According to the Wall Street Journal, the median pay for CEOs in 2008 dropped by 15%, yet in that same year more than 5000 Wall Street “Top Performers” received multimillion dollar bonuses.   By the end of the 2009, many wealthy were able to jump back to their old salaries and also regain much of their lost wealth. This was not the case for the average American. For the majority of American’s, the largest investment is their home and housing values still have failed to increase only but moderately for most regions. Also, real wages have remained stagnant over the last several years for the average worker.

These are just minor statistics among the vast ongoing discussions regarding the nations’ growing income disparity, but on another note  should we care about income disparity?  A large number of American’s believe we should just let the chips fall where they may and not be concerned.

One theory among many economists is when income is too concentrated at the top, the overall demand for goods and services is reduced. In other words, when the very wealthy get even wealthier, money does not leave their pockets to spur further growth in the domestic economy.  It is just simply too difficult for the very wealthy to spend their money in the same manner as the average person.  The top 10 percent of the population took home 50 percent of the total income, however only accounted for 40 percent of spending.  The more money pumped into the economy creates more jobs and services, lower dependence on entitlements, and provides more tax revenues for infrastructure and education. Therefore, the more concentrated wealth becomes, the less money is available to spur the economy.  Some would argue the nation’s wealthy provide capital investment to help create jobs and further new industry, however statistics show much of their capital investment heads overseas and is not invested domestically.

Some economists suggest a top priority for the U.S. should be to eliminate tax breaks for  wealthy individuals and slash antiquated tax subsidies for corporations to thereby provide for more favorable tax rates for the middle class. More conservative voices suggest the divide in wealth is not such a concern and actually provides an incentive for others to aspire to.

I doubt few would agree the erosion of the middle class wealth is a good thing, since the spending of the middle class drives this nations’ economy as well of the economies of many other nations. Like it or not, the good old American consumer has been a hog in the trough fueling worldwide growth for decades. What if that hog lost its appetite and stopped the cycle? Can we rely on the consumption of other nations to fill the gap? It seems to be a plausible theory, but not all other nations have the same consumption habits as the U.S., or the same  relaxed rules on importation. If we lived in a perfect world, we would expect rising economic status of other countries to create demand for our goods and services. The existing trade imbalances would at some point increase the currency valuation of  other country’s  currencies and make America’s products more affordable. But then again is our world really perfect?   One would think  countries like China with their new found wealth would provide a vast appetite for consumer goods and that appetite would trickle down to America. That ,however, is not the reality. China’s main goal is directed toward production and not consumption. Their personal consumption is only about 15% of that of the U.S.  Statistics for 2009 show their personal consumption was 35 percent of their economy, while a decade earlier their personal consumption was close to 50 percent. Therefore, their personal consumption has actually declined as a percentage of their overall economy.  For the most part, China demands that goods sold in China be predominately manufactured in China, and  American companies are more than willing to establish necessary relationships to produce products there. This leaves little room for exporting opportunities.

When it comes to China’s currency policy, China refuses to allow its Yuan to float freely against other currencies. It purposely does this to keep imports expensive and exports cheap. The Chinese are willing to do anything to ensure they remain the exporting powerhouse of the world regardless of the cost to its’ society or environment.

Don’t get me wrong on this point. I don’t blame China for the income disparity seen in the U.S., but I really don’t think we can expect to see ourselves getting out of this situation through some sort of natural rebalancing of the economy in relation to other nations. Our economic trend of under employment, lower wages, and higher unemployment coupled with other nation’s reluctance to import will only lead to a greater income disparity and a furthering contraction in our economy. All these things point to a weakening of the middle class and social discontent.

When it comes to the increasing income disparity in America, most Americans are just too busy to care.  Americans might notice the extra hours they must work each week to fill in for their terminated coworkers, or perhaps they feel the pinch of a salary freeze they’ve  had to endure over the last four years, but rarely do they complain about their top ranking CEOs taking home more than ever before. Employees are told they must add more value by learning new skills while taking on more responsibility for less pay.  With all this added productivity, who comes out the winner?  Well…not the average employee.

Living in a capitalistic system most Americans would agree that income disparity helps to reward those who are successful and provide incentive for entrepreneurs to develop new industries, but shouldn’t we see American workers rewarded on the basis of their productivity gains and economic growth?  It would seem reasonable.  Workers today who work longer hours and work more efficiently should be rewarded for their efforts through increased pay, however this does not appear to be occurring in America.

According to a study by noted economist Emmanuel Saez, he states from the years 1993-2007, on average, the top 1 percent incomes took more than half of the overall economic growth. Furthermore, for  the years  2002-2007, the top 1 percent took 66% of all economic growth, and for the year 2010  the top 1 percent took an unprecedented 93% of all income gains! He notes this is one major reason the average American worker is experiencing a continued decline in their overall prosperity.  This is not typical of prior decades. If we look at the same statistics  during the late 1970′s, we find the richest 1% taking approximately 9% of the nation’s economic growth. These statistics show employers are sharing less of their profits at any time in our recorded economic history.

The facts regarding income disparity in America also indicate more than just a normal widening difference in the top ten percent and bottom ten percent of income earners. We are seeing the migration of real income from the lower and middle percentiles to the top percentile income earners.  According to Saez,  25% of all income went to the top 1% of wage earners. Furthermore, he found the top one hundredth of one percent took 6% of all income. This left the bottom 80% of all wage earners to fight over approximately 39% of available income.

How do we place this in perspective?  Let’s assume a hypothetical city exists whereby we have  150,000 workers and a gross annual income of 6 billion dollars. The top 1,500 earners would take 1.5 billion of the total, and of that amount 15 earners would take 320 million dollars. The bottom 80%, or 120,000 people, would have 2.34 billion available to them.  Again, we have the top 1% (1,500) taking 25% of total income and the bottom 80% (120,000)  taking  39% of total income. One of the reasons this is such an alarming statistic is that Saez found this income disparity to be the highest it has  been since 1917.  This does not say much for a country priding itself on being one of the most technologically advanced economic powers in the world.

All too often, Americans are too content with the present and thus allow external forces to shape their  future rather than to take control of our own destiny.  Has American complacency help to foster the current income disparity, and is income inequality something we should even be concerned about? See: Why Americans Should be Concerned About Income Disparity.