Law  - Fall 2009
Racism, Health Disparities, and the Law
Professor Vernellia R. Randall
The University of Dayton School of Law

 Social Policy is Health Policy is Law


Rising Wealth Inequality: Why We Should Care

Rising Wealth Inequality: Why We Should Care

Please notify me of any typo, misspelling, etc.

"There is an Axis of Evil,  An Axis of Evil of inequality, of racism, of poverty, of economic deprivation
 that is adversely affecting the health of the American people." David Williams


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Lisa A. Keister, Joel F. Handler, Lingsin Hao, Mark R. Rank, Alan Reynolds and John Schmitt, First Panel: Rising Wealth Inequality: Why We Should Care, 15 Georgetown Journal on Poverty Law and Policy 437 (Summer, 2008) (61 footnotes ommited)


Lisa Keister: It is my pleasure to add my welcome to the welcomes you have heard already and also to introduce the first panel.

The first panel's job is to start to define the problem that we are dealing with, to start to flesh out some of the details about what wealth inequality is, how much wealth inequality there is, how much there has been historically. Bob Kuttner was pretty quick to say it has been increasing, but those of us who know the data--as I am sure he does too--know that it is not actually that easy to say that wealth inequality has been increasing. There are many nuances that we need to flesh out, and what we are going to do in this first panel is to start talking about some of the details.

I could spend the entire two hours telling you about the wonderful panel that we have gathered here. But what I will do instead is give you a very quick introduction to each of the panelists. These are some very distinguished people and we are extremely fortunate to have them with us.

The first person on the panel is Joel Handler, who is Richard C. Maxwell Professor of Law and Professor of Policy Studies at UCLA. Welcome Joel. Lingxin Hao is Professor of Sociology at Johns Hopkins. Lingxin writes about social inequality and immigration, and she has also done a lot of work on public policy. Mark Rank is Herbert S. Hadley Professor of Social Work at the George Warren Brown School of Social Work at Washington University in St. Louis. We also have with us Alan Reynolds, who is a senior fellow at the Cato Institute and former director of economic research at the Hudson Institute. Lastly, we have John Schmitt, who is a senior economist at the Center for Economic and Policy Research in Washington, D.C.

I will let them tell you in more detail what they are going to talk about, but let me say a couple of words to whet your appetites. Alan Reynolds is going to speak about wealth data, about how much inequality we have. He will talk a little bit about income inequality, I believe as well, but primarily he is going to present some of the wealth data, to give us a sense how much inequality there is. John Schmitt is going to talk about the way that we study the wealth distribution and he is also going to address how we might start addressing inequality through some other, more unusual, means. Joel Handler is going to talk about workers who have moved into low-wage jobs as a result of workfare. Lingxin Hao is going to talk about another timely issue in terms of current affairs: immigrants and where *438 they stand in the wealth distribution. Lastly, Mark Rank is going to elaborate on the theme of why we should care about wealth inequality.

Of course, there are lots of reasons why we should care, and I hope that you will get a sense of some of those during this panel. We will have a good long time for questions and answers after the entire panel presents their thoughts, so hold tight with your questions until then. Again, thank you for being here and I will turn the panel over to Alan at this point.

Alan Reynolds: We were talking a few days ago in a conference call about this session. The session is supposedly about wealth inequality, but I said, "You know, what you folks mainly want to talk about is income inequality, not wealth inequality."

As a result, I am only going to show one graph about wealth. There are two different estimates in the first graph. One is from a study by Wojciech Kopczuk and Emmanuel Saez--those are the smaller numbers in light grey. The other figures are from the Survey of Consumer Finances (SCF) from the Federal Reserve. The SCF is a very in-depth survey of both income and wealth. That survey asks a lot of hard questions and does not miss much. It shows much more wealth concentration than the other estimates, but neither shows a clear upward trend. The 1962 and 1983 figures came from John Karl Scholz and are not entirely comparable with the others (the weights changed). The Fed data from 1989 on are quite comparable.

When we talk about wealth inequality, it is most often measured as how much wealth is held by the top 1 percent. The answer is--a lot. But that has always been the case.

Basically, we have about 21 to 34 percent of wealth held by the top 1 percent, depending how you measure it. People tend to think of wealth as meaning stocks and bonds, but among the wealthiest it is mostly privately held businesses. In some cases, the privately held business goes public and the owners keep a few shares. For example, Bill Gates has only about 8 percent of Microsoft stock still, but that is enough to make him very wealthy. There were two young guys who started a company called Google and they went public. The day they went public, they each were worth $12 billion apiece, but Google has gone from $300 to $700; now they are worth $20-some-odd billion. But their wealth is the result of creating new products and if it wasn't for Google, they would not be wealthy. We all use it. I feel like I owe them some money, I use it so much.

The Kopczuk-Saez data go back to 1913. I started with 1939, because it is the end of the New Deal and before World War II. The top 1 percent's share of wealth actually went down, according to their data, pretty much continuously. I am only showing a few years because I am trying to match dates with the Fed series, which only comes out every three years. What more could we say about wealth, except perhaps that we should not focus so much on those who have it (since *439 there does not seem be anything we are likely to do about it) rather than on those who do not have any.


Young people typically do not have any financial wealth. We have "human capital" when we are young, future earnings. We draw upon that to buy real capital--a home, a car, furniture and appliances. As a result, young people are often deeply in debt for a while and it is not until they get older that they accumulate more assets than debts. People from forty-five to fifty-four have about ten times the median wealth of people who are under thirty-five. Nobody should be too surprised about that. I wrote a textbook called Income and Wealth and in the introduction I quoted a well-known economist, Edward Wolff, who referred to young people as "less privileged" because they had not accumulated as much wealth as the middle-aged. Yet it obviously takes time to accumulate a lot of wealth. It's a funny thing: young people get older. When they get older, they usually have more wealth.

*440 There are some people who never accumulate much wealth, often because they are too poor to save even in their prime earning years. But federal policy sure does not help. For example, if you have $2,000 put away for a rainy day, you are not going to get food stamps, you are not going to get Supplemental Security Income and, in some states, saving "too much" can disqualify you for Medicaid too. That strikes me as dangerous. We should be encouraging low-income people to accumulate at least half a year's income. And not just for retirement. People need savings long before they retire: to deal with emergencies, to pay for schooling or job training, to get a car to go to work.

Now, let's talk about income data. The second graph is Census Bureau data. I do not go back very far, only to 1986. I will explain why in a moment, because it is always wise to be skeptical about economists cherry-picking certain dates to bolster their argument. This graph shows the top 5 percent's share of family income before taxes. The quote at the top says, "The impact of the 1993 change on measured income inequality is quite large." That was not because the newly elected president, Bill Clinton, gave money to the top 5 percent. It was because the Census started counting more income at the top than previously. Census pollsters used to count only part of it. For salary alone they counted up to $300,000 per job (even less before 1985). In 1993, Census pollsters started using computers and including up to $1 million per component of income. Naturally, after pollsters began recording higher incomes in 1993, the recorded income of the top 5 to 20 percent appeared to suddenly leap higher.

If we went back to the early 1980s, top incomes were quite low, making incomes look very equal by this measure (which, of course, excludes 95 percent of all families). The stagflation of 1979-82 had a devastating effect on bonds, stocks and small businesses, so the top 5 percent's share of family income was already low in 1979 (15.3 percent) and it hit a record low of 14.4 percent in 1981. I am not starting this graph with 1986 to conceal that. I am doing this to show you that the top group's share was quite flat from 1987 to 1992 and fairly flat after that. The apparent jump in 1993 is largely or entirely a statistical illusion--the figures "are not comparable" before and after 1993. If we were to use this data to answer the question, "Has top-tier income inequality increased since 1979 or 1981?" the answer is yes! But most of that rise occurred prior to 1987 or 1988.

What happened to income dispersion since Census survey methods changed in 1993 is somewhat ambiguous. One broad measure of inequality in disposable income--after taxes and transfers, but including capital gains--is the Census Bureau's Gini coefficient for their fourteenth alternative measure of income. That *441 has been virtually unchanged, at 0.4 in 1994 and 0.421 in 2006.


