Wealth Inequality

It seems to me….

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” ~ Adam Smith[1].

According to the Pew Research Center[2], more than three-quarters of U.S. conservatives believe that the poor “have it easy” thanks to government benefits; only 1 in 7 believe that the poor “have hard lives”. It is difficult to understand in what reality these people are living; the plight of the lower-class has always been difficult and has only become more so in recent years.

The American middle-class has fallen from 61 percent of families in 1971 to 50 percent in 2015 and no longer comprises the majority of the U.S. population[3]. The nation’s aggregate family income has substantially shifted from middle-income to upper-income households. The study, based on an analysis of government data, uses a common definition of “middle-income” Americans as those with annual household incomes between two-thirds and double the national median: currently from about $46,000 to $126,000.

During this same timeframe, the portion of those living in the upper-income tier rose from 14 to 21 percent while those in the lower-income tier increased from 25 percent to 29 percent. A significant increase in income inequality has resulted as the share of U.S. aggregate household income held by upper-income households climbed sharply from 29 percent in 1970 to 49 percent in 2014. Today, 58 percent of new U.S. income goes to the top 1 percent; the top 0.1 percent are collectively wealthier than bottom 90 percent. Real wages increased 138 percent for the top 1 percent but only 125 percent for the entire lower 90 percent since 1979. The U.S. gap between rich and poor is now greater than at any time since 1928[4] and larger than in any other industrialized nation.

Though 66 percent of Americans (90 percent of Democrats) are in favor of more even income distribution, income differential can be anticipated to continue shifting in favor of the wealthy as the top one-hundredth of 1 percent of individuals make more than 40 percent of all political campaign contributions[5].

Real income declined or stagnated for all without a college degree from 2002-2013 while during that same period the fixed costs for education, healthcare, and housing increased faster than inflation.

Liberals want to raise taxes on high incomes and use the proceeds to strengthen the social safety net; conservatives want to do the reverse, claiming that tax-the-rich policies hurt everyone by reducing the incentives to create wealth. Recent experience has not been kind to the conservative position. President Obama pushed through a substantial rise in top tax rates and his health care reform was the biggest expansion of the welfare state since President Johnson. Conservatives confidently predicted disaster, just as they did when Bill Clinton raised taxes on the top 1 percent. Instead, President Obama has presiding over the best job growth since the 1990s. Historically, the U.S. achieved its most rapid growth and technological progress ever during the 1950s and 1960s despite much higher top tax rates and much lower inequality than it has today.

The great majority of economists believe supply-side economics to be, at best, a disproven and invalid theory. It should by now be obvious that supply-side economics serves only to benefit the wealthy while penalizing everyone else. The basic tenet of supply-side economics seems to be that tax policy is the primary determinant of economic activity: tax reduction always results in economic growth; that tax reductions always are beneficial regardless of the state of the economy or the nation’s budget expectations.

Experience has discredited supply-side economic theories demonstrating its fundamental inability to account for insufficient decreases in product costs and wages and the corresponding correctness of demand-side macroeconomic theory. But if this is so, why do conservatives, many of whom should know better, continue to support it? One does not have to be a conspiracy theorist to suspect there might be an intentional goal to mislead people so as to gain support for other extremist right-wing political ideologies.

While some inequality is inevitable since individuals vary considerably in their productivity; the vast inequality in the U.S. today isn’t; much results strictly from luck. Extreme inequality derives from power: executives at large corporations who are able to set their own compensation, financial traders who get rich on inside information or by collecting undeserved fees from naïve investors…. To be fair, some people choose to work in low economic-return fields; e.g., in inner-city medical clinics; even though they are skilled and capable to specialize in high compensation areas.

Regardless of common belief, lower-income Americans are experiencing increasing difficulty affording even basic essentials much less being able to prepare for retirement. A majority of Americans over 65 get more than half their income from Social Security, and more than a quarter are almost completely reliant on those monthly checks[6]. 3 in 10 nonelderly Americans said they had no retirement savings or pension and that same percentage reported going without some kind of medical care in the past year because they couldn’t afford it. Almost a quarter reported that they or a family member had experienced financial hardship in the past year. 47 percent said that they would not have the resources to meet an unexpected expense of just $400. This does not seem as if that segment of Americans “have it easy”.

Although most new jobs are created by businesses less than five years old, government regulations and tax structures have resulted in a sharp decline in new company formation. One of the reasons why the U.S. middle class has shrunk is that in 1960 the three largest private sector employers were high-wage unionized companies: General Motors, AT&T, and Ford. Today, the three largest employers are low-wage, anti-union companies: Walmart, Yum! Brands, and McDonalds[7].

