A new report from the Congressional Budget Office has a pretty startling finding: From 2003 to 2005, the income growth of the top 1% of American income earners exceeded, by 37%, the total earnings of the bottom 20%.

It sounds bad -- it is, after all, about as compelling evidence as you'll find of increasing income inequality. The lowest-earning fifth of households had total income of $383.4 billion in 2005, while the richest 1% saw their earnings increase by $524.8 billion.

One factor was the appreciation in the stock market over that period, with about half of the earnings growth of the top1% coming from investments and business ventures.

Jared Bernstein of the Economic Policy Institute told the New York Times that "A lot of people justifiably feel they are working harder and smarter, they are baking a bigger and better pie, and yet their slice is not growing much at all. It is meaningless to middle- and low-income families to say we have a great economy because their economy looks so much different than folks at the top of the scale because this is an economy that is working, but not working for everyone."

This is bad news for the Republicans, who are facing pretty long odds at maintaining control of the White House. While they can point to economic growth over the past few years, the reality is that working-class Americans saw an increase in their income that is barely significant -- Wealthy Americans cleaned up.

The actual importance of income inequality is a debate that has no end in sight: Does the fact that rich Americans saw their earnings increase a lot really have anything to do with the lowest 20% of income-earners? It doesn't matter because it still make for great election-year rhetoric.

We are beginning to pay the price for an economy that rewards the top 0.01% at the expense of the other 99.99%. Why and how did we get here? How can you profit? The answer to the first question is a long one. As for the second, I think it makes sense to consider global investments.

Why did we get here? In 2001, the government wanted to undo what it perceived as the economic policy mistakes of the previous Bush administration. These included raising taxes to reduce the government deficit and failing to move quickly enough to stop an economic slowdown. The then-new administration was determined to gain reelection by doing the opposite of the first Bush administration.

How this policy was achieved is quite clear -- the administration cut taxes and interest rates. This lowered the cost of borrowing money and lifted the after-tax returns from buying an asset and selling it at a profit. The private sector found many ways to exploit these newly created profit opportunities, including these three:

The current president has done at least one good thing -- appointing Ben Bernanke as Fed Chair. Bernanke has so far managed to keep the economy from plunging in response to the decline in the housing market and high oil prices. But what really intrigues me is his speech in Omaha yesterday in which he politely bashed Bush's economic policies.

I say politely because Bernanke didn't actually criticize Bush's tax and industrial policies that since 2001 have led directly to the income inequality which Bernanke enumerated in his speech. According to Bloomberg, Bernanke avoided talking about the income growth of the top 1% -- focusing instead on the lower economic level where the disparities are still bad. He noted that families earning more than $103,100 grabbed 48.1% of aggregate income rise in 2005, from 46.5% in 1995 while those earning between $45,000 and $68,300 lost ground -- with their share dropping from 15.8% to 15.3% during the same period.

Bernanke also put his oar in the water on executive pay, noting research that says the economic value of skilled leadership has increased as firms have grown larger. He cited my beloved -- and pain-inducing -- Boston Red Sox to illustrate the income disparity between star athletes and others, citing the 2004 $22.5 million pay package for Manny Ramirez. At the same time, he noted research that points to weak corporate governance as a source of high executive compensation.

How have Bush's policies contributed to the income inequality?

The current Barron's features an article titled "Rich America, Poor America." It argues that we now live in an age of "plutonomy." Plutonomy is defined as "a global economy disproportionately propelled by the rich." This is the new economic, social and political reality that must be recognized in any investment strategy.

Many discussions about growing inequality in income and wealth in the US and in the world (and I think this inequality is real and undeniable, despite the Wall Street Journal's ongoing effort to argue otherwise) focus on the political and social aspects of this trend. This makes sense, since it is very much a political and social issue. But Barron's asks an interesting economic question -- what should you do as an investor, given this trend?

The simple answer is to invest in the company's that profit from serving the ultra-rich. Citigroup Inc. (NYSE: C) has put together a basket of stocks that tap into the luxury goods market. These include Coach (NYSE: COH), Polo Ralph Lauren (NYSE: RL), Tiffany (NYSE: TIF), LVMH (MC.France) and Porsche (POR3.Germany). These stocks have outperformed the market over the last few years. Ajay Kapur, a Citigroup analyst who focuses on these companies, thinks they will continue to outperform, since the growth of economic inequality is not likely to change anytime soon.

Of course, it may strike some people as strange if not immoral to worry about investing in the midst of such a troubling social development. The Barron's article provides some solid data on why we should be concerned about this. In particular, it provides recent data on the Gini Coefficient, a standard measure of inequality used by sociologists and economists who study the topic. The data clearly shows that the US is becoming more unequal. Equally disturbing is that fact that as far as economic inequality is concerned, the US is becoming less like other wealthy, democratic, industrial nations (Germany, Spain, Denmark, France, Sweden) and more like less developed, less democratic countries (Mexico, Hong Kong, Brazil, China). So you should make adjustments to your investment strategy, but if you find this growing gap between the rich and everyone else disturbing, you may want to consider working for political change too.

Earlier today, Peter Cohan wrote about the growing number of very wealthy Americans. He wondered if this is a good thing, and quickly concluded that it is.

It's hard to argue against people finding wealth and happiness in whatever way they see fit. But the details of his analysis raise a few questions. He refers to a recent New York Times piece that tells the story of a medical doctor who left medicine for Wall Street. The doctor is now fabulously wealthy, rather than merely well off. His net worth is in the $20 million range. This, Peter Cohan argues, is proof that the American Dream works. People are free to pursue any amount of education they want, and then are free to move through the labor market in any way they see fit. If a hedge fund pays more than a medical practice, then go with the money. This is simply how a properly functioning meritocratic system works, and as a result everybody is better off.

But something doesn't seem quite right here. In this interpretation, the American dream consists of highly educated people -- typically from privileged backgrounds (the doctor in the story is a Harvard grad) -- making millions working with investment capital. The fact that the country now has one less well trained doctor doesn't seem to matter. The fact that only a small percentage of the population has access to the top educational institutions is not a concern. And, most importantly, the economic condition of the majority of the population is not part of the calculus.

Using these simple points of reference, I think you can argue just as convincingly that the fabulous and growing wealth of highly educated people who work in the capital markets is in fact a loss for the country itself. As the American economy becomes more strongly oriented to making money from money, many citizens are left behind. This includes the people who 'merely' make things and provide basic human services, from auto workers to doctors. Many of these people face declining incomes and decreasing economic security. More rich people is great -- but only if you're one of them. For everyone else, it's a different story.