'Inequality for All' Is Killing the Economy

A new documentary shows how income inequality is undermining the engine of America's growth.

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Thank goodness it's Friday! We made it through another week. Time for a Friday night movie! There's a great film opening tonight in most major cities. 

If you had to guess, which two years of the entire last century do you think had the widest economic inequality? The answer: 1928 and 2007. Yup, the two years just before the Great Depression of 1929 and the so-called "Great Recession" that hit in 2008. Maybe "Downton Abbey" is so popular on TV because that's where we're headed – to a nation of a few wealthy families with lots of servants?

A new documentary film, "Inequality for All," opens tonight and brings alive economic data and trends in a compelling and accessible format. Not all documentary films are exciting enough to grab our attention. But "Inequality for All" is gripping and worth your time.

[See a collection of political cartoons on Occupy Wall Street.]

Directed by Jacob Kornbluth, the film engages not only families who are struggling, but also billionaires and policy leaders who are concerned. And it follows former Labor Secretary Robert Reich as he teaches college students at the University of California at Berkeley. Reich is also a budding comic, and you'll laugh more than you expect in a movie about the economy. It's part of what makes the film so entertaining.

"Inequality for All" boils down our current economic problems to the key point that America is a consumer-driven economy. In fact, 70 percent of the U.S. economy is dependent on consumer spending. What makes the American economy tick is the purchasing power of middle class households. Notice how the Wall Street Journal so carefully tracks consumer spending, because it is so central to our economy.

The problem today is that the vast middle class doesn't have the purchasing power to keep the economy going strong. Middle-class incomes have stayed the same or even dropped since the 1970s (following the heydey of the American Dream, the post-World War II expansion of the middle class). The movie shows that many jobs, adjusted for inflation, now pay less than they did 30 years ago, but those workers face housing, child care and education costs that are only going up. As multi-millionaire Nick Hanauer says in the film, even with all his money he can't spend enough to make up for the middle-class households who aren't buying much these days: "Even a person like me who earns a thousand times as much as the typical American family doesn't buy a thousand pillows a year."

[See a collection of political cartoons on the economy.]

If we're a consumer-based economy, but middle-class wages have been stagnant, then how did the U.S. economy keep going before 2008? "Inequality for All" makes the case that American middle-class families have developed coping strategies to overcome stagnant wages: First, in the 1970s, most families became dual-income families as women entered the workforce, and this helped middle-class families and – through their purchasing power – the overall economy stay afloat. Then, in the 1980s and 1990s, families coped by working more hours and more jobs. Finally, in more recent years, Americans used their home value "as ATM machines," pulling out home equity loans to keep themselves – and our consumer-based economy – going, until home values tanked in 2008 and the ATM dried up.

But, you say, the "economy" is recovering. After all, Wall Street is booming. Here's where the film's economic research proves insightful. Economic inequality has worsened over the past 40 years. In 1970, the top 1 percent of earners took home 9 percent of America's income. But today they take home nearly a quarter. The top 1 percent holds more than one-third of the nation's overall wealth, while the bottom half of America controls less than 3 percent. The richest 400 Americans now own more wealth than the bottom 150 million Americans combined. 

Look, Bob Reich isn't the only one to notice inequality. Even most corporate directors are concerned that skyrocketing CEO salaries are out of whack with corporate profitability, as well as average employee income (CEO pay is now more than 277 times an average worker's pay, compared to 1965 when CEOs made only 20 times more than their workers). But Reich may have hit on something by putting it to film. 

[See a collection of political cartoons on the budget and deficit.]

As working mom Nancy Rasmussen (a Mormon Republican) says, it just doesn't seem right. "I took a pay cut of $12 an hour. My benefits have gone down," Rasmussen says. Her voice cracking with emotion, she asks, "If you have millions of dollars, why do you need that little bit that I have?" We see it all around us: A CEO gets a huge bonus the same year he lays off hundreds of employees. There's a reason the YouTube chart "Wealth Inequality in America" has gotten more than 6 million views. 

If we want America to remain a strong economic power and we want children to have an equal shot at the American Dream, then taking stock of income inequality is critical. Maybe Washington could end another week of partisanship and gridlock by taking in a movie – one that may illuminate a path forward.

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