Sunday, November 24, 2013

Wealth inequality in America: perspectives

First, take the seven minutes or so necessary to watch this video that I picked up from Andy Groff's Facebook page:

Now, let's consider a few things:

1.  The initial response of most people, I suspect, is one of shock and horror and the feeling that "the government ought to do something about this."  Trouble is, the existence of this distribution curve is completely a production of government decisions and government interventions.  Here I know that I will start enraging my progressive and liberal friends, but before you tune out, let's think about some things:

A.  In a two-party system wherein the control of the executive switches back and forth with significant regularity, from whence is the government leadership class for an incoming Dem or GOPer leadership cadre drawn?  Inevitably from the top ranks of corporate America, the dudes who make more in an hour than their average workers make in a month, right?  And when they go out of office, to what locations do they go back?  Corporate America.  Now, I can digress and point out that there are some small exceptions and detours in this mix--chiefly academia [Elizabeth Warren] and large-scale non-profits [Elizabeth Dole], but if you are honest that's a distinction without a difference given the way that  universities and non-profits are today funded.  The grim reality is that--regardless of which of the two parties is in office--the overall leadership cadre is drawn from people who have a vested interest in maintaining the existing pre-eminence of the 1%.

B.  Moreover, the economic policies pursued under all recent presidential administrations dating back into the 1960s have had the net effect increasing centralization of authority and power in both the private and public sectors.  This is a critical point too often missed in the Milton Friedman vs John Maynard Keynes type argument about economic policy.  The ideas of both men--as far apart as they are--both predate in their genesis the era in which mega-corporations and trans-national corporations have assumed generationally immortal shares of gigantic wealth.  One of the problems with the video you just watched is not that it is incorrect, but that it is both incomplete and founded on a ridiculous premise.

Incomplete?  For a true measure of wealth it would also be necessary to determine how the percentages of wealth held by corporations fit into the scale, wherein they would be geometric if not logarithmic levels about even the 1%.  Yes, I know the argument could be made that this would be double-counting wealth in some aspects, since corporations are owned by the stockholders, and theoretically their existence is already factored into the original table.  But in a very important way that is not the case.  Corporations are, by legal definition, fictitious individuals themselves, and hold their wealth separate from that of their owners.  The outstanding stock represents much the same as the debts that anyone--from pauper to prince of industry--also has to offset that wealth.  The reality is that total corporate wealth in America has the same relationship to the wealth of the 1% as the wealth of the 1% has to that of its own workers.  [And it would be equally important to include the wealth of the government by the same measure.]

Ridiculous premise?  The ridiculous premise of the video is that the economic knowledge of randomly selected individuals about the wealth distribution in this country or even their preferences for what would represent the "ideal" distribution of wealth is any more a basis for making public policy than the ideological ideas of Friedman or Keynes.  The grim reality is that the average American knows little or nothing about how micro- or macro-economics work, and even those who have taken these subjects in college have by and large been taught not by economists attempting to expose them to the discipline of economics, but by closet ideologues of one stripe or another attempting to convince them of a particular "economic morality."  But that's also the purpose of this video:  to make people upset by the particular distribution of wealth shown in the video in order to get them (eventually) to support certain governmental policies or political programs supposedly "designed" to cure those inequities.

2.  This video in fact does a disservice to those attempting to understand HOW this particular distribution of wealth has come into existence.  By providing no historical context for how this distribution came into existence, the producer of the video has carefully set the stage for anyone with a Nobel Prize in economics and a simplistic view of history to craft a ridiculous answer.

The reality is that the US [and world] economy is so far beyond anything that Marx, or Friedman, or Keynes understood in terms of complexity that we have reached the point at which it is either a non-linear system or a complex adaptive system, both categories of organization and self-organization that share one critical aspect in common:  consistent inputs do not lead to consistently predictable outcomes.  [For first really primitive primers in what these terms all mean, go here and here and follow the links rather than depend on my interpretations.]

3.  This video also serves the interests of the 1% in maintaining the homeostasis of the existing economic distribution.  Perhaps it does so (I'd like to think) unwillingly.  But the reality is that by limiting itself to a single variable (percentage of wealth owned by a given segment of the population), this video implicitly suggests that there are equally mono-causal solutions available.  The reality is ... there aren't.  In point of fact, the existence of the so-called "American middle class" may have been a bug rather than a feature in our economic system all along.  Most "plans" for helping the poor or re-establishing the "middle class" have--I would argue--more to do with (a) creating new consumer demand and (b) keeping the lower 80% of the population operationally divided into different political camps than they do with actually changing the distribution of wealth.

4.  As a libertarian I'd also like to point out that mega-corporations and transnational corporations CANNOT exist without government.  Their tax breaks, their limited liability, their ability to manipulate markets, their special import/export provisions are all benefits rained down upon them by the same government/corporate elite that so publicly decries their influence.  Thus you get the single most heavily corporatized President in American history--Barack Obama--making populist speeches about cutting corporate execs pay and bringing "fairness" to the system in an administration that has seen (a) a health care plan designed to pour more billions of your tax dollars into corporate coffers; (b) a record high number of corporate lobbyists in high governmental positions controlling [you guessed it] government spending; and (c) record-breaking political fundraising among the very corporate elite classes that he sometimes finds it politically expedient to attack in public.

Here's the ironic reality:  the greatest success of the 1% has been in convincing the right and left wings of various populist movements [libertarians, the tea party, the occupy movement, the Greens] that they have more in common with this or that sub-class of their corporate overlords than they do with each other.


kavips said...

Excellent points.

So how would you fix it? I am guessing it involve 3rd parties from how you disparage the 2 party system, but I can't see how that would make the difference....

I would fall back on increasing the tax rates on the top 1% so somehow that wealth off the charts, gets plowed back into the bottom 4 quintiles....

Is there another way?

Steve Newton said...

No, I would not suggest third, fourth or even no political parties as a solution. The disparagement of the 2-party system could equally be applied to a 1-party system like Mexico under PRI for seventy years.

I seriously doubt that this situation can be cured via tax rate changes, as the people involved in making such changes are all in the top 1-2% now.

My preferred solution would begin (equally unlikely as tax rate changes) with a constitutional amendment to remove 14th Amendment safeguards from corporations and LLCs, and to restore a measure of personal liability to the system.

Don't forget that corporations only exist as creations of government.

tom said...

It would also be instructive to look at the taxes currently being paid by each quintile and by the dreaded 1%.

they are even more skewed toward the top than the distribution of income.

you could as kavips suggests fall back on soaking the rich, but it won't work. they are already paying more than they are willing to, and they didn't get rich w/o learning a few tricks about hiding stuff from the Taxman.

delacrat said...


Even Warren Buffet admits he pays a lower tax rate than his secretary.