Income gapTwo generations ago, "two Americas" referred to the sharp divide between prospering Americans and those mired in poverty, stagnation and prejudice, a gulf addressed by Michael Harrington in his influential book, The Other America: Poverty in the United States.

With the advent of social programs such as Medicare, Medicaid, food stamps and housing subsidies, much of the grinding rural and urban poverty described in the book has been alleviated.

But the gap between the super-rich, the wealthy and "the rest of us" has widened, forming what is in essence two Americas -- the top 5% and the bottom 95%. And this is creating a situation where economic growth, as measured by GDP, may increasingly mean that 95% of Americans are still not doing better financially. Read on to find out why.

Concentration of Wealth -- and Benefits -- at the Top

The income gap is widening. David Stockman, director of the Office of Management and Budget under President Ronald Reagan, recently noted in an editorial that the top 1% of Americans received two-thirds of the gain in national income from 2002 to 2006.

Economists Emmanuel Saez and Thomas Piketty have reported that the top 10% of earners took home about half of all income as of 2007.

As total household income declines, the wealthiest Americans take home a larger piece of the national income pie. In 2008, Americans reported $8.4 trillion in total income, down 4.6% from 2007. Adjusted for inflation, that is down 8.4%, the sharpest decline in total income since the brief recession that began in 1990.

The number of people in the highest reaches of income also fell. Tax returns reporting income of $1 million or more fell by 22% to 321,294, and the number of returns that reported income of more than $10 million fell 36% to 13,480.

A Growing Plutonomy

Put the data together, and this reveals an increasing concentration of income and wealth at the top -- and this small group increasingly dominates the U.S. economy. According to Moody's Analytics research, the top 5% of Americans by income are responsible for 37% of all consumer spending -- about the same as the entire bottom 80% by income (39.5% of consumer outlays).

This trend has led to the coining of a new word, plutonomy -- an economy that's dependent on the spending and investing of the wealthiest slice of citizenry for growth.

As a result, when the top 5% in income -- those households earning $210,000 or more annually -- rein in their discretionary spending, the U.S. economy suffers disproportionately. Indeed, the economy's slump this summer can be tracked directly to a decline in the discretionary spending of the wealthiest Americans.

Top 1%'s Wealth Takes Off

Furthermore, the very rich are pulling away from the merely wealthy. Those earning $10 million or more per year are increasingly wealthier than the 321,000 earning $1 million or more, and those top earners are pulling away from the rest of the top 5% of households by income.

In the housing and stock market boom years of 2002 and 2007, the incomes of the bottom 99% of households by earnings grew by a meager 1.3% a year in inflation-adjusted terms, while the pockets of the top 1% grew 10% a year.

Over the past 25 years since 1985, the top 1%'s share of national income has doubled -- in 2007, it netted 23% of the nation's total income. The income of the wealthiest Americans -- the top 0.1% -- has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million wage earners.

"Distorted Economy"

The extremely wealthy are pulling away because their earnings come from capital, not labor. While wages have stagnated, returns on capital investments and speculations have soared. None other than former Federal Reserve Chairman Alan Greenspan recently described this yawning divide between those in the top slice of the economy who are doing very well and the 95% below them who are struggling.

"Our problem," Greenspan said, "is that we have a very distorted economy in the sense that there has been a significant recovery in a limited area of the economy amongst high-income individuals who have just had $800 billion added to their 401(k)s and are spending it. Large banks and large corporations, as everyone's pointing out, are in excellent shape."

"The rest of the economy, small business, small banks, and a very significant amount of the labor force, which is in tragic long-term unemployment, that is pulling the economy apart," noted Greenspan. "The average of those two is what we are looking at, but they are fundamentally two separate types of economy."

This great divide between the spending and income of the wealthiest 5% and the rest of us (95%) calls into question the value of GDP (gross domestic product) as a meaningful statistic. If the wealthiest Americans are buying luxury cars and apparel again, that may pump up the nation's GDP, but it doesn't mean 95% of the populace are doing better financially.

