray Suarez on the PBS Newshour. They were discussing President Carter’s new book based on his White House diaries. Here’s a transcript of the close of the interview.
Ray Suarez: Do you look at this guy who emerges from these pages and say , “Yeah, I still know that guy. I still am that guy.”
Jimmy Carter: Well, that’s a difficult question to answer, I don’t think
Suarez: That’s why I saved it till last. {Laughter}
Carter: I don’t’ think I’ve changed in any material way, except I’ve learned a lot since I left the White House, and the thing that I’ve learned the mostly is the growing chasm between rich people and poor people. The richer people in America are getting richer and richer and the poorer people in America are getting poorer and poorer, and that is the case in almost every country on earth, and it’s also the issue between rich countries and poor countries. The rich countries are getting richer and the poor are getting poorer, and as we grow further and further apart economically we grow further and further apart in understanding each other and having mutual respect, and I think that’s a challenge that we still haven’t faced adequately in this country or around the world, so that’s what I have learned. One of the major things that I have learned since I left the White House.
Obviously, Jimmy Carter, the humanitarian, is troubled by a decreased understanding between the rich and the poor, but it was the end of the interview, and there was no discussion of what might result from that lack of understanding.
On the other end of the spectrum, former Federal Reserve chairman Alan Greenspan, the champion Libertarian, has long been concerned about the growing inequality in America. “As awesomely productive as market capitalism has proved to be, its Achilles’ heel is a growing perception that its rewards, increasingly skewed to the skilled, are not distributed justly.” And on another occasion, “In a democratic society, a stark bifurcation of wealth and income trends among large segments of the population can fuel resentment and political polarization. These social developments can lead to political clashes and misguided economic policies that work to the detriment of the economy and society as a whole.”
Is the rise of the Tea Party an example of the kind of political clashes that Greenspan is concerned about? As a group Tea Party activists tend not to be the most highly educated and wealthiest Americans, but they do tend to be more highly educated and wealthier than average. We saw in Figure 4 that the shift in wealth to the rich has not come primarily from the poorest of Americans but from the middle and lower middle part of the income distribution. No one would want to live on the income of the poorest, but their income has risen more than the middle income group. Caught in the middle, the Tea Party folks seem to feel that governmental actions have unfairly used their tax money to support the poor and the wealthy. They seem particularly angry about the bailout of the financial industry and illegal immigration. They fail to see the structural problems and the political and social attitudes that have fostered the shift of income from the middle to the rich and only want to cut spending rather than to undertake anything hinting of income redistribution. As Kathy Gornik, a Kentucky business owner said in an interview at a Tea Party rally, “Our country has gotten very out of whack. As you can imagine, I might feel, as a business owner, we create wealth, as opposed to being on the dole, where they have to confiscate money from those who produce wealth, like myself, and then redistribute it to other people.” She doesn’t seem to understand that over the last 40 years wealth has been redistributed, not to the poor, but to the very wealthy.
I believe the problem is serious and that social unrest will increase unless the situation improves, but reducing inequality does not mean that the dynamism of the economy must be reduced. Just look at countries like Germany, Norway, and Sweden where Gini scores are low, but the economy is strong and the quality of life is high. It is interesting that some psychological research shows that one’s relative standing in society is more important than the absolute amount of money we have. The US military and the European social democracies seem to confirm that research because they function well with much lower Gini scores than the US. Inequality exists but the degree of inequality appears to be reasonable and based on merit.
Political and social unrest is one thing, but it may be that poverty and income inequality negatively affect our physical well-being--the health and cognitive development of those under the most stress. A recent Science News interview with neuroscientist Helen Neville discussed her work on how poverty affects brain development. Perhaps the most widely known work in this area is by two British scholars, Richard Wilkinson and Kate Pickett, who set forth their ideas in The Spirit Level: Why More Equal Societies Almost Always Do Better. After surveying a wide range of research, Wilkinson and Pickett conclude that the stresses in countries with high levels of inequality lead to higher levels of such social maladies as homicide, obesity, drug use, mental illness, anxiety, teenage pregnancies, and high school dropouts.
