In the US everyone’s talking about income inequality, but nobody’s really doing anything about it

In America, the rich and poor brush shoulders but are still growing farther apart.
In America, the rich and poor brush shoulders but are still growing farther apart.
Image: AP Photo/Mark Lennihan
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On the face of it, income inequality is high on America’s agenda. President Barack Obama has made it a signature issue of his second term, bluntly stating that the US won’t succeed “when a shrinking few do very well and a growing many barely make it.” Federal Reserve Chairman Ben Bernanke decried inequality for “creating two societies.” Nobel laureate Joseph Stiglitz blamed the “concentration of income and wealth at the top, the hollowing out of the middle and increasing poverty at the bottom” for disrupting the American dream. Even Goldman Sachs CEO Lloyd Blankfein called for “some redistribution” to create a stable and just society. But despite the growing consensus in Washington, Wall Street and academia, there hasn’t yet been concrete action and the situation is only taking a turn for the worse.

The US has the highest level of income gap of any of the advanced countries, with the top 1% capturing over 90% of the income growth. A Gini coefficient (the most commonly used measure of inequality) of zero represents perfect equality, while 1.0 indicates maximum inequality where one person takes all the income. A reading above 0.4 is widely seen as an indicator of potentially destabilizing inequality. In 2011, the Gini coefficient for the US rose sharply to 0.475 from the 0.469 recorded in 2010 (pdf, p.2), and not a single state managed to reduce inequality.

The growing divide in America comes at a time when emerging nations in Asia and Latin America are directing a significant portion of their resources to eliminate extreme poverty and reduce inequality. Indonesia is working to provide health insurance to all 240 million citizens starting in 2014; Thailand introduced pensions for its informal sector in 2011; and India expanded its job guarantee scheme to include every rural district in 2008.

In January this year, China officially reported its Gini coefficient for income inequality for the first time in 12 years—a step seen by many as an indication of the administration’s commitment to narrow the gap between the rich and poor. China scored 0.474 in 2012, down from its peak of 0.491 in 2008.

South America, which has historically been the most unequal continent, has also made considerable progress. The region’s average Gini coefficient in 2010 was 0.5, the lowest in the last 30 years, on the heels of significant rise in the income levels of the poorest citizens. Brazil, where successive governments pursued policies aimed at boosting social and economic inclusion, made significant progress, with its Gini coefficient declining from 0.55 in 2002 to 0.5 in 2011.

It is in the context of the growing divergence between the US and the rest of the world, that the New Yorker magazine has made a simple, yet powerful attempt to change the discourse on inequality, using New York’s subway system as its laboratory.

So why is America faring so poorly in its attempt to curb inequality when less prosperous nations are making rapid progress? Stiglitz, who has been one of the leading voices in challenging the belief that uncontrollable technological and social change is producing an unequal society, had this succinct explanation:

The “same global forces are at work everywhere, but some countries have made a commitment to go against them and have succeeded,” he said in a talk earlier this month at the Asia Society.

Maybe a virtual ride through New York City’s income inequality is just what the powers that be in Washington need.