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The Poverty Gap – Can’t Say We’re Surprised.

May 13, 2015

richpoorOver the past thirty years, America’s rich and well-educated have gotten richer, and the poor poorer. Since 1990 the wealthiest 5 percent has increased its income by 16 percent, while the income of the bottom 20 percent has fallen by 5 percent. During the first two years of the Clinton administration, according to the Census Bureau, the top 5 percent increased its income at a faster rate than during the eight years of the Reagan administration. The wealthiest 1 percent of Americans now control one-third of the national wealth, i.e. about the same as that of the lowest 90 percent. The top 10 percent control two-thirds. Such income inequality, combined with America’s traditional paucity of social benefits (now being reduced), is not a prescription for social stability.

Immigration. Of course this is a nation of immigrants. We can, and should, keep our doors open to the oppressed of other lands. But there is a difference between being a haven for those fleeing tyranny and being a hospitality center for the impoverished billions of the world. This distinction touches some delicate nerve endings, but it has to be made. When Congress changed the immigration laws in 1965 to emphasize family reunification above skills and training, a flood of legal immigrants followed. The share of total U.S. population growth accounted for by immigrants rose from 11 percent in the decade ending in 1970 to 39 percent two decades later.

While the large-scale admission of unskilled immigrants is sold as humanitarianism, its primary effect is to create a cheap labor pool and render unskilled Americans unemployable. The high social cost is hidden behind a smoke screen of sentimentality. It is not mere coincidence that the unemployment crisis of the inner cities has intensified with the massive increase of unskilled immigrants. When the social costs are counted in, cheap immigrant labor is not cheap, and it is not fair.

Globalization. To listen to politicians, we are entering an exciting new period of innovation and abundance, in which the whole world is a stage, a marketplace and a workshop. Clinton promised last week that with the Internet we can “shape the forces of the information age and the global society to unleash the limitless potential of all our people.” To drive home their point, the Democrats covered the Mall with tents full of talking computers. But they left some harder truths out. Globalization does not mean the end of scarcity, exploitation or the struggle for wealth. Nor does it mean the U.S. is going to become richer, although some corporations and individuals will. It means that capital can roam freely across the world in search of the most profitable place to invest. Capital seeks to maximize profits. This can be done in one of three ways: by controlling prices (monopolies and cartels), controlling sources of supply (imperialism) or controlling the cost of production, particularly wages. Cartels are unstable, and imperialism is usually not worth its cost. But wages can be controlled by increasing the supply of labor. Enter the global workshop.

There are about 250 million workers in the U.S. and western Europe earning an average of $85 a day, and about 90 million in the more developed countries of East Asia (excluding China) producing goods of equal quality for a few dollars a day. Under such circumstances, European and American corporations either flock east or use the threat of doing so to thwart demands for higher wages and benefits at home. And what will happen when Latin America, India, China and the rest of Asia pour another 1.2 billion workers into the global labor market? This represents, as Paul Kennedy has stated in the fall issue of New Perspectives Quarterly, “a colossal depressive force upon the real wages in the richer countries” with the likelihood that wages there “may tumble in some economic sectors by as much as 50 percent over the next two or three decades.” The same point is developed in rich detail by William Greider in his new book, One World, Ready or Not.

To respond, as many economists do, that in the long run Third World standards will rise and make happy new consumers for U.S. products is not only wishful thinking, it ignores the likely political upheavals over the next decades as angry voters are drawn to nationalist and fundamentalist alternatives in response to the chaos of eroding markets and wages. Taken alone, great income inequality, mass immigration and uncontrolled globalization would be difficult even for an activist and unified government to manage. Together they make it unlikely that Bill Clinton, or anyone in his mold, can build a bridge, as he proclaims, “wide enough and strong enough for every American to cross over to a blessed land of promise.”

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