Drowning in Riches: Income Inequality and the Future of Capitalism
and Economics
Economist Joseph Stiglitz and many others have noted that
income inequality continues to rise, particularly in affluent countries, and
that it may inevitably continue to rise in our current economic system where it
is money that makes money. We have not only billionaires but plenty of
ten-billionaires and we are closing in on the first one-hundred-billionaire, a
person who would be a millionaire 10,000 times over! (as a ten-billionaire is a
millionaire 1000 times over!). Sure these billionaires are often (but not
always) philanthropic. Many also seek to influence elections and social
policies. The U.S. is now literally being run by billionaires in what is quite
possibly the most affluent presidential administration to ever be assembled.
According to Oxfam total global wealth is at $256 trillion, the six wealthiest
men are worth $412 billion, and the poorest half of our seven-plus billion
people are worth $410 billion. Thus, they conclude, the six wealthiest men are
worth more than half of the world’s population on the poorest end. The article,
referenced below, refers to this situation as “morbid inequality,” and
seriously at issue is that this inequality has been growing and continues to
grow. The six wealthiest men: Bill Gates, Warren Buffet, Amazon CEO Jeff Bezos,
Amancia Ortega, Facebook CEO Mark Zuckerberg, and Carlos Slim Helu (with Google’s
Larry Carlson very close at no. 7) have continued to get wealthier, according
to the article gaining $69 billion in the past year alone! It seems they can’t
lose. Interestingly, these are not your typical conservative resource
baron/tycoon billionaires (of which there are many) but most are tech
billionaires – so probably more liberal in outlook. Incidentally, if the total
global wealth of $256 trillion were divided by the global population of 7+
billion, the avg. worth of all if all were equal would be somewhere around $35,000
– a pittance for those used to wealth but a fortune to the global poor in
developing countries.
Apparently, Jeff Bezos’s company Amazon has never showed a
profit but has vastly increased revenue over the years. This means simply that
creative accounting was employed, which allowed the company to dodge taxes on
profit and defer it to capital gains at a much lower rate. This has allowed
Amazon to grow and Bezos to become one of the richest humans on the planet –
basically by running and growing a marginally profitable company. Amazon is not
alone.
The Intuitive Sense of Justice and Fairness
Experiments by social psychologists and cognitive
neuroscientists have shown that humans have an intuitive or innate sense of
justice and fairness. This is related to the reward system in the brain. We
value being just and fair. Income inequality does not seem fair. In America and
elsewhere the quest for a strong and stable “middle class” is basically a quest
for fairness and a reasonable income equality where a large percentage of the
population can meet their basic material needs through stable employment. The
goal is always to grow the middle class with more people entering from below.
That has not been the trend in recent years. Perhaps more people should
re-enter the middle class from above. Some data even suggest that income
inequality is directly related to degree of social problems as well as physical
and mental health. The implications of that suggestion are that within a
society seen across the board as fair the people in it will be healthier and
social problems will be minimized. This makes sense intuitively as well. Inequality
has negative effects on society. Thus it is entirely possible, even likely,
that increased wealth equality leads to greater degrees of overall social
well-being. Thus billionaires are not only robbing the poor they are stealing from
the entire society as well. And yet we seem to hear more about some poor sod
bilking the system for food stamps. I know people who lost food stamps and have
foregone food because of it so I know it happens.
Trends of Income Inequality and Effects of Income Inequality
According to Joseph Stiglitz and Members of the UN
Commission of Financial Experts in the 2010 Stiglitz
Report, income inequality has been rising in developing and developed
countries and was partially responsible for the 2008 global financial crisis.
They also note excessive deregulation of financial markets as a cause for the
financial crisis. They see the 1990’s as having been a time of economic growth and
prosperity with considerable stagnation since then but income inequality
continues to increase. Increasing inequality has been happening in most
developed countries and particularly in the U.S. and U.K.
