The Price of Inequality

Increasing Inequality Is Slowing Economic Growth

Income inequality is a core issue in America. The concentration of income among the richest earners has soared since the 1980s. In 2007, after-tax income averaged $1.3 million for the top 1% of income earners and $17,800 for the bottom 20%. The United States’ gross domestic product (GDP), or total economic activity, continues to grow, but the economy doesn’t work for the majority of US citizens. Increasing imbalances in income and wealth between the richest citizens and the rest augur numerous economic, political as well as social consequences.

The US’s current “alarming level” of inequality resembles the social divides of the 1920s, just before the Great Depression. America’s economic growth has been stronger during periods of diminished inequality – for example, in the years following World War II and in the 1990s.

Recent research shows that just 42% of Americans think that inequality has risen since the turn of the 21st century, even though the rise “has been tectonic.” Studies show that Americans are overly confident about their social mobility and their ability to increase their income, beliefs...