Category Archives: Elites

American Middle-Class Now Second Class — Take Two

It’s nice to have successful friends of diverse opinion. When a couple of them are capitalists in the truest sense of the word — i.e., they increase their wealth and incomes by moving their funds around the globe chasing rates of return and potential asset value — are sought after for their investment advise, and have their own financial and economic publications, they also get to disagree with you in the open. In response to “American Middle-Class Now Second-Class To Canada — It Didn’t Have To Be This Way,” I was treated to two alternate views of why I am wrong on specific points.

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BENEFITS “RE-COUPLE” THE DECOUPLED PAY & PRODUCTIVITY

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First, one such individual referenced a couple of British economic analysts who had addressed the observation I pointed out in my article when writing:

They show that when you add in benefits to pay and use the same measure of inflation for both pay and productivity, the disconnect between worker pay and productivity goes away, both in the US and Britain.

Their conclusion? “Middle-class stagnation and the ‘decoupling’ of pay and productivity are illusions. Yes, the U.S. economy is in the doldrums, thanks to a variety of factors… But by any sensible measure, most Americans are today better paid and more prosperous than in the past.”

Yes, but this is only a sleight-of-hand trick that these partisans pontificate to advance their own agenda, not because it is meaningfully accurate — it is just technically accurate.

Notably, using the “same measure of inflation for both pay and productivity” is a non-starter as that is not how productivity increases over time, nor is this how it’s measured in real terms. It’s just a mathematical trick to reduce or deflate actual productivity growth to bring it closer in line with stagnant incomes. Monetary inflation and production productivity are not connected in this fashion and doing so is disingenuous.

Truth is that what used to not show up on workers’ ledgers now shows up on their ledgers, and truth is that the component now has less value in real terms than it did prior to reassignment to the workers’ ledgers. The analysts also conflate wealth and incomes inappropriately.

What we are both referencing is the change from defined benefits for workers to defined contributions.

For example, as average life spans increased, the financial pressures exerted on organizational pension systems grew overwhelming and a shift occurred across the private and public sectors from traditional pension programs where one received a defined amount per year after retirement for the balance of their lives to one predicated upon 401k and IRA programs and the like where one received a defined contribution from their organization with no guarantee of what that looked like at retirement.

Several things occurred in this transition. What used to show up as an asset of the organizational pension now was moved to the ledger of the worker as an asset in the form of 401k’s etc. But, that move did not make the worker wealthier in reality nor improve their incomes — both are simply mechanisms through which retirement incomes derived. It just changed where things resided accounting-wise and controlled organizations’ costs.

All things equal, the worker is no better off and no worse… as long as the final retirement income remains unchanged. But all things are not equal, and final incomes are not guaranteed, thus we see today retirees not having the same incomes as those previously based upon traditional retirement pensions. So, there is a net loss of income to the worker overall, even while it appears their wealth increased.

Moreover, these 401k programs require more significant worker contributions to obtain the largest matching employer contributions. This reduces the net-net income of a worker and is not reflected in the aggregate numbers used by these analysts. So their view assigns an asset value to workers that is just an accounting move and inappropriately shows increased wealth while also not including the decreased net-net incomes from the move.

Finally, the “benefits” to which they refer are inclusive of health benefits. As we all know, these costs have increased dramatically over the decades. This alone adds an illusory increased benefit to workers when, in fact, they, too, are paying larger premiums for that health benefit, and worker costs are up dramatically more in deductibles, co-pays, and out-of-pocket maximums… Thus, all contributing to reduced net-net incomes — not the improved financial standing these analysts would have us believe.

The “benefit” appears more significant because of cost inflation yet the worker is no better off and receives the same basic benefit of health care provision they received when the “benefit” appeared at lower cost. Now the worker is made poorer on a net basis by the increased direct costs from the benefit’s cost-sharing mechanism. Moreover, just because the benefit cost grew larger on the employer’s ledger does not mean the income of the worker increased accordingly or that the benefit had more “income value.”

Oy vey!

