The above clip is the full presentation by Dr. Paul Krugman at the Commonwealth Club of San Francisco from October 30, 2007 on the subject of income inequality in the United States. His comments run 40 minutes followed by a 20 minute Q&A session. A short five minute clip is below.
Unequal societies have throughout history been prone not just to social upheaval but also to economic turmoil. Beginning in the 1970s and accelerating after 1980, the US began undoing a series of policies that dated to FDR led to what historians call the “Great Compression” a flattening of income so that by 1964 the ratio of CEO pay to average worker pay was 24:1, the narrowest in the nation’s history. It is now around 400:1, or back to levels last seen in the 1920s. And this is actually down from a high of 525:1 in 2000 (the reason is that executive compensation is largely paid in stock).
In regard to inequality, over the past few decades it has risen more in the US than in most other advanced industrial countries in the Organization for Economic Cooperation and Development, or OECD, a group compromising the world’s wealthiest countries. Indeed, by most measures, the US ranks near the top (some might say the bottom depending on your perspective) in terms of household income inequality. The inequality gap in the United States is associated with higher levels of overall and child poverty relative to a majority of OECD countries and even some developing countries.
This high and growing level of relative inequality in the US reflects, in part, differences in the “social safety net,” which is an array of “social insurance” programmes. Among the 30 OECD countries, the US ranks above only Mexico, Korea, and Ireland in gross public social expenditures as a share of GDP spending, and it does the least to target government taxes and transfers towards moving families out of poverty. Not surprisingly, social measures such as infant mortality and life expectancy are worse in the US than in most advanced industrial countries and in fact worse than in some developing countries. Infant mortality for African-Americans ranks higher (that is worse) than in Cuba, Colombia or Brazil. In terms of life expectancy, for example, the US ranks 29th just behind Bosnia and the Kingdom of Jordan. The poverty rate among America’s single mothers is also the highest in the industrialized world, with 59 per cent raising children on incomes which are less than half the typical national income.
But try to have a policy discussion about this and you get shouted down with arguments about “class warfare.” My answer to that is that’s precisely what you will have unless we have a policy discussion about income inequality. And such a discussion must also include one about an industrial policy because the two are not unrelated.