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U.S. Inequality, A Warning For Other Western Democracies

Barack Obama made American inequality the central challenge of his State of the Union address. Europe and the rest of the West should be listening too.

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PARIS — A likely candidate for the 2016 Republican presidential nomination, Marco Rubio tirelessly repeats the enlightening fairytale of his childhood in Miami. The Florida Senator adapts it more or less to each audience, but it is essentially the story of Cuban migrants, who, after years of hard work and deprivation, manage to send their children to college.

Of course, the children went on to join the ranks of middle-class Americans, and Rubio himself went on to Washington. But, warns the Senator, this wouldn’t be possible today. Though his parents’ wages were modest — he was a barman, and she worked in a hotel — his parents managed to afford higher education for their children.

But with the same jobs today, there is no way they’d earn enough to afford an education for their children. The “American dream” has grown “out of reach,” Rubio said during the 50th anniversary ceremony of the “War on Poverty,” which was launched by President Lyndon Johnson in January 1964.

Here too

Indeed, it is a sad state of affairs. The U.S. has become a society eaten away by income inequalities. The earnings of the enormous middle class have remained stagnant for the past 30 years. Only about 10% of the population benefits from the lion’s share of U.S. economic growth. But Senator Rubio is merely recycling the topic that Democratic President Barack Obama has been talking about. “Inequality is the defining challenge of our times,” the President declared in December (before making it the centerpiece of Tuesday's State of the Union address).

When Democrats and Republicans issue virtually identical diagnoses, in almost identical terms, it means the illness is serious. We can hear the European social model lackeys now: “Not here!” Wrong. Most Western economies are undergoing breathtaking income disparities.

Economists are painting a monochrome picture, providing the same figures to describe the same reality. Gaps started widening in the U.S. in the 1970s. It reached Western Europe in the 1980s. “Just before the 2008 financial crisis, inequalities were reaching record highs in the U.S. and in most developed countries,” says Laura Tyson, an economist and former advisor to Democratic President Bill Clinton.

Only by taking on debt has the American middle class maintained its standard of living over the last three decades. But there is no crisis at the top, only an increasing concentration of wealth. In 2012, 10% of the richest Americans accounted for almost half of the national income. The notorious 1% alone accounted for some 22% of national income. Such figures were rivaled only in 1928, and they are deeply changing the American social profile.

Correlation is not necessarily cause, but the growing income gap has also resulted in less social mobility. “One of the fundamental promises of America relies on the possibility to join the ranks of the middle class,” Rubio says. “But today, this opportunity is challenged.”

Economists haphazardly list technological development, robotization, problems in education systems and, most importantly, the globalization of the economy as causes for the growing gulf in income.

The more that inequalities grow in Western countries, the more they shrink globally, where the ranks of the new middle classes rise. What have the U.S., Europe and Japan learned? The French still believe in their singularity: They don’t like this question. They say the situation is not the same in every developed country.

The Gini coefficient, a measure of inequality, is higher in the U.S. and in Great Britain than in France, for instance. So does the miracle of the welfare state guarantee better protection against inequalities? Partly, France has battalions of unemployed people. Low wages or unemployment? The French have chosen, without a doubt. But it’s not obvious which is the lesser evil.

Nor is the answer to the inequality boom in Western economies obvious. These economies cannot question globalization. For them, emerging markets have become a priority. But income gaps, the social polarization between the “1%” and the rest, will probably have a serious impact — on growth, on political and social balance, and on democracy.

As usual, the American debate is a precursor for the rest of us.

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