“It is now recognized that in most advanced industrial
countries, median wages stagnated during the last quarter century, while income
inequalities surged in favor of the upper quintiles of the income distribution.
In effect, money was transferred from those who would have spent to meet basic
needs to those who had far more than they could easily spend, thus weakening
aggregate effective demand.”
Weakening the aggregate effective demand basically
“unstimulates” the economy. While Milton Friedman argued that the rich
stimulate the economy by funding corporations that provide work, that
relationship may be considerably different now than it was then. Wealth
inequality has grown and how much economic activity is funded by the wealthy is
theoretically less. The stock portfolios and bank accounts of the wealthy do
secure financial risk and keep money behind various economic endeavors but all
of their money is not so invested and the moderately wealthy may be able to
provide as much as the super wealthy in this regard. Friedman’s argument here
may not apply so much to the super wealthy. Friedman’s argument is a good
argument against forced equality and socialism but forced equality is not the
same as forced decreasing of a vast inequality that has been increasing
steadily, through higher taxation, fees, surcharges, etc.
Joseph Stiglitz, in his book, The Price of Inequality, talked much about “rent-seeking,” which
refers to increasing profits by manipulating social and political factors,
which does not have the effect of stimulating an economy or creating wealth like
making and selling a product does. His argument is that in making money through
rent-seeking there is no overall benefit to society. Thus, he sees our current
form of capitalism that depends much on rent-seeking, as dysfunctional. He
points out that it is not the super-wealthy making money itself that is the
problem but the super-wealthy making money while those at the bottom and in the
middle are not likewise prospering. He also points out that before and after
the economic crisis, after a slight dip in 2008, the 2010 ratio of annual CEO
compensation compared to the typical worker returned to 243 to 1!
Super-Taxing the Super-Rich?
Apparently, in Organization for Economic Cooperation and
Development (OECD) countries, “the tax rate for the highest tax bracket has
been reduced by more than 10 percentage points on average [to 2010]” Are such
trends evidence of attempts to stimulate the economy from above in “trickle
down” fashion? Reducing taxes on the super-rich is a surefire way to guarantee
the rich get richer. It gets no simpler than that. One might say the
ultra-wealthy are getting deregulated or one might say that the working poor
and the middle class are getting regulated by being taxed at a far higher
percentage of their critical spendable income than the wealthy. Apparently, one
of the payment mechanisms for the Affordable Care Act (ACA) was increased taxes
on the insurance industry, pharmaceutical manufacturers, medical device
manufacturers, and a Medicare tax surcharge on Americans earning above
$250,000. The recently proposed and failed ACA replacement, the American Health
Care Act (ACHA) cuts those taxes, saving these industries and wealthy Americans
about $600 billion over ten years. The wealthiest 400 Americans would have saved
$7 million each over that time period, further increasing their ever increasing
wealth. Increased taxation of the wealthy was thus threatened to have been
taken away as a funding mechanism for something that primarily benefited poorer
people. Another analysis showed that U.S. millionaires would have saved $165
billion over the 10-year period – somewhere around $1500 savings per year.
Cutting this surcharge tax would have greater benefit to the wealthiest, thus
spurring greater inequality. Such funding, super-taxing the super-rich is one
way to check-and-balance their super-advantageous money-making abilities.
Apparently, the Republican-controlled Congress thinks that such Robin
Hood-style taxation is unfair. In 2015, there were 10.4 million U.S.
millionaires with 300,000 being added that year. That is about 3% of our
population! Apparently, insurance industry executives are not suffering too
much since Humana’s CEO’s annual compensation roughly doubled from 2015 to 2016
to nearly $20 million.