The kind of research contained in The Spirit Level is largely correlational in nature. When there is a correlation between a measure of some phenomenon like income inequality and an outcome such as the homicide rate, it may not be possible to say that high levels of income inequality cause increases in the homicide rate. Both may be caused by something else. I have not read their book, and I have always been skeptical of correlational studies; however, the wide range of problems supposedly exacerbated by income inequality makes me believe it is related to a number of these social problems.
What is particularly disturbing is that research has shown that experience can cause biological changes to how genes are expressed and those changes can be passed from one generation to the next. When the Human Genome project produced its count of genes, the number was much below what scientists thought would be required to produce a human being. What they have found is that the necessary complexity comes from what is now referred to as the epigenome, and the field of epigenetics blossomed. It turns out that molecules attach to our DNA to determine which genes are turned on and which ones are turned off. These molecules are essential to the differentiation of our stem cells into the cells types needed to form the various tissues of the body. The stem cell has the potential to become any kind of cell—liver, kidney, nerve, etc.—and it is the epigenetic markers that bring about that transformation. It is like the genes are the keys on a player piano, and the epigenome is the piano roll that manipulates the keys of the piano to make the music of life.
Research has now shown that experience can change the epigenetic markers, and that the changes can be passed on to offspring for a generation or two. For example, a famine in the Netherlands at the end of World War II affected the health of the grandchildren of children who suffered through the famine. My hypotheses is that the future will show that stresses like those associated with poverty will provide causal support for the relationships found by Wilkinson and Pickett. It will be clearly shown that mitigating those stresses through greater income equality and/or through medical and nutritional support programs improve both health and cognitive functioning.
I’m not the only one to think this way. For example, consider this text from a 2006 article in Discover magazine:
The implications of the epigenetic revolution are even more profound in light of recent evidence that epigenetic changes made in the parent generation can turn up not just one but several generations down the line, long after the original trigger for change has been removed. In 2004 Michael Skinner, a geneticist at Washington State University, accidentally discovered an epigenetic effect in rats that lasts at least four generations. Skinner was studying how a commonly used agricultural fungicide, when introduced to pregnant mother rats, affected the development of the testes of fetal rats. He was not surprised to discover that male rats exposed to high doses of the chemical while in utero had lower sperm counts later in life. The surprise came when he tested the male rats in subsequent generations—the grandsons of the exposed mothers. Although the pesticide had not changed one letter of their DNA, these second-generation offspring also had low sperm counts. The same was true of the next generation (the great-grandsons) and the next.
Such results hint at a seemingly anti-Darwinian aspect of heredity. Through epigenetic alterations, our genomes retain something like a memory of the environmental signals received during the lifetimes of our parents, grandparents, great-grandparents, and perhaps even more distant ancestors. So far, the definitive studies have involved only rodents. But researchers are turning up evidence suggesting that epigenetic inheritance may be at work in humans as well.
In November 2005, Marcus Pembrey, a clinical geneticist at the Institute of Child Health in London, attended a conference at Duke University to present intriguing data drawn from two centuries of records on crop yields and food prices in an isolated town in northern Sweden. Pembrey and Swedish researcher Lars Olov Bygren noted that fluctuations in the towns' food supply may have health effects spanning at least two generations. Grandfathers who lived their preteen years during times of plenty were more likely to have grandsons with diabetes—an ailment that doubled the grandsons' risk of early death. Equally notable was that the effects were sex specific. A grandfather's access to a plentiful food supply affected the mortality rates of his grandsons only, not those of his granddaughters, and a paternal grandmother's experience of feast affected the mortality rates of her granddaughters, not her grandsons. . . .
The studies by Pembrey and other epigenetics researchers suggest that our diet, behavior, and environmental surroundings today could have a far greater impact than imagined on the health of our distant descendants. "Our study has shown a new area of research that could potentially make a major contribution to public health and have a big impact on the way we view our responsibilities toward future generations," Pembrey says.