The next graph takes another look at income, using the same Survey of Consumer Finance that we used before when talking about wealth. Strangely enough, the Fed's survey is not often mentioned in discussions of income inequality. I am only showing you two years, the change between 1989 and 2004. But I think that's fair because 1989 was a cyclical peak.

This graph shows changes from 1989 to 2004 in average real, inflation-adjusted incomes of the lowest fifth, second fifth, middle fifth and so on. None of these numbers has grown very much. Average incomes in the middle fifth grew only 14 percent over a fifteen-year period, about 1 percent a year. You could use these figures to say there has been a "middle class squeeze" if you like. But it is hard to describe this as an increase in inequality. The SCF Gini coefficient was *442 0.54 in 1989 and 0.54 in 2004. I take the point that some of the increase in money income at the bottom may be a consequence of welfare reform. It may well be that single mothers are earning more money, but because they have to pay commuting expenses and child care expenses, they may not be better off.


But this is interesting data, just the same, because the SCF uses a broader definition of income than the usual Census Bureau figures. The Fed's survey includes capital gains and business income, as well as Social Security and other transfer payments. There is a lot of inequality in these figures, don't get me wrong. The median income in the bottom fifth was only $11,100 in 2004 (up from $8,500 in 1995, measured in 2004 dollars). That means the bottom 10 percent earned even less than $11,100. Median income for the top 10 percent was *443 $184,800 in 2004, so the top 5 percent earned even more than that. Still, the gains of real income among the top 10 to 20 percent from 1989 to 2004 were not quite as large as the gains among the bottom 20 to 40 percent.

The reason the overall 1989-2004 gains look fairly small is that there was a recession in 2001 and it usually takes about seven years before incomes get back to the previous cyclical peak. Median income, for example, did not get back to the 1989 level until 1996, and was just barely above the 1989 level in 1997. Median income is very similar to the middle fifth, however and these SCF figures show that income increased more slowly in the middle than it did for the other 80 percent of U.S. households.

The next graph is difficult. It came out of a paper I presented at the Western Economic Association and I am still working on it. The line at the top is the estimate by the Congressional Budget Office (CBO) of the top 1 percent's share of income, including capital gains. It is after tax, and uses a very broad definition of "comprehensive income."

This graph uses figures adapted from the tax-based estimates of Thomas Piketty and Emmanuel Saez, which are similar to those of the CBO but exclude transfer payments. Showing the gyrations in two sources of top incomes is intended to illustrate just two of the several points I made in a recent Wall Street Journal piece about data problems with all of these tax-based income estimates.

The solid bars show how much of the top 1 percent's income consists of business income. When the individual tax rate came down in 1986 (and again in 2003), a lot of businesses and professional organizations switched from reporting most of their income under the corporate tax into Sub-Chapter S, limited liability companies (LLCs) and partnerships. Today, more than half of business income is being reported by such pass-through entities in individual income tax. It just moved from one tax form to another, but to those who use the individual tax returns to measure income (including the CBO) it looks like more income at the top. Much of that income was always there; it just used to be recorded on a different tax return. That is the main reason the top 1 percent's share (the dark line) looks larger in 2005 than it did in 1986. The main reason the top 1 percent's share appeared to fall from 1986 to 1995, however, was that fewer capital gains showed up on tax returns while the capital gains tax was 28 percent.

The lower, striped bar shows how much of the top 1 percent's income comes *444 from capital gains that show up on tax returns (as opposed to being unrealized or sheltered in an IRA or 401(k) plan). One thing you can easily see is that the share of top incomes from capital gains bounces up and down wildly--from the stock market boom in 1997 to 2000 and the subsequent crash, but also with changes in the capital gains tax rate. In 1986, everyone knew the capital gains tax was going to be much higher in 1987. So there was a rush to realize gains before 1987, resulting in a big spike in the top 1 percent's income as reported on tax returns. After the capital gains tax rate rose to 28 percent, realizations of capital gains remained very low until the capital gains tax was cut again to 20 percent in 1997. That did not mean the rich had fewer capital gains, but that they did not realize as many of those gains by selling assets. Together with the high-tech stock boom, *445 lower tax rates on realized gains helped push reported top incomes skyward from 1997 to 2000.


In all estimates of top incomes that include realized capital gains (including the CBO data and the Census Bureau's estimates of disposable income), the ups and downs in the dark line are telling us more about the stock market and the capital gains tax than they are about any "trends" in top incomes. That makes this "top 1 percent" income share very cyclical. The surest way to get the top 1 percent's share down is to toss the economy into a big recession. That works every time. Unfortunately, recessions also shrink the bottom 20 percent's share and incomes in general. In the 1980-82 stagflation, the Dow fell to 884 and long-term interest rates, including mortgages, approached 16 percent. This prolonged inflationary recession was indeed devastating to incomes at the top (thus "reducing inequality") but also devastating to those at the bottom. One of the problems with focusing too much on the top 1 percent is that it ignores what is happening to all other income groups, unlike my previous graph from the Survey of Consumer Finances.

The general pattern of relative income gains in that SCF graph is broadly similar to estimates the CBO produced in May for families with children--using Census data to measure incomes for a change, rather than (misleading) tax returns. That study showed that incomes rose by 35 percent for the lowest fifth, by 53 percent at the top and by only 17 percent in the middle. The CBO study started with 1991, which was a recession. And incomes do not show any improvement between the cyclical peak of 2000 and 2005, which was likewise true five years after the 1979 or 1989 peaks. That is why I started with a peak year, 1989, rather than measuring income gains from the trough of recession (1991) to a cyclical peak (2000). Still, the CBO study of income changes for families with children is roughly consistent with the SCF data for all households.

Finally, when we talk income distribution, people often quickly switch to wage distribution, as if everybody worked and as if wages were the only source of income--nobody has dividends, capital gains, rent or, for that matter, transfer payments.

The last graph shows the percentage of full-time workers by income group last year. Basically, there were five times as many full-time workers in the top fifth as there were in the bottom fifth. If that sounds like a politically incorrect statement, it is not meant to be. People do not work for good reasons. The number one reason is they are retired. There are fewer people in bottom fifth than in the top fifth. There are more singles and widows in the bottom and more two-earner couples with kids at the top.

The second most important reason why people do not work is that they are in *446 school--there are a lot of college students in the bottom fifth. Another reason people don't work is disability. Another is temporary unemployment or illness. There many good reasons why people don't work in any particular year. But the fact there is so little work going on in the bottom fifth is one of the reasons the annual income numbers are as skewed as they are.


That is about all I have to say. I do not do this research as a means of peddling policy advice. On policy, I agree with some of the things Bob Kuttner said. I agree with many comments from the audience. But I want to get the numbers right first. Then we can discuss what is really going on, and why, and what private and public agencies might be able to do to make things better. Thank you very much.

*447 John Schmitt: I am an economist and as my three, much more creative siblings will tell you, that means I am pretty literal-minded sometimes. What I am going to talk about today is the wealth distribution and I want to be clear about what I mean when I am talking about this.

There are three important economic distributions that economists look at. One is the wage distribution. That is how much money a person makes per hour of work, sometimes with, sometimes without benefits, and how that is different across different kinds of occupations and different kinds of people. A second important economic distribution is the income distribution, that is, how much money a person receives in an entire year from all sources: from work, from stocks and bonds, from rental apartments owned and a whole host of other things. The third distribution is the wealth distribution. That is the amount of assets you have at any given point in time, minus the liabilities you have. It is the value of your house minus the outstanding mortgage. It is adding up all of your checking accounts and saving accounts and subtracting your student loans or your credit card debt. Net wealth is what is left--that is the distribution I am going to talk about today.

I will say, parenthetically, that in Alan's talk, while he touched upon all three of these economic distributions, he talked mostly about the income distribution. I have many disagreements of opinion and fact with respect to his interpretation of what happened with income trends. If, however, we focus on the wealth distribution--even though Alan publishes in the Wall Street Journal and I come from a very different political perspective than what you generally find on their editorial page--his reading of the wealth distribution numbers is actually one that I share. But I am going to give that reading a very different interpretation.

Basically, I will make three points today. First, wealth inequality in the United States is actually staggering in its scale. And it is very resistant to change. The second point I am going to make is that unfortunately, I think our ability to address wealth inequality directly is very limited. As pessimistic as that sounds, my third point is that there is, fortunately, an alternative to dealing directly with wealth inequality. The alternative, however, involves recasting the problem and thinking about wealth inequality in a different way.

