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#286 - What We Must Do -- Part 16: Where Has All Our Money Gone, 19-May-1992

They tell us we can't afford to prevent pollution; clean technology is
beyond our means. We can't get off oil and coal, even as they parboil
the planet. Solar energy could save us, but we can't afford it.
Alternatives? Nuclear power is all we can afford, they say.

They say we can't afford to re-build the light-rail mass transit our
cities enjoyed in the 1920s and 30s. We can only afford more highways,
trucks, and traffic jams, plus 45,000 highway deaths per year. We can
only afford sickening smog; healthy air costs too much. Cancer
prevention? No funds. The money's tied up in hospitals and hospices,
chemotherapy and crematoria.

Most people can't afford wholesome food; they will have to get by on
processed junk bulked up with fats and sugars laced with chemicals and
pesticides. We CERTAINLY can't afford farms that support families.
Economics, don't you know.

We can't afford to manufacture durable, serviceable items made from
biodegradable raw materials, items we could dismantle and recycle and
which wouldn't poison the planet when discarded. More throw-away
poisonous plastic crapola is all we can afford.

Decent education for the many? We can barely afford it for the few. For
a majority, proper preventive health care is beyond reach; simply
unaffordable. That's just the way it is; times are tough. Decent
housing for all? Too expensive, we're told. A million or so homeless is
the best we can do.

We must close the libraries just as, some time ago, we shut the mental
institutions and turned the people out. Necessary business decision.
The cost of compassion had gone through the roof. The treasury is
strapped. Government has gone broke. There's just no money, we're told.

Where has all our money gone? MIT [Massachusetts Institute of
Technology] economist Paul Krugman offers this summary:[1] "The basic
story of the US economy between 1977 and 1989 is that there was fairly
substantial economic growth, but most families saw little increase in
their real incomes. They may have been able to consume more per person,
but this was only because they both worked harder [longer hours] and
had fewer children. So where did the growth in the economy go? The
answer is that most of it went to a few well-off families," Krugman

The Congressional Budget Office elaborates on this theme: Between 1977
and 1989, average family income after taxes increased by 9 percent--
from about $27,000 in 1977 to nearly $29,500 in 1989. True, by 1989
there were more families: In 1977 there had been 81 million families;
in 1989 there were 102 million families. But there was substantial
growth BEYOND what was produced by increased population. Where did the
growth go? "Of the $250 billion aggregate [annual] increase in income
beyond that accounted for by population growth, 70 percent went to
families in the top 1 percent of the income distribution...."[2] Now
we're getting somewhere.

Who are these top 1 percent? To join them, your annual income must be
at least $325,000. Their AVERAGE annual income is $550,000.

"In 1990 the typical chief executive officer of an American
manufacturing company with annual sales of about $250 million was paid
$633,000 in salary and other forms of compensation. In Japan and in
major countries of Europe the figure was roughly half that."[3] Ah, so.

"In terms of income alone, those at the high end of the distribution
experienced huge gains during the decade of the 1980s, as the top 1
percent saw average family income grow by 75 percent, from $312,206 in
1980, to $548,970 in 1990 (both figures in 1990 dollars); while all
those families falling in the bottom 90 percent saw average income grow
by just 7 percent, from $27,451 to $29,334.... Families in the bottom
10 percent saw their average income decline during the 1980s, from
$4791 to $4295."[4]

The richest 1 percent of American households owned 37 percent of all
private net worth in 1989, up from 31 percent in 1983. In other words,
in round numbers 1 percent of the people now own 40 percent of all
private assets--an astonishingly unequal distribution of wealth and, of
course, of power. By 1989 the top 1 percent (834,000 households with
about $5.7 trillion of net worth) WAS WORTH MORE THAN THE BOTTOM 90
PERCENT OF AMERICANS (84 million households with about $4.8 trillion of
net worth). The top 1 percent owns a disproportionate share of many
kinds of assets: they own 49 percent of all publicly-held stock; they
own 62 percent of all business assets; they own 78 percent of all bonds
and trusts; they own 45 percent of all non-residential real estate.[5]
"According to the Congressional Budget Office, the richest 20 percent
of families took MORE THAN 100 PERCENT of the growth in average family
income [that occurred between 1977 and 1989]. How could that be? The
bottom 40 percent of the population actually lost ground," says a NEW
YORK TIMES editorial.[6]

From 1977-1989, the real [per-person] earnings of non-supervisory
workers declined 12 percent, according to the 1991 ECONOMIC REPORT OF
THE PRESIDENT. Young male workers without college degrees--which is to
say, a majority of entrants into the labor market--experienced real
wage declines of 15 percent to 20 percent between 1977 and 1989.7

In 1990 the average weekly wage for a production or non-supervisory
worker bought 20 percent less than in 1972, according to the 1991

In 1980, corporate chief executive officers made roughly 40 times the
average income of average factory workers. By 1989 C.E.O.'s were making

The U.S. Census Bureau sets $12,195 per year (or $6.10 per hour, 40
hours a week, 50 weeks a year) as the wage needed to pull a family of
four out of poverty. (This annual salary is expressed in 1990 dollars
and is adjusted for inflation.) In 1979, 6.5 percent of workers earned
below the poverty line; by 1990 the number had grown to 10.5 percent.
In 1990, 14.4 million full-time workers earned incomes at or below the
poverty level.[10]

In 1978, 75 percent of Americans were living in households earning
$18,000 to $55,000--a standard definition of the middle class; by 1990,
only 60 percent of Americans lived in such families. The middle class
has shrunk dramatically, according to Syracuse University economist
Timothy Smeeding and University of Michigan economist Greg Duncan.[11]
And it continues to shrink today.