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I volunter at a local food ministry in a small town in southern Indiana. Every Tuesday the ministry serves a hot ,home cooked meal to everyone who comes. The last Tuesday of the month each family recieves a box of grocies. The ministry also has a clothes closet, and diapers for parents with babies or small children.
Two years ago the weekly numbers were 200 to 250 men, women, and children. Today the numbers are 350 to 450, and going up every week. I talk to almost all of the people who come to the ministry. 80% of them are working(part time department stores, grocery stores, hotels, restaurents, etc.) Some are working two part-time jobs because nothing else is available. These jobs have low wages with no benefits(health ins.,vacation,paid holidays,etc.) These are the new "sweat-shop"jobs USA,and their numbers will continue to grow if our economy continues on the same path it is on.

August 16 2010 at 8:49 PM Report abuse rate up rate down Reply
rantfreely

SO IT TAKES 5 MIN. FOR YOUR COMMENT TO POST NOW ??

August 16 2010 at 10:35 AM Report abuse rate up rate down Reply
rantfreely

SPEND SOME MONEY RICH FOLKS !!

August 16 2010 at 10:25 AM Report abuse +1 rate up rate down Reply
Gumby

Where is my comment buried in 1786 comments?

August 16 2010 at 4:03 AM Report abuse rate up rate down Reply
erf4638

Jim Danklefs 700 trillion must be a screw up on your comment, ck your figures. ED

August 15 2010 at 11:15 PM Report abuse rate up rate down Reply
Steveola

Fantastic. Unemployment in the US is at 19.9 %, we are on the verge of complete financial disaster, Banks are closing in record numbers, the disparity between the extreme rich and the middle class is widening daily and AOL Zionist think that this story is significant. What is wrong with the world when we look at an entity like AOL to supply the news that is of no concern to anyone and do not cover the news that is important? One answer is that AOL has an agenda that is not compatible with the best interest of the American citizen. They are Corporate shills that pander to the Elitists that control the puppets in Washington DC. They have sold their souls to the Devil and let them pay the price. God willing.

August 15 2010 at 11:12 PM Report abuse +1 rate up rate down Reply
fisher2737

We can all blame Bill Clinton for this big mess. I recall seeing him on television in 1996, when he announced that he had just signed a "Fair Trade Bill" with China. His comments went further, saying: With this new agreement: "We can now open our markets to 2.3 BILLION Chinese" My thoughts immediately were: He's a fool. They can't afford to buy our products, and it's going to be a mess. That's when a lot of our manufacturers started doing business with China, or moving the businesses to China, and taking away millions of jobs from American workers. If you don't believe this, go check it out. It's not about Bush or Obama ( even though Obama keeps blaming Bush ) "Thank you Mr. Clinton

August 15 2010 at 11:07 PM Report abuse rate up rate down Reply
hemipwr54

Make the 5% give back the Stimulus money they took and lets see where they would be !
ARROGANT A HOLES !
Trust me this will come back to haunt them , when the 5% run out again it will be to bad !

August 15 2010 at 11:05 PM Report abuse -1 rate up rate down Reply
hemipwr54

"Our problem," Greenspan said, "is that we have a very distorted economy in the sense that there has been a significant recovery in a limited area of the economy amongst high-income individuals who have just had $800 billion added to their 401(k)s and are spending it. Large banks and large corporations, as everyone's pointing out, are in excellent shape."=========== Really and where did the "to big to fail" upper crust get this feeling of security ? Stimulus from the peons that serve them !
SO the top 5% are doing okay because we the people are paying for their wealth , and they would have lost everything had it not been for Stimulus money given to them by the government ! ============ ENOUGH IS ENOUGH , ARROGANT BLOOD ******* LEACHES , YOU LIVE BECAUSE YOU TOOK FORM THE OTHER 95% !

August 15 2010 at 10:47 PM Report abuse -2 rate up rate down Reply
amberswaving

Get a Congress in place that will lower the Corporate tax so companies won't be forced to send work overseas. We have the SECOND HIGHEST CORPORATE TAX RATE IN THE WORLD at 35%. Companies have to raise costs, lay off employees or send overseas. Tell it like it is-------------make Congress lower our penalty rates on businesses!

August 15 2010 at 10:23 PM Report abuse rate up rate down Reply