So with the help of Alan's data, and some extensions of that same data, let me make my first point, which is that wealth inequality in the United States is breathtakingly unequal. If we look at the data from the Survey of Consumer Finance for 2004, the top 1 percent of households had about 34 percent of all the wealth in the country. The top 1 percent had more than one-third of all the wealth. The next 4 percent had 25 percent of the wealth, a fourth of the wealth. That means, taken together, the top 5 percent of households had 60 percent of all the wealth in the country.

*448 An even harsher way of looking at that level of inequality is to note from the same data that the bottom 80 percent had just over 15 percent of the wealth. We are talking about enormously unequal distributions, far more unequal than the income distribution, far more unequal than the wage distribution.

The point that Alan's data made very well is that distribution is actually pretty resistant to change. We can understand why this is the case--and it is not because there are, as Alan suggests, some young people and some old people. It is because wealth and power are absolutely, inextricably interlinked and people who have wealth have power, and they are often able to make sure that they continue to have both wealth and power.

I want to illustrate what we are up against by an example that I have repeated many times since I first heard it at a conference on wealth inequality in New York City in 2000 or 2001. A commercial banker was speaking to the conference participants and he made a very interesting point. He said in 2000, the median wealth holdings of African-American households were about 13 percent of the median wealth holdings of white families. He observed that in 1865, when the slaves were freed, you could roughly assume that African-American median household wealth was about zero percent of whites, since they had the clothes on their back and not much else. He then commented that in 135 years, we had come 13 percent of the way towards equality along this dimension.

That is what we are up against when we are talking about wealth inequality. It is a very difficult thing to move. If you look at the last 135 years, we had political, economic and social events, such as the civil rights movement, for example, that massively increased African-Americans' participation in society. We are not likely to see changes on that scale again. The next 87 percent of the way toward equality along this dimension is likely to be much harder than the 13 percent we have achieved so far.

Of course, wealth inequality is not just an issue for African-Americans. As we saw earlier, the share of the top 1 percent has been roughly unchanged over the forty-five years from 1962 with about 33 or 34 percent of all wealth held by the top 1 percent.

Now the second point that I want to make today is that it is very difficult for us, if we confine ourselves to conventional policy tools, to address this kind of inequality. The difficulties are related to the scale of wealth inequality: when 80 percent of people only have 15 percent of the wealth, there is a lot of redistribution that is needed. But the difficulties are also related to the issue of power. The people at the top who have 60 percent of the wealth are very resistant to change. Let me give you an example of how difficult redistribution is in the wealth context.

*449 One of the most common things that people propose to deal with wealth inequality is asset-building programs. My comments reflect a point raised in Bob Kuttner's remarks earlier and I want to elaborate. Hillary Clinton, for example, recently proposed a $5,000 per child bond or gift or credit that would be given to all citizens when they turned eighteen. The idea is to give everyone at least a small stake in society. Let's do a simple experiment, though, which is even bolder than what Hillary Clinton proposed. Let's take the 2004 wealth distribution that I mentioned earlier, and let's give the bottom 40 percent of households in the country $10,000 each. That is essentially giving $10,000 to 45 million households. When you add that all up, it is almost a half a trillion dollars, which is more or less what we have spent on the Iraq War so far. This is the order of magnitude of the expenditures that we are talking about.

What does that do? You run the numbers--it does not take very long in a spreadsheet--and, if you take all of the money for the redistribution from the top 1 percent of households, the share of total wealth held by the richest 1 percent would fall from about 34 percent to about 33 percent. What happens to the share of the bottom 40 percent? It goes from .2 percent to about 1.2 percent of the total wealth distribution.

We are enacting a wealth redistribution program which is beyond any of our wildest dreams and you can barely tell the difference on any of the graphs of the wealth distribution that Alan showed you earlier.

That is pretty depressing; at least it was to me. We can deal with the issue of wealth inequality, but to do so, we have to recast the problem. We have to ask why it is we care about wealth inequality. We care about wealth inequality because we care about economic security. We know when somebody has some money in the bank that they can weather a divorce, a serious illness, a death in the family, the loss of a job. We know that with that money in the bank that they can get by. We also know that wealth gives families the money to make an investment, for example, in college education, which is one of the most important things people can do to get ahead economically (although it is certainly not an economic policy without its problems--but that is a separate discussion).

We care about wealth inequality because we care about economic security. If what we care about is economic security, we know how to provide economic security, even if we have difficulty changing the wealth distribution in any meaningful way. The way to provide economic security is to expand and deepen the social safety net that we have. There is probably no single action that we could take to improve the economic security of people in the United States, particularly for people in the middle and the bottom of the income distribution, than to provide some sort of national health insurance. One of the biggest causes of bankruptcy and economic anxiety is the inability of families to deal with health care expenses.

The second thing we could do is reform the unemployment insurance system. The unemployment insurance system now is very stingy by international *450 standards and it hardly covers any workers. The current system does not cover a lot of non-standard workers (part-timers, temporary workers), recent returnees to the labor force and young people; when it does cover them, it provides very low levels of financial assistance relative to what we as a very rich country are capable of giving.

We could also reform welfare reform. We could actually provide a system that gives financial support and work supports to women who have children and not the punitive and underfunded measures that we have had in place since 1996.

We could give people free college tuition, which is basically what most of the rest of the rich countries in the world do. We are richer than they are, so why can't we afford to do it, too?

Now all of this is probably a pipe-dream. I will conclude by saying that we are past the point of needing good ideas. We have a lot of good ideas. We do not really have problems of policy. We have problems with politics. It is not going to be more and better ideas that get us anywhere on the wealth distribution or economic insecurity. It is going to be more and better organizing. Women got the vote and unions got the weekend and African-Americans got civil rights because they organized. That is what we need to do if we are going to make any headway on this. Thank you.

Joel Handler: I am going to talk about one segment of the working poor. It is not the majority segment but it is one of the main focuses of our country, and that is the single mother family.

The United States is unique among the developed world in demonizing the single mother family. This started from day one during the colonial period. There were a lot of single mothers then--due to men lost at sea, the Indian/colonial wars--and if it was a white single mother, they would board the children out, give her some support. If it was a black or Indian single mother, they would say, "Get out of town!"

During the nineteenth century, this hatred was focused first on Irish immigrant families, then Catholics, Jews, Italians and Greeks in the latter part of the century. The mothers' pensions system, which basically provided a subsidy to white widows with children, started in 1910. Blacks did not appear on the radar screen until the post-World War II period for a whole variety of reasons. The welfare rolls exploded and welfare started its journey into crisis. Ronald Reagan coined the term "the welfare queen," which invoked the image of the inner city black woman, having children to stay on welfare; children having children to stay on welfare; substance abuse, crime--welfare recipients as a criminal class. Finally, President Clinton, in 1996, "ended welfare as we know it" with the Personal Responsibility and Work Opportunity Reconciliation Act (otherwise known as *451 the Welfare Reform Act).

A curious thing happened when we "ended welfare as we know it": poverty dropped off the political radar screen. It rose a little bit during Katrina but it essentially dropped off. Robert Kuttner says there is some movement there, but except for John Edwards, it is really not talked about.

What did welfare reform do? I will go over this briefly, because it is now ten years old. It dramatically expanded the states' ability to design their own welfare programs for poor families. The states received block grants; in exchange, they had to have a certain percentage of their welfare recipients working, a percentage which has gradually increased over the years. Welfare was no longer an entitlement. People had responsibilities instead of rights. And it expanded the states' ability to reduce cash aid if a welfare recipient violated the program.

One of the most important features of the block grant system was that states were allocated welfare money based on the number of welfare recipients they had in 1992 and 1993, and if somebody subsequently left the welfare rolls in the state, the state would keep the money. Under the prior program of a grant-in-aid, the state would lose half the federal grant. So there were financial incentives for states to reduce their rolls.

One of the key assumptions of welfare reform was that the state welfare agencies would become active employment services, or education and training services, for welfare recipients. In fact, the state offices for decades had been staffed by overworked, undertrained eligibility technicians. They were concerned with making sure that people were financially eligible and that they abided by the rules. Now, under Temporary Assistance for Needy Families (TANF), they were also supposed to create individualized work plans and determine family behavioral requirements and family assistance.