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“TIME COSTS” OF APPLIANCES HEALS ALL WOUNDS

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Second, another individual posited that my position ignores the relative increase in incomes and wealth of workers because improved productivity and globalized production have reduced the “time costs” of attaining and maintaining a middle-class lifestyle. The writer maintains that costs of clothing, major appliances, cars etc. (the lifestyle asset cost of middle-class life) cost less today in terms of how many hours one must work to attain them… and the middle-class person is better off today.

Therefore, if it cost 3000 hours to purchase a standard car back in the 1960’s and now costs 1200 hours to purchase today’s standard car, then the real incomes of average middle-class persons have increased relative to the past. His point is that while this situation may not show up on balance sheets cost-adjusted for inflation, it is a very real phenomenon that means the middle-class is larger and more robust than we believe it to be.

Thus was written:

Bottom Line: The comparison of the “time cost” of appliances over time above confirms what Aparna finds in her analysis – average (and low-income) Americans are much better off today than they were 20, 30, 40 or 50 years ago, thanks in large part to the significant reductions in the cost of common household appliances like refrigerators, washers and dryers, and TVs. The reasons for the significant reductions in the cost of appliances include innovation, technology improvements, supply chain efficiencies, increases in productivity and other market-driven efficiencies that drive prices lower and lower year by year, measured in what is most important: our time, and the amount of labor it takes to earn the money to purchase household appliances and other goods and services. As much as we hear about declines in median income, economic stagnation, the disappearance of the middle class, falling real wages, increasing income inequality, the data tell a much different story: The rich are getting richer and the poor are getting richer.

“The poor are getting richer” — Argh!

To be certain, technology has improved such that the “standard” has shifted and provided a lifestyle unimaginable or unattainable in the past; i.e., today, nearly all persons of age have a personal cell phone and internet access (hence access to instant communications); access to music proliferates on numerous mobile devises (not just families able to afford large stereo systems, or further back, their own music chambers); and the list goes on.

As they say, though, all things are relative. And, thus, to say that one has access to “absolutely” more of something now, or to something that never previously existed, or to say that it takes less working time to purchase a particular staple item of the middle-class lifestyle is not to say that they have access to more or better… relative to what their predecessors had relative to their own time. Standards change.

The average middle-class lifestyle requires more and different inputs than that same lifestyle from 1940. It’s not just a car, a refrigerator, and a radio. It is also a middle-class lifestyle relative to itself over time and those levels above it and below in any given year. As society evolves one would hope that the absolute standard improves (i.e., having only 1940 middle-class assets or household items today may mean you are “poor” today and not [or no longer] middle-class), and that is reality.

The middle-class standard and what it costs to maintain that standard have moved upward. This is called progress and something that we should desire for society. The lifestyle of today’s middle-class may appear to have obtained things impossible for the middle-class in times past, but that same cultural standard is relative to its position of the other classes.

If the death rate from cancer devolved back to that from 1960, would it be correct to say that’s acceptable because even then it was better than the survival rate from the 18th century? Of course not. Standards improve, and if the average person in a period can’t maintain their relative position over time in that moving standard, then we have declined as a society. Here is where America rests today. Fewer American families are able to stay in the current standard of the “middle-class.” Moreover, they are not able to stay in the same income percentile on a global basis — reference again this table of percentiles.

Now, in the second decade of the twenty-first century, it requires well more than two earners working to equal the wages of a one-income household of 40 years ago. In fact, wages have plummeted so low that a two-income household is now (on average) 15% poorer than a one-income household of 40 years ago.

With the year 2000 as a base, real wages peaked in 1970 at around $20/hour. The average worker today earns $8.50/hour — more than 57% less than real earnings in 1970. Moreover, as the average wage directly determines society’s standard of living, it may accurately be said that the average standard of living in the U.S. has plummeted by more than half over the last 40 years.

Inflation for the last 40 years has hidden the 57% collapse in the standard of living for the average person. Nonetheless, if you’re fortunate enough to be at or successful enough to have earned a place at the top of the income charts, the situation is significantly reversed in your favor. While average American workers have seen their real wages plummet by 57% over the past 40 years, in just 15 years (1992-2007) the 400 wealthiest Americans saw their incomes rise by 700%.