Implications of Automation
Bill Gates recently made the argument that automation, or
robots that take jobs from humans, should be taxed in order to help provide for
the displaced humans. The EU parliament has been considering the idea for some
time now. Certainly the replacement of human labor with AI can increase the
profitability of companies and their shareholders. But what about those who
hold no shares? Job creation is often a stated political goal but automation
does just the opposite. However, there are also many benefits to automation
besides saving money. These include increased efficiency, increased safety,
lower environmental impact, sometimes better quality, and making systems more
sustainable. Thus, automation is most often a net good and should be pursued.
Unfortunately for many workers mining and manufacturing jobs have often been assumed
by robotics. Thus, the lower paying blue-collar jobs are replaced by automation
while the higher paying white-collar jobs remain. This would tend to exacerbate
income inequality. Customer service and self-driving vehicles are likely to
become a large chunk of the ‘machines replacing humans’ trend over the next
five years. When customer service people, taxi drivers (and Uber and Lyft
drivers), and truckers are replaced there will be some new jobs created to
oversee them but those jobs will require a totally different skill set (see
Guardian article referenced below). Banking, retail, and healthcare are also
vulnerable. Calls for robot taxation indicate that the threat of mass
automation is being taken seriously as a looming potential political problem.
As one of the Guardian articles referenced below notes:
“Mass automation presents a serious political problem – one
that deserves a serious political solution.”
The article also reminds us that automation replacing labor
is not new as it has been happening since machines of mass production were
first invented. It also does not always result in a net loss of jobs as in the
example of ATMs where they made banks more efficient and available but also
allowed those banks to open up more branches.
Robot capital and robot capitalism has the potential to
vastly redistribute wealth toward the rich and reduce the bargaining powers of
labor since labor is less necessary with increasing automation. While I agree
with many that capitalism has in the past been the best means of creating value
for all of society it now threatens more and more to continue its imbalance
toward increasing income inequality. The Occupy Wall Street protesters called
for greater income equality and that was their best argument for change.
However, since then CEO pay has continued to grow relative to low wage earner
pay. Something will have to be done and the sooner the better. Wholly
deregulated free market capitalism will not clear up these issues, it has
become clear to many.
The Insecurity of the Middle Class
Increased automation is also one factor perpetuating the
insecurity of the middle class. Breakthrough Institute authors Ted Nordhaus and
Michael Shellenberger wrote about such insecurity in their 2007, 2009 book, Break Through, where they noted that in
the 1990s and 2000s there was a very substantial feeling among workers that
their jobs were not secure. Part of this was due to digital and other
“disruptions” that happened when new and better ways of doing things replace
old ways. A sense of insecurity tends to keep people in basic survival mode and
focused on basic needs rather than on higher societal well-being which would be
further up Maslow’s ladder or hierarchy of needs. Economist Tyler Cowen has
also noted the very real threat to the middle class in his 2014 book, Average is Over: Powering America Beyond the
Age of the Great Stagnation. He noted that three-quarters of the new jobs
created since the Great Recession pay barely above minimum wage on average. As
noted, in the past 15 years or so it has been so-called ‘digital disruption’
that has rearranged the work field, with some companies becoming obsolete with
others taking their place. New apps and smarter ways of doing things are
adopted readily due to convenience, greater efficiency, and cost reduction. In
terms of class struggle the elite have been getting more elite and the lower
classes have been stagnated. This is perhaps a recipe for future political
problems. The rise of Trump populism on a platform of a renaissance in American
manufacturing, often through incentivization by removing regulatory barriers,
is perhaps a response to both wage stagnation and less job availability
partially due to automation. It is perhaps nostalgia for a return to a past
that may no longer be possible.
It is not only job security that is sought. There is also
health care security, retirement security, and child care security. We now tend
to accept that jobs can be quite temporary. Markets fluctuate and down-cycles
often mean downsizing.
Insecurity increases risk aversion. Business people need to
feel secure in order to take risks, the data has shown. Risk takers seek to be
insured, underwritten, in case they fail. So called “safety nets” like welfare
and social security increase economic security for those at the very bottom. I
listened recently to Ohio Governor John Kasich’s state of the state address
where he venerated risk-taking among business people. He noted that risk-takers
and innovators are shaping the future as they always have.