However, instead of creating individualized work plans, many workers go through the forms and assign clients on the basis of their quickest assessment. A 2001 study of the Wisconsin TANF program found that casework managers used informal impressions to make important decisions. In Wisconsin, which became the model for the country, and in fact for the world, clients could be placed in four different tiers, depending on their abilities. Most of the clients were placed in the lower community service jobs tier because it was the easiest choice.

According to the same study, at the initial client interview in Wisconsin, the caseworkers were expected to complete up to 480 screens on a computerized system to place the clients. I tell my class in Los Angeles, "All of the stories you *452 have read about the FBI and CIA computer systems, can you imagine the computer system for the Los Angeles County Department of Welfare, where you have to go through 480 screens?"

Evelyn Brodkin's study of work programs in Chicago found that eligibility determinations are based on statistics and quotas; they are rarely based on client needs and goals. In addition to this, welfare offices have to monitor the clients' compliance with the work requirements. During a 2003 study in Wisconsin, researchers tried to reach recipients for follow-up interviews. Less than 80 percent of the women selected for their study could be found.

Multiple reasons exist for the poor performance of clients and when clients are reported to be out of compliance by the computer system, caseworkers have the discretion to sanction clients and change their checks. Thirty-seven states have a full-family sanction: the client and her family are cut off completely. The other states have partial penalties. Studies found that the sanction rates have gone up 50 percent in some areas. Many welfare recipients who are sanctioned have no idea that they were sanctioned and do not remember any discussion of the work requirements. You can understand how that happens: a mother with kids comes into the office, they are desperate and they are focused on what they are going to get and what they have to do. Many of the caseworkers also do not understand the sanction policies.

There also has been an extensive amount of privatization of the welfare functions. The idea is that the private companies--you know the ideology--are more efficient and can produce better outcomes that result in cost savings for the government. Jason DeParle did a study of the Wisconsin privatization program called American Dream that found cooking the books, keeping the surpluses, *453 using the surpluses to bid on other states.

The reason for this, as John Donahue points out, is that privatization only works when you have competition and government agencies are willing to examine performance and to put the contract out for another bid. This rarely happens in state welfare divisions. It is similar to the Defense Department--if you want a certain kind of jet fighter now, you have to go to Lockheed. It is the same with privatization in the welfare case: the states, for the most part, ignore what is going on and simply re-do the contracts.

So what has been happening to all of these people who have left the welfare rolls? We have heard from Robert Kuttner and John Schmitt about what has been happening to the low-wage labor market. At any one point, 40 percent of welfare leavers are unemployed. Those who are employed make between $5.67 and $8.42 an hour. The average annual income is between $8,000 and $15,144, leaving most of them in poverty. They work in temporary jobs, shift work. The number of hours worked per week is relatively high but still there are substantial periods of unemployment and many of them are worse off, even including the benefits from the earned income tax credit.

Now, when they lose their jobs or jobs disappear, they usually do not qualify for unemployment insurance. The reason for this is that they usually do not have sufficient earnings per quarter to get unemployment benefits. As John Schmitt *454 pointed out, the vast majority of workers who are unemployed do not get unemployment insurance. Previously, the single mother family would go back on welfare until the mother got a job, using welfare to trampoline effect. The idea that most welfare recipients were long-term recipients is a myth. Only about 15 percent of welfare recipients stayed on welfare for five years or more. Most were on welfare for about two years, getting a job, losing a job. But now they no longer qualify.

There is a whole range of issues facing these poor mothers in poverty. It is not just money and wealth. Housing has become a huge issue. But I am going to end by talking about child care. Many of you in this room are parents or if you are not parents, you are aunts and uncles and have nieces and nephews. Think about the importance, even before a baby is born, of communication. Think about communication when that infant is born, and the brain is developing, the stimulation an infant needs. Now imagine a child, that infant, in a room with 12 other infants, and the only contact with an adult is getting fed and changed a couple of times a day. Or imagine that infant dozing in a chair, the television set is on, the grandmother is babysitting and she is asleep because she worked all night. Think of what happens to those children in the years before they even enter school, how far behind they are. This is not only cruel and unjust, this is national suicide. We have millions of children growing up in these conditions.

Thank you.

Lingxin Hao: As a sociologist, I focus on social groups, and wealth inequality by social groups. Today, my presentation focuses on wealth stratification by race, ethnicity and nativity. My goal is to deepen our understanding of the degree of wealth inequality along the color line. Because other panelists have defined key terms, I will skip the definition for net worth, assets and debts.

First, I want to let you know what data sources I used to look at wealth stratification. My data comes from the Survey of Income and Program Participation, 1984 to 2003, and all values are in 2001 constant dollars.

I use a different way to look at wealth inequality. Here I will promote the notion of asset poverty. Take a moment to imagine a scenario first: a household's breadwinner loses a job or gets sick. Then the income stops, so the household has to liquidate its assets to survive. A convenient (but conservative) threshold for survival can be borrowed from the official poverty line, which is set by the Department of Health and Human Services. In 2001, for a household of three, the poverty line was set at $14,100 for the whole year.

With that as a backdrop, we introduce the asset poverty concept. Robert *455 Haveman and Edward Wolff defined asset poverty as the lack of sufficient net worth to continue a standard of living at the official poverty line for three months, should a household's income end. In the example of the household of three, the threshold for asset poverty in 2001 is $3,525, which is one-quarter of the official poverty line. So with respect to John's experiment, giving the lower tier of households $10,000 can really lift them up out of asset poverty. I also want to call attention to the notion that assets include home value, which is a form of illiquid asset, as well as retirement accounts, which are a quasi-liquid form of assets.

Unlike income poverty for a specific year, asset poverty actually reflects past saving and past asset building. More importantly, it captures the minimum, the real minimum, economic security that could indicate whether a household can withstand a small spell of unemployment or sickness. Keep that in mind as we look at the data here.


The left panel of Figure 1 shows the racial gaps of the asset poverty rate. Here, the four bars from left to right are for white, black, Hispanic, and Asian. We see that about 18 percent of white and 21 percent of Asian households live in asset poverty; the percentages for black and Hispanics are much higher--44 percent and 42 percent, respectively. In other words, almost half of the black and *456 Hispanic households do not have enough of an economic buffer to deal with the emergency of unemployment or sickness.

From this left panel, we see that race/ethnicity is an important factor of wealth stratification. But studies on wealth tell us that other factors also contribute to wealth distribution. These include human capital, measured by years of schooling; life cycle, measured by age; household types--married, with or without children, single heads of families, single men, single women, and then lastly, the number of children also matters. These factors definitely confound with race/ethnicity. For example, Hispanics are lower in education, younger in age and higher in fertility. In order to get a sense about what is the impact of race and ethnicity on wealth inequality, we need to adjust for these factors.

On the right panel of Figure 1, the bar for whites is the same as the observed bar because here we take whites' composition of education, age, and other characteristics as the benchmark. The bars of the minority groups indicate the asset poverty rate as if they had taken the characteristics for whites. Here we see that after adjustment, the racial gaps are smaller. However, the gap for blacks and whites remains large and significant: the gap for blacks is reduced from 44 percent to 32 percent; and for Hispanics it is reduced from 42 percent to 28 percent. Among Asians, you don't see much change after the adjustment; I will provide an explanation in a moment.


In the next step, I break the data down for high school dropouts and high school *457 graduates, so there are two categories of education: less than 12 years of education, and the other is 12 years of education or more. Here, the purpose is to show that education does matter. If you look at the left two panels of bars, you can see that those groups in the lower education categories do much worse than their higher educated counterparts.

I also want to call your attention to look inside the adjusted lower education categories. There we see, as before, that the racial gap for blacks and whites drop, but this time, we also see that the gap between Asians and whites drops after adjustment. However, all racial minorities still have a higher asset poverty rate than whites.

Within the higher education categories, we see that the asset poverty rate increases, after adjustment, for educated Asians. This pattern reflects that Asians are more educated than whites. If you take together the lower educated and higher educated Asian group, the change cancels each other, so that for Asians as a whole, you do not see much change after adjustment.

The common pattern that emerges from this examination is that the minority groups' asset poverty rates are higher than whites within each education category.