Now we have the complete picture: real wages crumbling steadily lower year after year, decade after decade for “The 99%,” while earnings skyrocket for “The One Percent.” Is that acceptable? I don’t know… is going back to the cancer death rates of 1960 acceptable to you because that’s still better than it was in 1700?

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American Middle-Class Now Second-Class To Canada — It Didn’t Have To Be This Way

America’s middle class has been richest in the world for several generations, but we’ve lost that distinction to our northern neighbors.

Canada is officially home to the richest middle class on the planet, according to figures released from the Luxembourg Income Study Database. The flowing chart details 30 years of destruction to America’s lower and middle classes, the loss of standing internationally, and the concentration of income to the wealthy class in the U.S. (Click Chart For Larger View):

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How did we lose the lead? It’s no secret really; economists have been sounding the alarm for twenty-five years, and Americans have continued supporting the policies (both Republican and Democrat, alike) that have furthered their own economic erosion, even as they believe, individually, they are immune to the deleterious aspects of these political and economic choices (privatization, deregulation, free-trade agreements, free-floating exchange rates, globalization, dismantling of the safety net, poor school systems, conservatism, economic libertarianism).

Kevin Phillips wrote about the situation in a 1991 book I read when it came out: “The Politics of Rich and Poor: Wealth and the American Electorate in the Reagan Aftermath.”

Blame three broad factors encompassing the above issues: 1) Canada’s education attainment is outpacing the U.S. and most of the world; 2) American middle-class market wages (driven by globalization) aren’t keeping up with overall economic growth; and (3) Other governments are doing more to redistribute income to poorer families in other countries, particularly in western and northern Europe (the social safety net and progressive taxes).

As a result of America’s belief in the divinity of unfettered virginal markets and the evils of progressive government policy, after-tax middle-class incomes in Canada grew markedly higher than in the United States, while the poor in most of Europe now earn more than poor Americans.

Economic growth in the United States remains as strong or stronger than other industrialized nations, but only a small, elite percentage of American households fully benefits income-wise from that growth. The middle-class wallow in stagnation with no noticeable inflation-adjusted income progress in a decade. The plight of the U.S. poor is even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country makes significantly less real income than in decades past and less than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.

Make no mistake, economic statistics — per capita gross domestic product — continue to show the United States maintains the lead as the world’s richest large country. Crucially, those numbers are averages, which do not measure the distribution of income. Here is where America fails: in distribution of incomes. The U.S. is the most unequal in income of mature industrialized nations.

With the majority share of income gains in the U.S. now flowing to an extremely small percentage of high-earning households, for the next generation or more, most Americans will not keep pace with their counterparts around the world — nor will they obtain the economic levels of their parents. Implement progressive policy changes, and this situation may begin to slowly improve. Stay the course and past will be prelude to the average American’s diminished future.

I may be an economic and social liberal with a clear preference, but the facts are undeniable, as are the reasons for these changes. Read ‘em and weep:

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Kenrick Kellogg’s High Desert House: The Most Important Architectural House You’ve Likely Never Seen

Organic Architecture As Otherworldly Art

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Located just outside Palm Springs, the 10-acre Doolittle estate is a rare study of organic architecture, offering a unique peek into the creative partnership between its artistic owners and the architect, Kendrick Bangs Kellogg. It’s now on the market for the first time priced at $3 million.

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The Doolittle home — made of concrete, steel, glass and copper overlays — sits on an irregular slope, nestled up against the hillside. Its foundation, jackhammered into the granite bedrock, is heavy anchored concrete slab. A shield to the harsh outdoors, form-molded concrete walls envelop the 4,643-square-foot home like a cocoon. Twenty-six columns prop up rooflines that fan out like wings. With the San Andreas Fault a short 15 miles away, the structure is reinforced 30 percent beyond California’s highest earthquake standards.