The logic applies backward as well as forward: Some of the disease patterns prevalent today may have deep epigenetic roots. Pembrey and several other researchers, for instance, have wondered whether the current epidemic of obesity, commonly blamed on the excesses of the current generation, may partially reflect lifestyles adopted by our forebears two or more generations back.
Michael Meaney, who studies the impact of nurturing, likewise wonders what the implications of epigenetics are for social policy. He notes that early child-parent bonding is made more difficult by the effects of poverty, dislocation, and social strife. Those factors can certainly affect the cognitive development of the children directly involved. Might they also affect the development of future generations through epigenetic signaling?
"These ideas are likely to have profound consequences when you start to talk about how the structure of society influences cognitive development," Meaney says. "We're beginning to draw cause-and-effect arrows between social and economic macrovariables down to the level of the child's brain. That connection is potentially quite powerful."
Lawrence Harper, a psychologist at the University of California at Davis, suggests that a wide array of personality traits, including temperament and intelligence, may be affected by epigenetic inheritance. "If you have a generation of poor people who suffer from bad nutrition, it may take two or three generations for that population to recover from that hardship and reach its full potential," Harper says. "Because of epigenetic inheritance, it may take several generations to turn around the impact of poverty or war or dislocation on a population."
Historically, genetics has not meshed well with discussions of social policy; it's all too easy to view disadvantaged groups—criminals, the poor, the ethnically marginalized—as somehow fated by DNA to their condition. The advent of epigenetics offers a new twist and perhaps an opportunity to understand with more nuance how nature and nurture combine to shape the society we live in today and hope to live in tomorrow.
"Epigenetics will have a dramatic impact on how we understand history, sociology, and political science," says [Moshe] Szyf. "If environment has a role to play in changing your genome, then we've bridged the gap between social processes and biological processes. That will change the way we look at everything."
Let’s look at an example that shows how the US has not kept up with the rest of the world in an area that would seem very likely to have long-term consequences. The table below from a recent article in The Lancet shows under-5 mortality rates for the US and all countries with lower mortality rates in 2010. It is sorted in descending order based on their 1970 mortality rate. Note that all countries listed above the US moved from having higher mortality rates than the US in 1970 to lower mortality rates now. The US moved from being 17th among these countries in 1970 to dead last (42nd) in 2010. This is the same time period in which income has shifted more to the wealthy. The mortality rate has dropped significantly in the US, but every one of the other countries now has a lower rate. They are taking better care of their young children than the country that supposedly has the best medical care in the world.
The economies of most of these countries have improved substantially since 1970 and that improvement is reflected in their reduced under-5 mortality rate compared with the US. It is interesting to note the countries for which the US has either made substantial contributions to their defense or with which the US has been engaged in some kind of military action. We have expended billions of dollars in military support overseas (and probably for good reasons) but at the cost of support for our people at home.
That stresses from disease, nutrition, and interpersonal relationships can affect the cognitive development and health of future generations in humans is somewhat speculative and certainly not well understood; however, these data show that American children are at greater risk of these problems than the children in developed countries around the world. By failing our poor we may be setting them up for intergenerational problems and digging ourselves into an increasingly deeper economic hole. Even if we could miraculously change the support for the poor overnight, the epigenetic research suggests that it might be several generations for the effects to be overcome. To what extent has a history of discrimination against Blacks, Hispanics, and poor Whites set us back already? How much of the generally low educational achievement of children from low-income families is the result of epigenetic changes in cognitive development that will take generations to overcome?
I don’t know how the country should proceed, but I think the recognition of income inequality is on the rise. The tax codes, both federal and local, need to be made more equitable so the rich pay their share of taxes. As Warren Buffet has said with regards to federal taxes, it makes no sense that he is taxed at a lower rate than his secretary. He was taxed 17.7% on the $47 million he made in 2006, and that was without his trying to minimize his taxes as much as possible. His secretary who made $60,000 was taxed at a 30% rate. In Texas the bottom 20% pay 12% of their income in state and local taxes compared with 3% for the top 1%. It is heartening that both Democrats and Republicans want to make major changes in the federal tax code. Let’s hope that they can do it in a serious and open-minded way. For every dollar in tax breaks given to one group, the people outside of the group or future taxpayers (through the repayment of the deficit) must pick up the tab. Think about the tax break on home mortgage interest. For every dollar that taxes are reduced, those who are unable to buy a house or future taxpayers must make up the difference.