The next pattern I want to show you deals with immigration and introduces more complexity to the patterns. There are many reasons why it is imperative to consider immigrant groups by country of origin. For example, some immigrants are self-selected, some positively selected, others negatively so; some intend to stay in the U.S. permanently, others do not, they stay temporarily. Also, with a very small exception, most immigrants come to the United States and start to accumulate wealth from zero, because they usually do not bring savings or inheritances with them. Immigrants differ from natives also because their income generation differs, given their concentration in ethnic economies, entrepreneurship and contract work. They bring their lifestyles to the United States, so their consumption patterns are different, their tastes differ, their portfolio allocations are different. Lastly, some groups also stay in the United States for longer time than other groups.

Here we want to look at how the country-of-origin groups of immigrants are doing. Let us focus on Hispanics. Here we have the native-born whites as the benchmark and we also compare with the native-born Hispanics. I identify three Hispanic immigrant groups: Mexican, Cuban and Dominican. First, it impresses you immediately that initially there is a big variation between immigrants from different origins. Interestingly, after adjustment, Mexican, Cuban and native-born Hispanics have almost identical asset poverty rates and, in fact, the asset poverty rate for the more-educated Mexicans and Cubans drops below that for native-born Hispanics.

One last point about the Asian immigrant patterns, since my time has already run out, one important note here is that they have a lot of variations and after adjustment, the poverty rate actually increases for a number of ethnicities. For example, most strikingly, the asset poverty rate increases for four Asian groups *458 with twelve of more years of education, after adjustment.


To wrap up, there are three points I want to make here. One is the importance *459 of the effect of race/ethnicity on asset poverty; we have good evidence for that. The second point is the importance of race/ethnicity does not negate the importance of education. Third, when we study race/ethnicity, we have to look at individual immigrant groups, because a very big proportion of the households of Hispanics and Asian are inhabited by immigrants. Thank you.


Mark Rank: I want to take my time here on the panel to talk about three things: the extent of economic inequality and poverty in this country; why we should be concerned about these issues; and finally, some thoughts on altering the direction that this country has been heading with respect to poverty and inequality.

Let me start off by giving a bit of background on the extent and magnitude of economic inequality and poverty in the U.S. The United States has always had relatively high levels of economic inequality compared to other developed countries. But over the past forty years we have seen a dramatic rise in that inequality, so that today the U.S. has among the highest levels of economic inequality in the developed world.

The well-known economist Paul Samuelson, writing in the first edition of his Introductory Economics textbook in 1948, noted that if we made an income pyramid out of a child's building blocks, with each layer representing a $1,000 of income, the peak would be somewhat higher than the Eiffel Tower but most of us would be within a yard or so of the ground. That was in 1948. By the time of the 2001 edition of Samuelson's textbook, most of us would still be within a yard or so of the ground, but the Eiffel Tower would now have to be replaced with Mount Everest in order to represent those at the top of the income distribution.

Over the last four decades, the magnitude of both income and wealth inequality have been rising to levels not seen since those of the Gilded Age during the late part of the nineteenth century. On the one hand, we have seen the paycheck of the average American stagnate over the past thirty years. For example, the median earnings of men working full-time in 1973, adjusting for inflation, were just over $44,000. Fast forward to 2006, and their median earnings stood at around $42,000. Consequently, over a period of thirty-three years, the median worker in the United States has actually lost ground in terms of *460 their real income.

On the other hand, the income of an American in the top 5 percent of the income distribution, and particularly the top 1 percent, has soared over this time period, according to the U.S. Census Bureau. Nearly all of the economic gains that have happened over the last thirty-five years have been concentrated in the top 20 percent of the income distribution.

Or take what has happened with respect to the distance between the average CEO's salary and the average worker's salary. In 1980, the average CEO of a major corporation earned around 42 times of the average worker's pay. Today it is approaching 400 times. Adding insult to injury, from the 1980s onward, an increasing number of companies have demanded concessions from their workers, including pay cuts and the reduction or elimination of benefits, particularly health insurance.

If we look at patterns of wealth accumulation, we see that these patterns are even more skewed than income. Today we find that 1 percent of the U.S. population currently own approximately half of the entire financial wealth in this country. Financial wealth includes your assets minus your debts but does not include your home equity. So 1 percent of the U.S. population currently holds half of the entire financial wealth (stocks, bonds, savings, and so on). The bottom 60 percent of Americans hold less than 1 percent of the country's financial wealth, while the bottom 40 percent are actually in debt. As a result of these and many other patterns, the United States currently leads the developed world in terms of the extent and degree of its economic inequality.

With respect to poverty, the story is much the same. Whether we look at overall levels of poverty, children's poverty, or poverty among the elderly, the pattern is similar. That is, of all the advanced industrialized nations in the world today, the United States ranks at the top in terms of poverty.

Let me now turn to why these dynamics are important to the vast majority of Americans and to the country as a whole, or as the title of this session suggests, *461 "Why We Should Care." This is one of the subjects that I deal with fairly extensively in my book, and although I do not have time to go into a lot of detail, let me just mention a couple of reasons for why I think we really ought to care about this issue.

The first one, which is probably the most powerful, is that it is in the self-interest of most Americans to do so. There are at least two ways of thinking about this. The first is that whether we realize it or not, we wind up paying a very steep price for having such high rates of poverty and inequality. Widespread poverty is associated with a host of social problems and economic costs. Each of us pays a tremendous price for allowing so many of our citizens and communities to be mired in poverty. What we basically wind up doing is spending our money on the back end of the problems of poverty and inequality, which is assuredly a much more expensive approach to take in the long run than prevention on the front end. Poverty is associated with higher health care costs, loss of productivity, stunted growth, economic blight, increased costs associated with crime and incarceration and so on.

For example, it requires a lot more money in the long run to build prisons and put people away for years at a time than to alleviate the conditions that lead to crime in the first place. It is no coincidence that the United States has both the highest rates of economic inequality and poverty in the Western world, and that we also have the highest rates of incarceration in the world. In short, each of us pays dearly for letting poverty exist at such levels.

But there is also a second way of thinking about reducing poverty and economic insecurity as being in our own self-interest. That is, what are the chances that an average American will directly encounter poverty at some point during their lifetime? As I began thinking about this question several years ago, we knew very little about what that risk actually was. By using a long-running, large panel data set, my colleague Tom Hirschl at Cornell University and I have been able to begin to answer that question. It turns out that the number of Americans who are touched by poverty during their lifetimes is exceedingly high. Between the ages of twenty and seventy-five, nearly 60 percent of Americans will experience at least one year below the official poverty line, while three-quarters of Americans will experience a year either in poverty or near poverty.

Perhaps even more surprising, it turns out that between the ages of twenty and sixty-five, two-thirds of Americans will use, at some point, a welfare program such as food stamps or Medicaid, and 40 percent of Americans will use such programs in five or more years, scattered throughout their working age adulthood.

*462 Now you might ask, "Why are these numbers so high?" It turns out that the numbers are high because during the course of a lifetime--and we are talking about forty or fifty years here--a variety of things can happen to people. Many of these are unexpected and detrimental, such as losing a job, a family splitting up or getting sick.

Rather than a risk that affects a few on the fringes of society, it turns out that poverty and the use of welfare are events that will actually strike the vast majority of American citizens. It also turns out that recent research has shown that this life-course risk of poverty and economic instability has been rising over the last thirty years. More and more families, including middle class families, are experiencing greater volatility and downward swings in their income as a result of greater instability in the labor market and the lack of benefits, such as health and unemployment insurance.

So there is a powerful case to be made that the majority of Americans should be concerned about rising levels of inequality and poverty because it is very much in our self-interest to do so. But a second reason for why we should care about these issues revolves around the critical question that we must all ask ourselves. That is, what kind of society do we want to live in and create for our children?

There are at least two paths that could be chosen. The first is the route that we appear to be on now. This path will likely lead to an increasing division between the haves and the have-nots. The top of society will continue to prosper, the middle will struggle and the bottom will fall further behind. The ongoing concentration of wealth and income will escalate into the future, fueled by government policies slanted toward the well-off, with the democratic process being largely a tool that provides for the needs of the wealthy and powerful. The privileged top of society will physically separate themselves from the middle and the bottom, as the social and economic conditions for the bottom two-thirds stagnate and deteriorate.

