How the Widening Wealth Gap Is Empowering the Populists of 2016

Politicians to the far left and right are sounding populist themes not heard since the Great Depression.

Senator Bernard "Bernie" Sanders, an independent from Vermont and possible presidential candidate, speaks during a luncheon at the National Press Club in Washington, D.C., U.S., on Monday, March 9, 2015.

Photographer: Andrew Harrer/Bloomberg

Imagine a country where people in the economic top 1 percent scoop up more than one-fifth of all income, those in the top 10 percent control almost 80 percent of wealth, and wages for those in the middle barely budge over four decades.

Sounds like a place where a politician who advocates big-government building programs and inveighs against corporate bailouts might get ahead.

From Senator Bernie Sanders, the 73-year-old Vermont socialist who jumped into the Democratic presidential race last week, to Senator Rand Paul, the 52-year-old Kentucky libertarian seeking the Republican nomination, politicians to the far left and right of the political center are sounding populist themes not heard since the Great Depression. Among them: breaking up concentrated power, whether in Washington or on Wall Street and looking out for ordinary Americans.

More mainstream politicians are also taking up the cause.

Two Republican senators, Marco Rubio of Florida, another presidential contender, and Mike Lee of Utah, have partnered to boost tax breaks for families with children. Democrats such as Massachusetts Senator Elizabeth Warren and New York City Mayor Bill De Blasio have promised measures to help restore a shrinking middle class.

total income to 1% - 2

What makes a Sanders candidacy thinkable and what lies behind Republicans’ focus on working families is a widening gulf between those at the top of American society and almost everyone else, while wages of those in the middle have stagnated.

Statistics from economists Thomas Piketty at the Paris School of Economics and Emmanuel Saez at the University of California-Berkeley show that the share of annual income, including financial earnings, going to the top 1 percent of Americans has climbed from a little under one-tenth in 1970 to more than one-fifth in 2013, the latest year for which numbers are available.

Data from Saez and Gabriel Zucman, an assistant professor at the London School of Economics, show that the share of wealth held by the top 10 percent rose from a 1985 low of 63.6 percent to more than 77 percent through 2012.

wealth inequality

Although some economists debate the details behind the figures, the trends are not in dispute. Federal Reserve Chair Janet Yellen, for one, has said that the rise in U.S. income and wealth inequality is the most sustained since the 19th century and a development that greatly concerns her.

While wages for those at the top of the income spectrum have risen smartly, those for everyone else have stagnated or fallen over the past four decades. While those below the top tier did make some gains during the late 1990s and early 2000s, the increases have been erased by the 2007-2009 recession and the years since.

In the four decades through 2012, those at the 95th percentile of wage earners saw gains of 35 percent, according to an analysis of Current Population Survey data by the Economic Policy Institute, a Washington-based research group partly funded by labor unions. During the same period, wages for Americans at the midpoint in the income spectrum climbed slightly more than 3 percent.

Wages of those at the middle did climb from 1997 through 2004, peaking almost 8 percent above their early 1970s level, then fell following the recession, the data show. Bureau of Labor Statistics figures through mid-2014 showed no improvement, with all but rich Americans earning less than they did in 2013.

growth in real wages

The agency’s latest report shows a modest gain in private-sector earnings of 0.7 percent during the first quarter of this year, although it’s impossible to tell what income group received the gain.

Americans’ frustration with these widening economic disparities has already borne some political fruit in the election of New York’s new mayor.

“De Blasio wouldn’t have gotten elected without the underlying trends toward greater inequality and stagnating wages,” said Ruy Teixeira, a senior fellow with both the Century Foundation and Center for American Progress. De Blasio has put in recent appearances in Iowa, which begins the presidential selection process with its caucuses, promoting his views.

The trends helped set the stage for Sanders’ new political venture. He’s been advocating big public works, an expanded safety net including a single-payer health-care system and reining in the financial sector for most of his 45-year career in politics. Only in recent years have his ideas received anything like a wide hearing, though he still barely registers in presidential preference polls.

“For Sanders to try this now is going to strike people as slightly more plausible than if he’d tried it even in 2004 before the great economic unpleasantness” of the financial crisis and recession, said Eric Rauchway, an economic historian at the University of California-Davis.

For most of the 20th century, anyone calling himself a socialist as Sanders does, “would have been red-baited out of the campaign,” Rauchway said. The historian said he doesn’t think such charges pack the same punch that they once did.

Although the economy’s widening disparities may not give critics sustained traction, they’re winning politicians such as Sanders and Paul at least a hearing early in the presidential cycle.

“It’s taken a long time for the evidence of economic inequality to bubble up into the political sphere, but that’s happening now around the weaknesses of this expansion,” said Heather Boushey, chief economist with the Washington Center for Equitable Growth.

“It’s creating a demand among working Americans to do something about the weaknesses,” she said, “and politicians on both sides of the spectrum are trying to meet that demand.”

—With assistance from Victoria Stilwell in Washington.

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