Milton Friedman argued that subsidies for higher education
and social security benefit the middle class more than the poor and the poor as
a whole pay more into them. He said this of all social programs but is that
correct these days? I believe it still is with higher education as more of the
middle class will go to college than those at the bottom. I don’t believe it is
true of social security and other social programs these days. Why? Because
those below the poverty levels don’t really pay taxes as they get it all back,
in income tax if they are employed, and as social benefits if not employed or
employable.
Market Manipulation: The Interface Between the Public and Private
Spheres (and Evonomics)
As mentioned earlier, many now think that wholly deregulated
free market economies are well on their way along trajectories that increase
income inequality and class disparity. Clearly, the principles espoused by
Milton Friedman and championed by Ronald Reagan have been shown to be a recipe
for such inequality. Even college economics classes are shying away from such
principles. Adam Smith’s “invisible hand” concept argued for free markets
without interference, particularly government interference, but it has been
shown that there are different kinds of invisible hands, otherwise known as
incentives and disincentives. Incentives (and disincentives) have been shown to
be variable in their successes. Regulations are mostly disincentives. The free
market mantra that “competition creates efficiency” is refuted by analogy when
compared to biological competition as entrepreneur and writer Jag Bhalla notes.
He and others have compared economics and biology in the “evonomics” approach
to economics. Evonomics (evonomics.com) was started by Seattle-based
entrepreneur Steve Roth and includes short essays with several prominent
economists as contributors. Adam Smith’s invisible hand idea suggested that
individual self-interest spurred collective good. In reality sometimes this is
the case and sometimes it is not. Biologist Edward O. Wilson made a very good
case that in biology there is individual selection and group selection so there
is competition (and collaboration) both between individuals within a group and
between groups. Thus whether individual self-interest leads to collective good
depends simply on whether the net aggregate effects of the various individual
self-interests align with the goals of society. Many individual-group
relationships are varying mixes of competition and collaboration, antagonism
and synergism. Simple relationships can become complex if individual and group
goals are antagonistic or out of phase. Thus competition as competing
self-interests and competing group interests is not necessarily the most
efficient way of economics. Collaboration through aligning individual goals to
societal goals through the guidance of smart regulations and redistribution can
offer a more synergistic approach where both individual and societal interests
are promoted. It was noted that in complex systems such as biology or economics
there are often indirect effects, effects that must be monitored and mitigated
by the public interests as mentioned in the “diablog” referenced below between
Jag Bhalla and evolutionary biologist David Sloan Wilson. Is there a societal
benefit for billionaires to become ten-billionaires? Aside from more money in
Gates-style foundation global philanthropy there would seem to be none.
Land, Capital, and Labor: Economic Growth Has Been Steadily
Exceeding Wage Growth (and more Evonomics)
Another example of increasing income inequality can be
measured in the trends of capital growth exceeding wage growth. According to
one of the Guardian articles referenced below:
“Technology has made workers more productive, but the
profits have trickled up, not down. Productivity increased by 80.4 % between
1973 and 2011, but the real hourly compensation of the median worker went up by
only 10.7%.”
Free market fundamentalists argue that markets self-organize
and self-organization is a fundamental good. However, in biology self-organization
can be either good or bad, functional or dysfunctional. Spontaneous order due
to self-organization can be very useful and powerful in biology and
theoretically could be selected for in economics as win-win synergisms between
the individual and the group and/or between groups. However, the evonomics
think tankers note that these relationships are not always easy to determine or
clear. Some free market capitalists see the market as sacred in the sense that
messing with it is seen as corruption or fraud. Thus regulation is seen as a
kind of corruption to the free flow of goods – a tax, a bribe, etc. This is
what the purists, the essentialists, tend to think. Any kind of wealth redistribution
is seen by them in the same way.