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With finishing details in metal, glass and native stone, the structure is a symphony of textures that, combined with the natural light admitted by irregular clerestories, creates the drama of a cathedral.

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“It looks like it’s growing out of its environment, like it grew out, mushroom-like,” Menrad said. “It doesn’t disturb the land at all. … It’s part of the landscape, and it’s its home.”

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Like the famed architect John Lautner, Kellogg had made a name for himself in organic architecture from the Yen House near San Diego to the Hoshino Wedding Chapel in Japan. Unlike the clean angles of midcentury homes, his designs are rounded, with the look of molded clay.

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Bev Doolittle had made a successful career selling paintings of Native American life and snow-flecked landscapes. Jay Doolittle worked as an art agent for his wife. The couple sought an artist architect and eventually tracked Kellogg down from the California Architects Board. They sent him a hand-written letter and photos of their property.

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“If you like their work, you let them do it,” said Bev Doolittle, 66. “I didn’t want to hire someone and look over their shoulder.”

“The real work of art is when you put the plans aside and it comes from your gut; that’s what you do on a good piece of art,” said Kellogg.

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The home’s otherworldly and museum-quality interior woodwork and metal fixtures were crafted by artist and metalworker John Voggeren, with much of it conceived and fabricated on-site. Sculpted and formed doors, latches, sinks and toilets became objets d’art in their own right. Says Kellogg. “Most people wouldn’t have gone in the way-out directions we went, but the owners almost never stopped us.”

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Design began in 1988, and construction began soon afterward. The main structure was finished in 1993. But interior work and tweaks to the doors and windows of the home took the next few years, while the Doolittles lived in a nearby 1,500-square-foot ordinary stucco home. They didn’t fully move in until the early 2000s.

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The Doolittles eventually decided to downsize, to live a simpler life. After living in the home for 11 years, they were getting too old for the stairways and rock floors. “It’s really hard to walk away from that. It’s very emotional,” Bev Doolittle said.

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I don’t know how long the link will last, but following is the sales video of this magnificent home:


The Dan Stevens Malibu Residence — A John Lautner Oceanside Modernist Miracle

Inspired by the ocean it faces, maverick modernist architect architect John Lautner created the Dan Stevens’ house with its curved shell to resemble a wave, while the interior structure evokes a nautical, boat-like ambience in each room.

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Architect: John Lautner – 1968
Location: Malibu, CA

Lautner’s 1968 Stevens Residence in Malibu California is built upon concrete and situated surrounded by sand with views of the ocean and Santa Monica Mountains. The Stevens house was the first house that Lautner built in Malibu and defined the types of houses to be built thereafter.

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Dan Stevens interviewed a number of famous architects to design a 5 bedroom 5 bathroom house with a pool on a 90′ X 37′ lot. Each of them said it was impossible. So, He called John Lautner.

Lautner accomplished all of Stevens’ requirements by designing a structure utilizing 14 I-steel beams that in turn support two half catenary curves in reverse positions to become concrete wall, roof, and ceiling… in one. The house unifies sculpture with architecture and resembles two waves on the exterior. The interior of the house is composed of concrete with cedar planking throughout. The house also utilizes giant custom glass and douglas fir sliding doors that open completely to bring the ocean air directly into the house.

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Reverence for Lautner and the Stevens House resulted in a restoration bridging the past to the present. The restoration included carefully selecting and replacing all cedar planking, restoring concrete that had been painted, bringing back the originally designed but never fully implemented lofts for each of the kids rooms, recreating the original tile, as well as enhancing the house’s sustainability by utilizing cork flooring and converting the house to solar energy. Lautner’s intent was to create a low maintenance and well-built house. In an effort to maintain the Stevens House’s integrity, California Historic Cultural Landmark status was granted in 2010.

