Economics and ice cream

September 27, 2022 6:00 am
(Getty Images)

(Getty Images)

When he was about 5 years old, my grandson Billy was attending a baseball game when he noticed a team mother nearby enjoying an ice cream cone. Not shy, he walked up to her and asked politely “Do you share?” She looked down, smiled, said nothing and continued to lick her ice cream.   

That reaction to a child’s interest in sharing ice cream echoes current economic reality. The US Economic Policy Institute (EPI) published a report in 2018 that compiled income trends from 1917-2015.   

Based on their assembled data, authors Estelle Sommeiller and Mark Price in their study titled The New Gilded Age: Income Inequality in the U.S. by State, Metropolitan Area, and County, reported that the total income share of the top 1% of all Americans varied from about 25% around 1930 to a low of less than 10% about 1970.  

Since then, the income share of the top 1% rose to 21% in 2015, the last date of their data.  Expressed in dollars, in 2015, the average yearly income of the top 1% of Americans was more than $1.3 million and that of the remaining 99% was about $50,000 annually.   

A 2015 study by the US Economic Policy Institute reported the top 1% of Tennesseans earned 17.8% of the state’s income. To be in the top 1% in 2015, a Tennessean needed to earn at least $332,913. The average income that year was $44,219.

According to the EPI study, the average 1% “top dog” had 26.3 times the average yearly income of all the other pack members who may have worked like dogs but who earned much less.   

This same EPI study reported that the top 1%  of Tennesseans took home 17.8% of all our state’s income in 2015.  The average income of the Tennessee one percenters was $947,021 and the average income for all the rest was $44,219, a ratio of 21.4 in favor of the top very few.  To be in the top 1% in 2015, a Tennessee resident needed to make at least $332,913.    

Large income differences between a very few and the great many are not new historically, and probably are much lower now than in the Roman era with its rampant slavery or medieval times defined by lords and serfs.   An important question is the extent to which large income differences between a small number and all the rest contribute significantly to societal problems that can lead to social upheaval.   The fate of the US Confederate States with a slavery-oriented economy and Czarist Russia with a feudal system in 1917 are two examples of what can occur when major societal disparities create social conflict.  

Multiple authors have examined societal issues arising from significant differences between national groups.  In Coming Apart: The State of White America, 1960-2010, political scientist Charles Murray wrote about white America diverging between poor and upper classes increasingly segregated into distinct strata defined by education and by spatial segregation defined by zip codes with significantly different levels of affluence and education.  Murray points to the increase in the average large corporation CEO salaries, from about $1 million in 1970 to about $16 million by 2006, as a symptom of hollowness at the core of a new American elite.   

More recently, FaceBook co-founder Chris Hughes wrote about American income inequality in his book Fair Shot.  He stated that “[T]he growth of the ultra-wealthy has come at the expense of everyday Americans.” 

He uses the Walton family’s inherited wealth as an example of one family that now has wealth equal to that of the bottom 43% of Americans.  Hughes also wrote that he, among the very wealthy as an initial FaceBook founder with a small percentage of ownership, began to question how much he and other very rich Americans “deserved” their success and what role forces outside their control had played.  

 Hughes, Mark Zuckerberg’s roommate at Harvard when the FaceBook concept was developed, grew up in a middle-class North Carolina family.   He wrote that “There is no invisible hand creating a ‘winner take all’ economy in which luck takes on this disproportionate role.  We are its authors and enablers.”   Hughes wrote that a guaranteed supplemental income of $500 per month for those who are employed, could help alleviate income disparities.  

The “coming apart” of Americans likely is partly fueled by housing costs differing by zip code with the quality of public schools defined by housing zip code, and alternative schools used by the “lucky.”

In contrast to Hughes’ proposal, the “trickle down” economic theory is popular among those who have wealth. Their theory that “A rising tide lifts all boats” mistakenly assumes that all “boats” are free to rise.  As indicated in reports referenced above (among numerous such reports), many “boats” (people) are moored to docks and unable to rise with any tide. The “trickledown” proponents ignore reality.   

Hughes concluded that the luck of parents and genes is a significant factor in whatever success we achieve.  We do not choose our genes or parents and thus never choose inherited talents, where we live in our formative years or our pool of prospective friends when we are most impressionable. Rather than acknowledging the contributions of mentors and genetic luck to success, an American attitude has grown that “I earned it, I deserve it, and I don’t want to share it.”  Hughes recognized that personal accomplishments result from standing on the shoulders of others.   

An article recently published in the online journal Nature titled “Social capital I: measurement and associations with economic mobility,” analyzes the association between socioeconomic status and economic connections.   The authors compiled data from 72.2 million Facebook users between 25-44 and concluded that “[T]he degree to which people with low and high [socioeconomic status] are friends with each other [termed economic connectedness] is strongly associated with upward economic mobility.” In effect, those who have success mentor those less fortunate if they associate. They share life experiences.   

Current societal divisions can be reduced if upward economic mobility is increased. The American public school system historically provided an opportunity for various socioeconomic levels to associate and enable a type of experience sharing emphasized in the Nature article. The “coming apart” of Americans likely is partly fueled by housing costs differing by zip code with the quality of public schools defined by housing zip code, and alternative schools used by the “lucky.” Potential mentoring needed for economic success thereby is taken from public schools, the primary source of education and the foundation of success for most Americans.  

Silence and an indulgent smile were the responses to Billy’s question. What will be the result if similar responses to the causes of existing American wealth inequality continue?   

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Loy Waldrop
Loy Waldrop

Loy Waldrop practiced law for almost 50 years. He obtained a mechanical engineering degree from Clemson University as a Distinguished Military Graduate. Subsequently he served over two years active duty with the U.S. Army Security Agency, during which time he was promoted to captain. After working as an engineer when his active service ended, he attended the University of Tennessee College of Law where he was an honors graduate. Soon after graduation, he became the sixth lawyer in a firm that subsequently has grown to over a hundred lawyers in the firm’s Knoxville, Nashville and Memphis offices. His law practice concentrated on the construction industry, and he now focuses on serving as a mediator and arbitrator for the resolution of construction project disputes. He is retired from representing clients. Waldrop participated in the 2018 Bredesen Senate campaign and has served the Knox County Democratic Party as a precinct chair and in get-out-the-vote activities. He and his wife, Kathy, reside in Knoxville and have three daughters and five grandsons.