Minimum wage is another issue that has been debated much as
of late. The typical argument against raising wages is that if they are higher,
then prices will rise AND fewer workers will be employed. The argument from the
other side is that people will have more money to spend so sales will increase.
Better wages also lead to higher worker satisfaction and likely to better
worker productivity.
Adam Smith noted that land, capital, and labor are the
inputs to economic activity but that only those who provide capital and labor
take risks and contribute to the economy. The land-owners merely rent their
land assets, generally risk-free. This “economic rent” (or rent-seeking) has
been called ‘parasitic,’ since there is benefit to the landlords but no
significant societal benefit. Dustin Mineau (in article referenced below) notes
that there was a change in economic theory at the end of the 19th
century that treated land and capital as the same thing thus defining
neo-classical economics from the previous classical economics. Thus rentiers
were lumped with capitalists even though their money came merely from renting.
He thinks that much of the problems liberals have with capitalism is really a
problem with the seeming unfairness of rent-seeking. He suggests that 99% of
Wall Street profit comes from rent-seeking. He sees rent-seeking as the reason
for monopolies and windfall profits. I think he goes quite a bit too far but it
would be a plausible argument in a less extreme sense. Rentiers do have to work
to evaluate, purchase, develop, and market their “land” assets so calling them
parasitic and their profit unearned is not accurate. However, once their assets
are ready, there is typically not much further contribution from them.
The Case for Welfare and Redistribution
Although these topics - welfare and wealth redistribution –
have long been taboo among free market advocates more economists are now arguing
that a certain amount of both are required in order to develop an overall
healthy economy. One line of evidence is that the modern capitalist economies
with the largest amount of welfare and wealth redistribution are simply the
healthiest. The proof seems to be in the pudding there. Milton Friedman style
free market capitalism which emphasizes increasing shareholder profits as the
sole goal of business and conservative notions of “trickle-down” economics have
clearly not functioned as planned in recent years and some economists argue
that those ideas are essentially flawed as they favor increasing income
inequality which is basically what we have seen.
Redistribution through government incentive has long been
practiced to further the goals of society. Calls for and appropriations for
infrastructure spending are an example of such market enhancement. The
financial bailouts and economic stimulus bills were other large doses of public-sourced
“market manipulation.” The fact is we don’t really have free markets but they
are guided, regulated, enhanced, and stimulated in various ways in response to
problems. Those ways in aggregate are increasing income inequality. Perhaps the
bottom line to all this is that increasing income inequality is not aligned
with the goals of society at most every level. What seems to be the score? The
billionaires are winning and increasing their lead. Economic growth has
remained modest globally since the financial crisis with some exceptions like
China which is now slowing a bit. The amount of money going to social programs
is not on the rise, even though the evidence shows that those who commit to the
most social spending tend to have the best financial health. Trump has spoken
much of rebuilding (as a real estate developer he is also a builder) and has
pledged infrastructure spending. He has also pledged to create incentive
through tax advantage for corporations so they will be based at home rather
than abroad. These are market manipulations in favor of home markets against
markets abroad. Consequences of isolationist policies (including the
immigration ban and crackdowns) can be retaliations such as the EU now
requiring visas for American travelers and trade wars, regardless of trade
deficits. Arguments in favor of the Trump America First economic policies include
‘eye for an eye’ leveling of the playing field by counter-acting things like
Chinese currency manipulation and the rigged state capitalisms of authoritarian
countries.
Ian Bremmer pointed out in his 2010 book, The End of the Free Market, that there
is massive market manipulation by the relatively new state capitalisms from
authoritarian states such as Russia, China, and Saudi Arabia. These are
politically rigged forms of capitalism representing much of the people on the
planet so a very large part of the global economy. Thus, he concluded that
there is a battle between the goals of corporations and these state capitalisms.