We can see such patterns now, in the rise of gated communities, residential segregation, increased prison construction, growing private school enrollments, increased expenditures on private security and so on. The United States will begin to reflect the bifurcation patterns more typical of Third World countries, and at the same time, we will continue to blame the less fortunate for their economic and social woes, arguing that government should do less and less in order to provide the necessary incentives for them to get ahead. And we will embrace all this with phrases and slogans such as "the ownership society," "the importance of family values," and "the necessity of tax relief."

This appears to be the path that we are traveling on now. We can choose to *463 remain silent, go about our business and continue down this slope. However, I do not know about you, but I am tired of this direction that the country has been going. I am tired of being told that there is simply not enough money to provide for the health care needs of low-income children but there is always enough money to cut taxes at the top. I am tired of people talking about homeland security and yet for the people of New Orleans and their security, it took months after Hurricane Katrina before they could even get a trailer to live in, if they got one at all. I am tired of presidents telling the poor to pull themselves up by their bootstraps, when they have been handed a silver spoon throughout their lives. And I am tired of people getting away with this hypocrisy and turning America into a country that no longer even tries to live up to its promises and ideals. Shame on them, and shame on us for allowing this to occur. I don't care if your politics are left, right or upside-down, this is fundamentally wrong, a reason for concern, and it is high time for a change.

It is time for a new vision and a new reality for America. I hope that this conference and these two centers in the future can play a leading role in working toward such a vision. One that understands that the judgment of a society depends not on how it treats its most wealthy and powerful, but rather on how it treats its most vulnerable. One that places the concerns and the needs of everyday Americans, rather than those of special interest groups, at the top of its policy agenda. And one that realizes that investing resources on the front end of a problem is always a smarter and more effective solution than spending money on the back end. It is time for us to wake up and begin to put America on a more humane, livable, and just direction. That is a reason for why we should care.

Let me end my thoughts here on a historical note that I think is very relevant for us today. The week before he was killed in March of 1968, Martin Luther King gave a final Sunday sermon at the National Cathedral in Washington. I don't know how many of you have been there, but it sits on the highest part of the city and it is a very impressive and inspiring place. The title of his sermon that Sunday was "Remaining Awake Through a Great Revolution," and he began by recounting the well-known story of Rip van Winkle. Everyone here is familiar with the tale but what many people forget in terms of the story is that Rip slept through a revolution. Before going up the mountain, a picture of King George III had hung in the local tavern. When he returned after his twenty year sleep, a portrait of George Washington had replaced King George. Rip was thoroughly lost because he had slept through a revolution and never knew it.

Perhaps we are also guilty of sleeping through a revolution, only in this case, it is a revolution that has been leading us backwards. It is a revolution that is threatening to undermine the very fabric of this country. We need to awaken from our national slumber and begin the process of halting the widening inequality and economic insecurity that this country is heading towards.

When Dr. King got to the end of his sermon that morning, he mentioned the Poor People's Campaign that was about to arrive in Washington during the *464 following months. People were gathering from around the country to demand that the nation begin to address the issues of poverty and economic inequality. Dr. King remarked, "Let me close by saying, we have difficult days ahead in the struggle for justice and peace, but I will not yield to a politic of despair. I'm going to maintain hope as we come to Washington in this campaign. The cards are stacked against us. This time we really will confront Goliath. God grant that we be that David of truth set out against the Goliath of injustice, the Goliath of neglect, the Goliath of refusing to deal with the problems, and go on with the determination to make America the truly great America that it is called to be."

Let us here at this conference and at these two centers begin to put forth a vision and an inspiration for where this country should be going. Let us awaken from our twenty years of slumber. Let us venture down a new road to a country where no American will be denied basic health care coverage because their wallet is not big enough. A country where not just some children, but every American child receives a first-rate education. A country where if you work full-time, you won't have to worry that you and your family will still be living in poverty. A country where we respect and take to heart the principles, not of liberty and justice for some, but of liberty and justice for all. A country that we can be proud to call the United States of America. Thank you very much.

Lisa Keister: Thank you all very much. Those are great comments. I am sure we will have lots of questions to ask you. I have the privilege of being able to ask the first questions--that is one of the advantages of being moderator. I am going to ask a couple of questions and then open the floor for general questioning.

The way I think of this first panel's task is to introduce three issues. Those issues, as I see them, are: how much inequality is there and has it changed? Why do we have that much inequality? And what can we do about it? Three very basic questions.

I am going to ask one question in each of those categories and present it to the panelists and let each of you react. Then I will open it up for questions.

In the first category, how much wealth inequality do we have? I will stick to wealth inequality to focus us. Thinking about Alan's first slide, showing inequality in net worth: I want you to react to a pair of statements. The statements are that inequality is extreme, there is no question about it. We have absolutely extreme levels of wealth inequality in the United States. However, it hasn't changed. So, inequality has been relatively stable. True or false, and what do you think?

Lingxin Hao: My answer to the question whether the wealth inequality is severe is we have already documented that. I agree that over time, the inequality levels do not change, they persist for decades.

*465 Mark Rank: I would say wealth inequality as was mentioned before, is extreme, and it has not changed that much, because it has been so extreme. The figures I mentioned earlier were dealing with financial wealth, showing 1 percent of the population holding about 50 percent of the entire financial wealth. With income inequality, I would say there have been significant changes over the last forty years. U.S. Census Bureau data shows that there has definitely been a concentration of income inequality.

John Schmitt: As I said in my talk, wealth inequality is enormous. I think it has been relatively stable. The one thing that I would point out is that the main and best source of data on wealth inequality is the Survey of Consumer Finance, which, by design, explicitly excludes anybody that is on the Forbes 400 list. If you are on that list, you cannot be in the survey, so the worst offenders--if you think of it in those terms, or the people contributing the most to society's innovation if you want to think of it that way--are not allowed to appear in the Survey of Consumer Finance. So the available data on the wealth distribution for the most recent years, by design, understate wealth inequality.

Alan Reynolds: A minor disagreement about that: the Survey does include people who make enough to be in the Forbes 400 list.

John Schmitt: But they are not on the list.

Alan Reynolds: They are not literally on the list, for obvious reasons of privacy. There was a subtle concept of human capital and that has become more widely dispersed. In 1960, about 8 percent of those over twenty-five had a college education and now it is closer to 28 percent. And human capital is not to be discounted lightly. Leaving housing capital out is just goofy, because that is where so many housing billionaires have been made-- unfortunately to the detriment of young folk, and I am not one who thinks that housing prices should always go up. Some of them should go down to give the first-time homebuyer a break.

Joel Handler: I think it has persisted, but taken slightly different forms. The reason I discussed the colonial example is the persistent racism in the United States. It has taken different forms at different times. But we have talked about the prison population, African-American males, Hispanic discrimination; there is also a very big low-wage Asian population that is just beginning to appear on the radar screen.

Lisa Keister: We are going to run out of time, so I better skip to question number three. We have less time and there was more agreement on that question than I anticipated! Which is good, we have a good starting point then. That is one of the things we want to accomplish on this panel, is to get a little agreement about how much inequality there is.

What to do about it then. There will be a lot of questioning about why over the *466 next couple days, I am sure. But let's talk about what to do about it. A couple of you have raised questions or potential answers and I will let you talk about those answers. But I want to raise the possibility of changing the estate tax. So let me frame the question as: would you change things? And if so, would the estate tax be a mechanism by which you might change things?

Joel Handler: I don't have a clue about the estate tax. I would start at the low-wage labor market.

Lisa Keister: You would? Well, elaborate on that, then.

Joel Handler: I think it is what Bob Kuttner talked about in the opening address. Most of the people we are talking about are in the low-wage labor market and there are lots of reforms that have to be done and that you all know about. There has to be much more security, many more jobs, there has to be a right to a decent job and there has to be support for people who are working.

Alan Reynolds: The estate taxes are not always going to be collected.

Lisa Keister: It gives you good data.

Alan Reynolds: I don't think it gives you very good data. That is one of the reasons I don't like the data. I mean, people can always hand their kids an education, they can hand them a bag of uncut diamonds or gold coins or dollar bills. There are limits to how far you can go with estate tax and nobody has been very successful in pulling in a lot of money with it.

