Income inequality surged onto the national political radar in 2011, as the 99 Percent Movement focused America on the fact that while the richest Americans’ incomes were skyrocketing, wages remained relatively stagnant for the lower and middle classes. American income inequality is now worse than it is in countries like Ivory Coast and Pakistan, and it may be even worse than it was in Ancient Rome.
That inequality has crushed the middle class and has perilous consequences for the American economy. It is also contributing to another problem: rising debt inequality. As income inequality has risen, the bottom 95 percent of Americans have fallen deeper into debt over the last three decades, according to a new report from the International Monetary Fund. The top five percent, meanwhile, have seen their personal debt reduced, CNN Money reports:
In 1983, the bottom 95% had 62 cents of debt for every dollar they earned, according to research by two International Monetary Fund economists. But by 2007, the ratio had soared to $1.48 of debt for every $1 in earnings.
The bottom 95% had incomes of roughly $160,000 or less in 2007, including capital gains.
And then there’s the top 5%. Their debt-to-income level actually fell during the same period, from 76 cents of debt for every dollar earned in 1983, to just 64 cents in 2007.
The contributors to rising income and debt inequality are clear — for the richest Americans, incomes are rising rapidly while tax rates have fallen to historic lows. The rest, however, are increasingly burdened by student loan debt as the cost of college soars, mortgage debt as the prices on their homes have plummeted, and credit card debt as they’ve tried to keep their head above water despite stagnant wages and rising unemployment.
And just as rising income inequality has hampered economic growth, rising debt inequality will threaten the nation’s future, experts say. Both times America had similar levels of debt inequality — in the 1920s and 2000s — crippling financial crises followed. And though the amount of debt held by the bottom 95 percent has shrunk since the end of the recession, that’s largely due to foreclosure and bankruptcy and shouldn’t be taken as a positive sign. “We’re still in similar levels of vulnerability as we were in 2008,” Michael Kumhoff, the report’s author, told CNN.