This fall I read a very interesting book, The Rational Optimist: How Prosperity Evolves by Matt Ridley which argues that throughout history the quality of life has improved and will continue to improve during the 21st century. I found his arguments very persuasive; however, that does not mean that improvement occurs uniformly and consistently in all parts of the world, and I am pessimistic about the future of the United States. More and more psychologists are demonstrating that humans have an innate sense of morality that makes them to engage in exchanges and share with others in need as long as the sharing is reciprocal and fair. This innate morality has even been identified in children as young as one year old. This willingness is predicated on reciprocity (I’ll scratch your back if you scratch mine.) and the punishment of cheaters and only extends to the group with which the individual identifies.
My primary concern is that the people who are most influential in setting policy, the upper middle and upper income groups, are so isolated from the rest of the population that the problems of income inequality will not be addressed. I believe their contact and even their awareness of lower-income people is much more limited than in times past, and they have no knowledge of the difficulty and stress of raising a family on $20,000 a year, much less on $10,000. Their first-hand knowledge of the poor and the near poor is especially limited with regard to those who are minorities or live in rural places. I have no hard evidence of this, but I believe our country is as segregated along income lines as it ever was along racial or ethnic lines. Consequently, we define what it means to be an American by the characteristics of our own social group, and are reluctant to support others. Think of the statement of the business woman from Ohio who saw the world as having two kinds of people—business owners who create wealth and those “on the dole” who usurp that wealth.
A posting that has been making the rounds on FaceBook reads as follows:
Kentucky just passed the best law ever. To be on Food stamps, Medicaid, or Cash Assistance for your children or yourself you have to pass a DRUG test. Now every other state should do the same. If you agree re-post. If people that work have to take a drug test, so should they. Amen....repost if you agree !!!!!!!!!!!!!!!!!! 100% yeah...finally..maybe this will reduce the debt some..
The post is incorrect in that the law has only been proposed, but the reaction is real. The poster believes we should deny the benefits of food stamps, Medicaid, and other assistance to the children of people who fail a drug test. The desire to punish the cheaters, especially when they are not part of our group (drug users in this instance), is paramount and overrides the idea that it is in the state’s best interest to provide medical and nutritional support to these children so they have a chance of escaping the mistakes of their parents. The author of the bill has stated that he will amend it to provide support if the parent enters a drug rehabilitation program, a much more reasonable idea that will cost money but has a chance of improving the lives of all involved.
I am concerned that we are in a downward spiral in the US that springs in part from our history of slavery and the repression of Hispanics and Native Americans. We seem to have a narrower sense of who is in our group and who is not in our group than most developed democracies and the US military. Many times while on base, perhaps at the post office, I saw military members run into other military members of another racial or ethnic group with whom they had served on another base. Their hugs and back slapping made clear their mutual affection and respect. The all-volunteer demonstrates that it is possible for people from very different backgrounds to share a group identity and work together productively. I am skeptical that the US can make that transition given the divisions along economic lines.
I believe the social democracies have a greater sense of social cohesion and belonging which makes them willing to pay much high taxes in order to ensure a decent standard of living for all. They see the citizens of their country as belonging to the same group, and they are willing to support others because they believe that the others would support them in their need and that failures on human and educational development affects all, not just those who are handicapped or of low income. In a sense they extend the concept of “love thy neighbor as thyself” beyond their immediate neighbors to their fellow citizens. The European countries are having to scale back on some of their social programs, particularly retirement benefits and laws that limit labor mobility, in order to compete globally; however, I would not expect them to abandon their “tax and spend” ways anytime soon. The quality of life they enjoy is closely tied to their willingness to tax themselves for the good of all.
The bottom line is that the size and history of the United States work against our ability to govern effectively. If I were young and knew what I know now, I would look into emigrating as our ancestors did to a country that offers a better opportunity to live in peace and prosperity like Canada, New Zealand, or Australia.