I like the focus on the bottom; that is part of my point. I think that we are wrong to treat inequality and poverty as the same thing: they are not. When the top 1 percent fell and the top 5 percent fell in income as their share in 1980-1982, so did the bottom 20 percent, folks who were relatively vulnerable because they lost jobs. Lower incomes are not primarily a problem of wages because the vast majority of the bottom 20 percent are not working, for reasons I explained. If you are not working, raising the minimum wage doesn't help.

John Schmitt: I would want to go beyond just dealing with a low-wage labor market. It is important for us to keep in mind that the kinds of economic insecurity issues we are talking about now go well into the middle class. I did an analysis recently where I asked the question, "How many people make at least $17 an hour," which is what the median male made in 1979, "have health insurance at their job and have a pension at their job?" Only about 25 percent of the U.S. workforce makes that cut. That is $34,000 a year, health care and a pension. That leaves 75 percent below or outside of that in one way or the other. The economic insecurity questions we are talking about, we need to work from the bottom up to the middle. The estate tax is great, I think we should have more of it. But I do think there are lots of problems with evasion.

Alan Reynolds: Just a factoid: 15 percent of the federal budget goes to means-tested transfer payments; whether I'm for those programs or not, it is not a *467 big number. People say, "How can we afford to spend more on the poor?" Quit putting so many victimless people in prisons and end the war in Iraq!

Mark Rank: A couple things about this. One, it is obscene that in a country with this wealth and this amount of resources, we treat the bottom 20 or 30 percent of the population the way we do. We talk about the importance of work and yet do we really value that? I would say definitely not. It is absolutely wrong that somebody works full-time in this country and cannot support a family of three on that income.

The other thing is thinking about the issues of inequality and equality of opportunity. In my book I talk about the economic situation that we have in this country. We like to think of our system as a game of Monopoly in which everybody is starting at the same point, and who wins and loses at this game is determined by an individual's skill and the roll of the dice. Yet what we actually have is a modified game where one player is starting with $5,000 and properties already built up, one player has the standard $1,500, and a third player is starting with $200. Now who is going to win and lose? Nine times out of ten, the winner is going to be that first person in this altered game of Monopoly, and that is the situation we have this country.

From a policy point of view, what can we do to at least somewhat even out those opportunities? We say that equality of opportunity is so important in this country. Yet, at the same time, we have school districts that are absolutely horrendous and other school districts that are first rate. They are all American children and yet they are not all entitled to equality of opportunity. That is fundamentally wrong.

Lingxin Hao: I would like to call attention to the historical root of the racial wealth gap. This root is in slavery for blacks and indentured labor for Asian and Hispanic immigrants. Contemporary racial wealth gaps are sustained by continuous institutional and personal discrimination: in the labor market, in the housing market and in the lending market. In addition, some policies or practices, they are not created in racial terms but they are more likely to fall onto the bottom as a burden for racial minorities, as we know with subprime predatory lending. My suggestion is to address the key question, the root question.

Also, I want to call attention to residential racial segregation. This type of segregation really contributes a lot to the amount of wealth different groups own and it contributes to wealth inequality. Living in the inner city, the housing values are low and they continue to depreciate. So we have a very serious residential racial segregation issue and Hispanic groups are also experiencing high and rising segregation. We need to pay attention to these issues, too.

Lisa Keister: As much as I would like to ask the rest of my questions, I will control myself and open the floor for questions from the audience.

*468 Q: This question is mostly for John and Mark because you explicitly asked the question, "Why do we care?" And it goes to whether we care about inequality in and of itself, for its own reason, or is it really a proxy for a worry about the absolute status of the lower and middle classes. In other words, if we could come up with a public policy initiative that would guarantee poor people and middle class people a measure of dignity and growth, an improvement in their absolute quality of life over time, would you support it, if it also meant that the richest among us got richer at faster rate?

Mark Rank: I would agree with what you are saying, as long as some of those gains are being redistributed. This is the argument that John Rawls makes: it is okay that you have inequality as long as some of those gains are going to the bottom and to the middle. For me, the real question is the severity of inequality on top of these extreme conditions at the bottom. As we have been talking about today, economic troubles are affecting more and more of the population: economic volatility and economic insecurity are more widespread, so that we are talking about 60 or 70 percent of the population affected by this. From my perspective, your second scenario is really the one I would focus on.

John Schmitt: I think the economic inequality issue is one that I am concerned about "in and of itself" to the extent there is a lot of social alienation associated with having individuals or groups being vastly different from each other within the same society. I think there is a lot of evidence, for example, of national health outcomes being related to income inequality.

Let me make one other point about economic efficiency. One reason some economists are in favor of a lot of economic inequality is because it motivates people to do things. That is, in principle, why we have given Bill Gates $40 billion or $80 billion or whatever it is today, depending on Microsoft's stock and whatever other stock he happens to hold. But I ask the question: would Bill Gates, working from his garage at the time, have given us the Disk Operating System for $4 million? I think he probably would have. Would he have done it for $40 million? I am pretty sure he would have done that. Once we get to $400 million or $4 billion, we can all be pretty sure that he probably would have given us MS-DOS. All of the extra money we have given him is socially inefficient, economically inefficient. We could have elicited that work and had a whole lot of money left over to do other things.

Q: First, a brief comment about graphs. The numbers for minorities obviously are absolutely appalling. But I think it is easy to lose track when you see a graph and you look at the white population that close to one out of five white families is one step away from poverty. As a political matter, I think that is a very significant figure.

My question is this, to the panel: I don't know if you have any answers to this or not but we just heard that this very large percentage of the population is making less than $17 an hour, without health care, without a pension. If we look just to the unionized workforce, what would the numbers be?

*469 John Schmitt: It is totally knowable. It is going to be substantially higher. We know, for example, there is about a 25 percentage point higher probability of having health insurance if you are in union. It is about a similar rate with pensions.

Q: Is that true of the service workers' union or are we talking about the UAW?

Lisa Keister: It is knowable but I don't think anyone knows offhand. Let me go to the back of the room.

Q: I think this might be for Professor Handler. You mentioned that at one point there was an assumption that welfare offices would serve as active centers for employment, education and training, and of course that assumption was misplaced because of caseload and wages, lack of training. I think those centers have some potential for being important. The Trade Adjustment Assistance Programs are supposed to be housed in the same county offices, they are supposed to function as one-stop centers. I'm wondering if you have a vision or any sort of proposal of how those centers might be brought back on? What could we do for people who come to those offices to avail themselves of what the safety net offers? If there is a way to do that, do you see that as a part of the larger structural reform of welfare?

Joel Handler: What I would do, which has been proposed by several others, including Irv Garfinkel and Sara McLanahan as well as some other people, is abolish the welfare system. At least for single mothers with children, I would have a basic income grant. This would give clients an exit option. Then I would have several, separate one-stop social service agencies. They would have to have something to offer the clients to get clients. The present method is the clients are dependent on these agencies, there is a vertical relationship and the workers are monitored by statistical controls--how many cases they have, how many people they shove out the door. I think the welfare system is fundamentally flawed in terms of implementing these kinds of programs.

Q: Hi, I think this question is probably for Professor Rank and for Mr. Schmitt. The moderator called you back to some extent, but perhaps not specifically, to Mr. Reynolds' statistic, which I'm very interested in--the statistics about the relative disparities of wealth and income, particularly with respect to the top 1 percent. His graphs are not what I would like to believe from a lot of the reading that I have seen.

I wanted to focus you both on them and ask, first of all: do you agree with these statistics? And if you don't agree with the statistics, specifically what do you disagree with? If you don't think they tell the whole picture, what else should we be looking at?

Mark Rank: I read Alan's paper last night and so I have not had time to really think about it, but no, I don't agree at all. Perhaps this is like global warming, where there are always a few people out there that are saying, "No, no! It's not getting warmer!" Nearly all of the research has shown that income inequality *470 has gotten wider over the last forty years. For example, the Gini coefficient, which is an overall measure of income inequality, has been increasing significantly over the last four decades. If you look at the population as quintiles, the only piece of the pie that has gotten bigger from the early 1970s onward is the top 20 percent.

