Not your grandfather’s America

There is a lot of talk these days about wealth and income inequality. Two items I heard on NPR’s Here and Now this afternoon drove home just how bad the problem is.

The first piece concerned the report released today by the Trustees of the Social Security about the system’s solvency. The good news is that Social Security is solvent until 2030 and Medicare until 2033. The first is unchanged while the second has improved by a year because of the Affordable Care Act. As guest Eric Kingson, professor of social work at Syracuse University’s School of Social Work and founder of Social Security Works, Social Security would be permanently in the black if the cap on contributions, currently 6.2% of income up to $117,000, were eliminated. But the real shock was his explanation of how the trust came to be underfunded. Between 1949 and 1979, two-thirds of income growth in the US went to those in the bottom 90% of earners. Consequently, Social Security receipts grew apace with overall income. Since 1980, however, two-thirds of income growth has gone to the top 1% meaning that Social Security has benefited hardly at all from higher earnings because most of the increase was above the contributions cap. Also, he pointed out that prior to 1980, the average wage earned could count on retiring with significant equity in a house and with a private pension, meaning that Social Security was only part of his or her overall retirement portfolio. Today, defined-benefit retirement plans, i.e. private pensions, are all but extinct and the 2008 economic crisis wiped out much of the middle class’s home equity. Consequently, retirees will be relying more on Social Security at a time when its funding is not increasing. In other words, what your grandfather counted on for his retirement has been stolen from you by the very wealthy through the agency of a generation of Reaganomics.

The second story was about the announced acquisition of Family Dollar Stores, Inc. by Dollar Tree, Inc. In case you are not familiar with those companies, they are part of a retail market segment called “extreme value” aimed at the very poor—people who can’t afford to shop at Walmart. What was shocking about the piece was the interview with Howard Davidowitz, retail consultant and founder of Davidowitz & Associates, Inc. about the implications of this sale. It was, he said, a very great thing for investors because these stores represent the fastest growing market and most profitable segment of the retail industry. He positively crowed about how the target market for these store has grown “tremendously” because one in six Americans now lives in poverty, up from one in 12 six years ago. Clearly, for people like Mr. Davidowitz, poverty in America is wonderful profit-making opportunity.

Unless you are Mitt Romney, this is not your grandfather’s America.

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