If it’s your taste — as it is mine — the home went on market for $22 million in 2013. Now where did I stick that 22 mill?…

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Château de Saint-Germain-Beaupré (II) — Revisiting The Fortress Château

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Château de Saint-Germain-Beaupré, a historic Fortified Château I previously posted and referred to as “Juxtaposition Of Royal Pretensions & Battle-Weary Sensibilities”, sits surrounded by a moat, meadows and lakes within a 16 hectare walled estate — newly restored inside with the luxuries and amenities of 21st Century living, and enshrouded by nearly a 1000 years of turbulent family and French history. It is situated 3 hours south of Paris, 25 minutes north of Limoges, in the Limousin.

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The Château Fortress sits on an ancient site dating back to the 12th Century, it suffered enormously during the 100 years war (1337-1453) and was rebuilt several times. For over 600 years the Château Fortress defended the Foucauld family seat – a Protestant, noble Clan, Companions-at-Arms with Jean D’Arc. In October 1605 King Henry IV stayed at the Château, in the room now known as “The Kings’ Suite”— he trusted and maintained great friendship with the Foucauld family.

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Surrounded by its own water system predating the Château’s construction and thought to date back to Roman times, the Château’s same strong water source feeds three lakes and finally cascade into a fish-stocked moat surrounding and protecting the Château.

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Upon entering the stone Gatehouse, the drive winds its way through a glade of exotic and mature trees and shrubs, outbuildings such as a caretaker’s cottage, large stable block, an orangerie, and workshops/garages. Finally sits the stately home of one of the many powerful, warrior families of medieval France. Worn from centuries of conflict, a bridge across the moat and a remotely operated wooden drawbridge permit limited access to the inner sanctum of the Château — total seclusion ensured.

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During the recent refurbishment, no rebuilding took place, but a full restoration of the remaining 16th and 19th Century buildings — where modernity co-exists with architectural elements that have evolved over five centuries, providing all the creature comforts one would expect: bedroom suites / apartments incorporate Carrera marble bathrooms built by Italian craftsmen, and Philippe Starck bathroom fixtures. Polished oak floors conceal start-of-the-art plumbing and electrics. The Château’s two meter thick window recesses retain their original 17th Century hand painted decoration of animals and birds living on the estate.

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The living space is set over three levels. Flagstone floors and a vaulted ceiling in brick lead into the grand salon with a large granite fireplace. A rear salon leads into a secluded library in the tower. Fully fitted kitchen with Carrara marble worktops leads to a dining room with large fireplace and a Murano glass chandelier. A further tower is home to the study and stairs down to an ancient chapel. The granite staircase, with its fully restored gothic ceiling, leads upward.

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The King’s Suite with its four poster bed and fireplace has a walk-in dressing room and Carrera marble bathroom in the tower. The “Grande Mademoiselle” bedroom features a hand painted ceiling, while the Yellow Room with its raised bed and marble en-suite bathroom also has large french windows and pastoral views. The “Octagonal Suite” in one of the towers has a large marble bathroom and views from many windows and balcony. There’s a further guest room with en-suite bathroom.

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Rising another floor up, there is a home-cinema and music room and further accommodation rooms. Outstanding attic space with intricate joinery supporting a unique and notable roof structure throughout the Château.

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A series of well preserved dungeons originally holding prisoners, now offer numerous storage facilities, along with central heating boiler, etc.

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Location in France

The Creuse is France’s hidden department, and forms part of the Limousin region. You have to leave the beaten track to find the many interesting and small towns and hamlets dotting the area.

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Guéret is the capital of the department and has around 15,000 inhabitants, which gives you an idea how sparsely populated this department is. The proximity of the town to both the River Creuse and the Lac du Cortille mean that plenty of watersports are available for both visitors and residents alike.

Bourganeuf has less than 3,500 inhabitants yet has a rich and affluent history, as the Knights Templar had their headquarters here for many years. La Souterraine is another popular small town, steeped in history and has drawn much interest from archaeologists over the years thanks to its 13th century crypt.

The Creuse has some diverse landscapes – from the vast plains of the Berry to the North, the hilly landscape of the Auvergne to the east and woodland to the south. The easiest way to access the Creuse is to fly into Limoges, or catch the TGV high-speed train from Paris.

