During the three decades after World War II incomes in the United States rose rapidly and at about the same rate — almost 3 percent a year — for people at all income levels. -By contrast, during the last three decades the economy has grown much more slowly, and all significant income growth has been concentrated at the top of the scale. -The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent. -Recent research on psychological well-being has taught us that beyond a certain point, across-the-board spending increases often do little more than raise the bar for what is considered enough. -Rising inequality has thus spawned a multitude of “expenditure cascades,” whose first step is increased spending by top earners. (Spending by the rich shifts the frame of reference that shapes the demands of those just below them, so this second group, too, spends more, which shifts the frame of reference for the group just below it, and so on. These cascades have made it substantially more expensive for middle-class families to achieve basic financial goals.) -There is no persuasive evidence that greater inequality bolsters economic growth or enhances anyone’s well-being. Effect of income inequality on bankruptcy, divorce, commute time, and voter support: ****In a recent working paper based on census data for the 100 most populous counties in the United States, Adam Seth Levine (a postdoctoral researcher in political science at Vanderbilt University), Oege Dijk (an economics Ph.D. student at the European University Institute) and Robert Frank found that the counties where income inequality grew fastest also showed the biggest increases in symptoms of financial distress. -Even after controlling for other factors, the counties with the highest income inequality also had the largest increases in bankruptcy filings. -The counties with the biggest increases in inequality also reported the largest increases in divorce rates. -The counties where long commute times had grown the most were again those with the largest increases in inequality. -The middle-class squeeze has also reduced voters’ willingness to support even basic public services.
Source: Robert Frank, "Income Inequality: Too Big to Ignore," New York Times, October 16, 2010, http://www.nytimes.com/2010/10/17/business/17view.html?_r=1&scp=2&sq=rob... -