In 1989, there were 790,000 taxpayers who reported an adjusted gross
income of $200,000 or more [total reported: $409 billion]. They paid
taxes at the rate of 24.1 percent on adjusted gross income. Just 10
years earlier there had been only 94,000 people this rich. In 1979 they
had paid a tax of 45.3 percent--so during the 1980s, taxes on the rich
were cut roughly by half.

What about the super-rich, those with annual incomes of more than $1
million per year? Their numbers increased nearly 100-fold, from 642 in
1970 to 3601 in 1979 to 61,987 in 1989. In 1989 their adjusted gross
income was $159 billion, on which they paid taxes of $39 billion, for a
tax rate of 24.7 percent. Back in 1979, millionaires paid 50.2 percent
tax on their adjusted gross income.[12] Another tax on the rich cut by

Eighty percent of the nation's households have not gained ground on
inflation since the 1970s. Median family income in 1990 was $29,943, or
$1000 less than it was in 1973. For all but the 20 percent of
households with incomes above $80,000 annually, income has stagnated.
[13] The dream has gone bad.

Writing in 1830, Alexis de Toqueville began his observations on the
young nation, DEMOCRACY IN AMERICA, by saying, "Nothing struck me more
forcibly than the general equality of condition among the people." All
that's gone now. And with it our dream of prosperity--or, more
importantly, SUFFICIENCY--for all. What to do?

A surtax of 20 percent on people making $200,000 or more today would
raise $82 billion for the treasury. A more modest surcharge on those
with incomes be-tween $100,000 and $200,000 would bring the total gain
to more than $100 billion. Restoring the 1979 tax rate of 50.2 percent
on people with incomes over $1 million would yield $40 billion more.

That would give the treasury $140 billion more each year. A lot could
be done with that. Rebuild mass transit; build housing; care for the
sick; reopen libraries; educate people about disease prevention, self-
care, and the importance of nutrition; cut crime and drugs by creating
full employment the way they do in enlightened countries, making jobs
to give people a sense of dignity and worth; offer loans to rebuild the
industrial infrastructure with clean technology to PREVENT pollution.
The money the nation needs is there. We simply have to recognize what
we must do: seize the day.

--Peter Montague


[1] Unpublished memo by Paul Krugman, Economics Department,
Massachusetts Institute of Technology, Cambridge, Mass., dated March
30, 1992, pg. 3.

(Washington, D.C.: Congressional Budget Office, March, [1992),] pg. 2.

[3] John Burgess, "Big Bucks for Executives Finds Some Favor Abroad,"
WASHINGTON POST, October 20, 1991, pg. H1.

[4] David Oshinsky, "What Became of the Democrats?" THE NEW YORK TIMES
BOOK REVIEW, Oct. 20, 1991, pg. 1, quoting Thomas Byrne Edsall and Mary
AMERICAN POLITICS (N.Y.: W.W. Norton, 1991).

[5] Sylvia Nasar, "Fed Gives New Evidence of 80's Gains by the
Richest," NEW YORK TIMES April 21, 1992, pg. 1.

[6] "The Rich Get Richer and What to Do About It," NEW YORK TIMES April
19, 1992, pg. 10.

[7] 1991 REPORT... quoted in Paul Krugman's March 30, 1992, memo cited
above, pg. 3.

[8] Jodie T. Allen, "Why Our Economic Alarm is Sounding," WASHINGTON
POST, October 27, 1991, pgs. C1, C2.

[9] Kevin P. Phillips, "Reagan's America, a Capital Offense," NEW YORK
TIMES MAGAZINE June 17, 1990, pg. 26.

[10] Jason DeParle, "Report, Delayed Months, Says Lowest Income Group
Grew Sharply," NEW YORK TIMES May 12, 1992, pg. A15.

[11] Richard Morin, "America's Middle-Class Meltdown," WASHINGTON POST
Dec. 1, 1991, pgs. C1-C2.

[12] Letter to the editor: Victor Perlo, "Who the Rich Are and What
They Should Pay," NEW YORK TIMES Dec. 1, 1991, pg. 10.

[13] Louis Uchitelle, "Trapped in the Impoverished Middle Class," NEW
YORK TIMES Nov. 17, 1991, Section 3, pgs. 1, 10.

Descriptor terms: mit; paul krugman; poverty; middle class; timothy
smeeding; greg duncan;