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VILLAGE & CHURCH OF SAINT-GERMAIN BEAUPRÉ

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St. Germain-Beaupré is a canton of the Underground, which has 846 inhabitants — yes, tiny, indeed. St. Germain-Beaupré itself has a population of about 397.

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The church is a focal point of the village and has undergone many changes, including the end of the XVIII construction period of the bell tower, extended by a tapered lantern  inspired by the towers of the château of Saint Germain Beaupré. It incorporates the stately chapel, built at the end of XV, against the southern flank of the vaulted nave with ribbed arches, tiercerons, and key central vault with weapons of the Foucault family. The west door of the chapel is decorated with a molded and sculpted décor unfortunately cut in its upper part. There is a painting on canvas (late XVII) representing Saint Germain Bishop of Auxerre and a canvas painting (1729), signed Nillaud (limougeaud painter), representing the return of the Rosary to St. Dominic.

Over the years significant damage occurred and operation Saving Popular Heritage Distance Creuse was necessary for the restoration of this church.

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Bob Hope Residence, Palm Springs — A John Lautner Masterpiece (Revisited)

In March last year, I posted about Bob Hope’s huge and famous hill-top house located in Palm Springs Southridge mountain area, overlooking Palm Springs. The Hopes were known for their lavish parties with hundreds of attendees, but even so, they never allowed interior photos to be published, as this was their private enclave.

Hope’s daughter is now liquidating the estate, and this nearly 18,000 sq ft (add nearly 5k more sq ft for terraces and outdoor living space) John Lautner-designed Bob and Dolores Hope Residence (1973) went on market for sale… at $50 million… and was recently reduced in price to $34 million.

As part of the selling process, a few shots of the interior were published in the informational brochure. So, now we get to see just a bit…

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1984: The Year Income Equitability Began To Die In The U.S.

Today, I watched a market analyst’s presentation regarding retailer performance this holiday season. What stood out dramatically was the difficulty those retailers were experiencing who cater to middle Americans (GAP, Abercrombie & Fitch, Aeropostale, etc — with the noted exception of “trend” retailers catering to “teen” markets with high style, cheap products: H&M, Forever 21, etc.) while those retailers catering to the upper 5% of society were performing remarkably well.

Why the disparity? How’s that happen? Get used to it… this is your future:

Income Chart

1984 was the year America’s inequality trend began in earnest. 1984 is the year the future for most Americans diminished. 1984 is the year any hope of income equitability died.

So how is it that the U.S. income gap has grown large enough for us to claim the title of worst inequality in the developed world? Here are a few of the many explanations:

1. Tax Cuts For The Rich:

Many of the spikes in the chart correspond with periods when the government slashed taxes on the rich. As the Center for American Progress notes, Ronald Reagan’s early 1980s tax reforms helped to increase income inequality.

The same thing happened in the late 1990s when Bill Clinton passed a tax cut on capital gains, or investment income, which rich people are more likely to have than ordinary Americans. And then it happened again when George W. Bush cut the top marginal tax rates in 2001 and 2003.

Altogether, about 30 percent of the expansion of the after-tax income gap between 1979 and 2007 was due to tax and budget policies becoming less progressive, according to a June analysis from the Economic Policy Institute.

2. Corporate Profits & Executive Pay Soar:

Over the past several years corporate profits — which go in large part to rich investors — have soared to the point where they now make up the highest share of the economy on record. And over the last several decades, CEO pay also skyrocketed. The result: The ratio between CEO and average worker pay ballooned by roughly 1,000 percent since 1950.

3. Workers’ Wages Decoupled From Productivity Growth:

In the 1960s workers and their families used to be able to live above the poverty line on a minimum wage income. But now, that’s no longer the case, according to EPI. In fact, if the minimum wage had kept up with boosts in worker productivity over the past several decades it would be $18.30, according to EPI. That’s more than double the current minimum wage of $7.25.

Part of the reason workers have had a tougher time securing higher wages in recent years is because of a marked decline in unionization. Drops in union membership typically correspond with growth in income inequality, research finds.