That’s what I think, what about you?

[1] Adam Smith was a Scottish moral philosopher, pioneer of political economy, and a key figure in the Scottish Enlightenment.

[2] Ingraham, Christopher. More than three quarters of conservatives say the poor “have it easy”, The Washington Post, http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/26/more-than-three-quarters-of-conservatives-say-the-poor-have-it-easy/, 26 June 2015.

[3] The American Middle Class Is Losing Ground, Pew Research Center, http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/, 9 December 2015.

[4] Scherer, Michael. Up With People, Time, 20 July 2015, pp40-45.

[5] Sanders, Bernie. Facebook posting, 26 April 2015.

[6] Krugman, Paul. The Insecure American, The New York Times, http://www.nytimes.com/2015/05/29/opinion/paul-krugman-the-insecure-american.html?smid=fb-nytimes&smtyp=cur&bicmp=AD&bicmlukp=WT.mc_id&bicmst=1409232722000&bicmet=1419773522000&_r=0, 29 May 2015.

[7] Sanders, Bernie. Facebook, 4 Jan 2015.

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About lewbornmann

Lewis J. Bornmann has his doctorate in Computer Science. He became a volunteer for the American Red Cross following his retirement from teaching Computer Science, Mathematics, and Information Systems, at Mesa State College in Grand Junction, CO. He previously was on the staff at the University of Wisconsin-Madison campus, Stanford University, and several other universities. Dr. Bornmann has provided emergency assistance in areas devastated by hurricanes, floods, and wildfires. He has responded to emergencies on local Disaster Action Teams (DAT), assisted with Services to Armed Forces (SAF), and taught Disaster Services classes and Health & Safety classes. He and his wife, Barb, are certified operators of the American Red Cross Emergency Communications Response Vehicle (ECRV), a self-contained unit capable of providing satellite-based communications and technology-related assistance at disaster sites. He served on the governing board of a large international professional organization (ACM), was chair of a committee overseeing several hundred worldwide volunteer chapters, helped organize large international conferences, served on numerous technical committees, and presented technical papers at numerous symposiums and conferences. He has numerous Who’s Who citations for his technical and professional contributions and many years of management experience with major corporations including General Electric, Boeing, and as an independent contractor. He was a principal contributor on numerous large technology-related development projects, including having written the Systems Concepts for NASA’s largest supercomputing system at the Ames Research Center in Silicon Valley. With over 40 years of experience in scientific and commercial computer systems management and development, he worked on a wide variety of computer-related systems from small single embedded microprocessor based applications to some of the largest distributed heterogeneous supercomputing systems ever planned.
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4 Responses to Wealth Inequality

  1. With the latest coming out on the Panama papers, one really has to question whether capitalism is in its death throes. Tax avoidance is now an art form and this type of democracy is now holding the average person captive to those that thrive in the 1% tax paying fiefdoms. It is not freedom except for those lolling around the cesspits of terminal capitalism.

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    • lewbornmann says:

      Revelations based on the Panama Papers should not be a surprise. Tax avoidance always has existed and, no, capitalism is not dead and neither is freedom. It is unusual that so many people willingly (and accurately) in the U.S. pay their taxes while knowing there is a relatively low probability of being caught or punished if they fail to do so. Autocrats, along with many of the ultra-wealthy, have always lived by a different set of rules to which they feel themselves entitled: it is called “avarice”. Usually, though excessive and unfair, the actual percentage of their wealth is individually a relatively low percent of the national GDP.

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  2. Leb says:

    You sound like the protege of Ellsworth Toohey and I am pretty certain that you have always been fed with subsidies of some form. To incentivise with the “risk of loss”, is not the same as incentivising with the “benefit of gain”. The fact that you wrote this makes it pretty clear that you will probably never understand the meaning of this.

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    • lewbornmann says:

      I admit to a rejection of Ayn Rand’s basic philosophies. Though also not a socialist, I definitely believe in basic compassion for those deserving it. We rapidly are approaching a basic inflection point in employment opportunities where life will be significantly more difficult for those less prepared to complete as automation and computing eliminate an increasing percentage of traditional jobs. To respond to your premise, both carrot and stick incentives are necessary. If permitted to continue, history has demonstrated that our currently high inequality, as indicated by the gini index, will result in increased social disruption. Conservative extremists tend to view the world through rose-colored glasses and to not appreciate where the path they advocate leads. Though Ayn’s philosophy had some credibility during and immediately following World War II, it is totally inappropriate today.

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