In terms of wealth, it has been extremely skewed for at least the last twenty-five years. Whether it has gotten even more skewed is not the story. The bottom line is that it is already extremely skewed. A very small percentage of the population own a great deal of the wealth in this country. So, no, I do not agree with the story that Alan was telling.

John Schmitt: Quickly, I think there is overwhelming evidence from a variety of data sources that income inequality has increased an awful lot since the end of the 1970s. Obviously Alan should jump in at this point, but let me give some specific issues that I am concerned about. One is, when most economists talk about rising inequality, they do not focus on what has happened to the top 1 percent of the income distribution because it is difficult to measure: those people do not participate in the surveys, they have all sorts of erratic perceptions of their income because it is from different sources. But if you look at what the 95th percentile family earns and compare it to the 10th percentile or 20th percentile family and you look at the change over time, the gap has been yawning and it has been increasing a lot over time.

The other thing, it is very important to start from 1979. I know Alan was clear that he was saying he was only looking at from about 1985 on. But there was a lot of income inequality increase between 1979 and 1985. That does not mean that those increases somehow didn't count. Those were some pretty tough economic times and the economic policy then was designed to undermine workers' wages by having a recession with unemployment touching 10 percent unemployment--there was a reason for running the economy that way at the time.

Alan Reynolds: I very specifically never said that there was not an increase in measured inequality in the period from 1979 to 1986 or 1988. Of course there was! Most of that occurred in the debacle in 1980, 1982, the stagflationary mess that brought top incomes down, but also brought lower incomes down through unemployment. That was what I was saying about be careful about watching for these cyclical things, and look at every year, not just some years.

To say there has been an increase in inequality over thirty years, does not tell *471 you what has happened for twenty years, and I would think that would be an interesting question. That is the question I am addressing-- not much has happened in twenty years.

John Schmitt: Again, the statistic I gave on median wages and the average worker, I mean, they have been flat; in fact, they have actually gone down a bit.

Alan Reynolds: Male wages, median male wages!

John Schmitt: That's right. That's right and that is what I said, median male wages have been flat over this period of time. So the economic gains that we have seen have not gone there. They have really gone to another place.

Alan Reynolds: To women. I mean, we let women into economics and law and medicine! My gosh, what a horrible idea that was!

John Schmitt: But the 90th percentile woman still makes substantially less than the 90th percentile man.

The other issue that is really important is that we are about 70 percent richer, per person, than we were in 1979. I think it is pathetic to say the median male is still making the same amount of money as thirty years ago. That is not what I consider to be a well-functioning economy! And the median male is now actually less likely to have health insurance and less likely to have a pension. This is economic failure. This is not sort of "Oh, it's not as bad as we think." That is an out and out failure.

Alan Reynolds: In the data I showed also the median numbers were the weakest numbers. That is, the middle in fact did not rise as much as the bottom and the top in money income. Folks, there are a lot of things going on. One is we immigrated a lot of poor people. They came in, legally and illegally, and that changes the median, it changes all kinds of numbers. That is not necessarily a bad thing--they don't think it's a bad thing, or they would not have come here.

Lingxin Hao: I would like to add that immigration is not necessarily importing poverty into this country. If you look at Mexicans and give them exactly the same level as whites in education and other demographic structures, they actually achieve the same level of wealth as the native-born laborers.

Alan Reynolds: Takes a while.

Lingxin Hao: It takes a while. But that is another motive to save and another motive to go upward. And do not leave the Asian groups out--a lot of them are higher educated people bringing their skills in this country and actually they get a lower return for their same level of education.

Joel Handler: I should add that there is support for people helping themselves. From 1996 to 2001, when the states had surpluses in their budgets, they did give money, they did give child support, several states enacted an earned income tax credit to help the working poor, so there are these underlying positive motives, they just have to be worked on, more and more.

Q: Hi, I'm currently a student at Tulane University in New Orleans and the *472 question I have goes back to the American values system. Something that has been really startling in the recovery effort is the idea of the "deserving" and "undeserving." You see rapid recovery of the area around my school and absolute stagnant recovery in areas that don't have as much money. So I want to know what you all think about how American values play into this idea of "deserving" and "not"? Whether you are aware of where that comes from and what we can do to change that? Values constrain policy because values determine who you vote for and what politicians are willing to say. I would love to hear what you think is the cause and how to alter these values.

Alan Reynolds: I guess it is puritanical but look at the fact that the United States gives most of its aid in kind rather than in cash. It is one of the things that messes up international comparisons of data because people use cash income in those comparisons. We have Medicaid, we have food stamps, we have housing allowances, we have energy support--but we are reluctant to give cash. Now there are some important exceptions. The earned income tax credit hands out fairly significant cash, but only if you have children. You get $4,200 if you have kids, if your income is low and you are working, but if you do not have kids, that is quite a different story.

Obviously that relates to some values because politicians respond to voters. I think they are reluctant to hand out money in cash because there is a feeling that people are irresponsible with it. And they are more supportive of families with children. There is basically no federal program that gives cash to somebody who is just poor, unless they are disabled, aged, blind, etc. That is why we have to rely on the Salvation Army and outfits like that. Let's not discount what they do. They are important.

Mark Rank: I could say a lot about this. If you want to understand why the United States is such an outlier on many of these issues, a lot of it comes back to the fact that we perceive these issues from an individualistic point of view. We look at the individual as both the source of the problem and the solution to the problem. We do not look to the community, we do not look to government, we look to the individual. That cuts across our history--the rugged individual, building the frontier, self-reliance and so on. When we address issues like poverty or inequality, we tell people, "Pull yourself up by your bootstraps. What's wrong with you? What's the problem here?"

That mind-set, as Alan was just saying, permeates our society and overlaps with the distinction between the "deserving" and "undeserving" poor. So I think it is absolutely critical.

Also critical in understanding our attitudes towards poverty in this country are our racial attitudes and the fact that this is a racially heterogeneous society. You find in societies that are much more racially heterogeneous, there tends to be less giving towards others. This is something that is actually occurring now in some European countries, where immigrants are coming into these countries and the generosity of the social welfare state is being questioned as a result.

*473 Lingxin Hao: To add a point to that about immigration: since 1965, the immigrants have become more colored, they are non-white. So the attitude toward immigrants might be that they are "importing poverty" or it is an "invasion by foreign countries." The fear is that the language is becoming Spanish instead of English. And these kinds of values do influence the decision-making; you can see them in the past two years and you hear them now in the back and forth over the immigration reform bill that has not yet come up with a solution.

John Schmitt: Let me jump in on a data point because the example that Alan just gave is actually very helpful. Alan often presents in his critiques of the income and wealth data, legitimate points of concern about data. But we, as consumers of that data, might want to give things a slightly different interpretation. So let me give the exact example that Alan just mentioned. He said that we give a lot of aid in kind so that messes up our ability to do international comparisons, and that is a true statement. But he said, specifically, we give Medicaid and we give housing benefits.

Now, does this make it difficult to compare? Yes it does. But stop for a minute: every single country you would make a reasonable comparison with has a national health insurance. To say that we do not consider Medicaid, but at the same time, in any comparison we would do we are not considering their national health insurance, either.

Alan Reynolds: Let's do food stamps. They don't do food stamps.

John Schmitt: But you said Medicaid. You also said housing. We have one of the worst housing policies on the planet among rich countries. Other countries' transfers for housing are much bigger. So all of the points Alan is making are reasonable. The question is, are they going to change the story in any meaningful way? I think there is a little bit of sand-throwing and dust-throwing in a context where the overwhelming evidence shows a huge increase in inequality and poor economic performance for about 80 percent of the population.

Joel Handler: We are fixated with the "deserving/undeserving poor" distinction. We are fixated on the potential disincentives for welfare. The vast majority of people who have been on welfare would much rather be in the paid labor force! The Statute of Labour in the fourteenth century prohibited giving of alms to sturdy beggars. We are still living in the shadow of the "sturdy beggar."

Lisa Keister: Perhaps on that note, it is time to make a transition to the reception. Thank you.

01 Defining Health                             x
02 Health Disparities                                   x
03 Health Policy & the Law
04 Wealth Inequalities                                  x
05 Racial Inequality                            x
05 Racial Inequality                            x
06 Physical Environment
07 Health Care Disparities                                  x
08 Pulling it together                                              x


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