But state capitalism is not exclusive to the authoritarian states. The
financial bailouts from the Great Recession are a prime example of state
capitalism where markets were manipulated by the state by being stimulated.
Infrastructure spending and other spending by increasing deficits is another example.
Calls for welfare reform have been focused for some time on
cutting so-called “entitlement” spending for programs like welfare and food
stamps where those who receive the benefits are pretty much certified as being
on the bottom economic rungs of society. Cases of welfare fraud are now far more
scarce than once thought and many people get very small amounts of benefits.
Often monthly food stamp benefits are less than a couple meals at a high-end
restaurant. I know this because I know a few people who get food stamps. Some
are near starving and still accused of bilking the system and being lazy by
those who have the power to take their benefits away. In aggregate these sums
paid for entitlements are high but they should be seen as necessary for several
reasons: taking care of the needy, promoting a sense of fairness, promoting
solidarity by evening out incomes a little, and demoting classism. In short, the
data show that wealth inequality makes a society weaker, less coherent, and
more deeply separated into classes. Proposed cuts in Medicare, Medicaid, and
Social Security or most other social programs will by definition increase
wealth inequality. Proposed cuts to food stamps are a blow to those, and there
are many, who rely on them. Some people can’t work and others simply can’t get
hired. It’s not easy. I was looking for work for a short-time recently and even
with a college degree and 25 years of experience in my field I was ignored for
low-wage jobs.
Politicians rage about food stamp fraud while raking in millions
and billions. It seems rather heartless. The real question is, “Who is really
cheating?” Is it fair to get endlessly wealthy though the system while
depriving others of basic necessities? We should all be proud to live in a
country where everyone can meet their basic needs whether that be through
employment or government assistance. We should be ashamed of the wealthy elite
who as well as being such also seem to have much sway in how things are done.
In light of automation there will be less jobs in the future for non-skilled
workers, those at the bottom, so based on that more welfare would be needed not
less. The word “entitlement” is really a misnomer. Are the wealthy elite ‘entitled’
to their millions and billions and tens of billions? Are those at the bottom
not entitled to have enough to meet their basic food, shelter, and survival
needs? The behavior from the political right is shameful to be nice about it. I
am no socialist as I believe capitalism overall has provided and continues to
provide the best means to create wealth. However, under the current scenario it
is creating way more wealth for the wealthy elite and far less for those at the
bottom who need it for survival. Thus, it is a “no-brainer” that we need more
welfare and social programs and not less. The economic downturn, created by the
Wall Street elites, is what caused the economy to tank, causing people to lose
retirement buildups and making the job market poor for all. While there was
indeed some response to increase welfare at the time, now some are saying that
those increases should be taken away now that the economy has stabilized
somewhat. After all, we need to build a $20-50 billion wall and add another $50
billion to military spending. We also need to cut the corporate tax rate by a
vast amount (I can understand small cuts as there is merit to luring companies
back to the U.S.) so that corporations can thrive – since theoretically wealth
“trickles down.” But now we know it does not trickle down and increasing income
inequality is the proof, simple as that. The right sees job creation and
getting more people to work, presumably in minimum wage jobs as the only real solution
to welfare reform. I think that is partially true but I only think it can have
a limited effect, especially since low-wage jobs are the most likely to be
replaced by automation.
Universal Basic Income and Socialization of Wealth?
Some have argued in favor of a basic income for all citizens
below a certain poverty level, at least in countries theoretically wealthy
enough to offer such a benefit. Of course, this is more welfare and those
particularly on the right are blinded by ideology that says welfare is
socialism and so is some sort of evil. In the past the wealthy have argued for
things like flat rate tax percentages for all. While that would be simpler it
would obviously be vastly unfair to the poor. In places like Europe the wealthy
do pay much higher tax rates, higher than in the U.S. Some wealthy Europeans settle
in the U.S. as a result. The luxury class, some with private jets and private
islands (kinda like corrupt dictators or James Bond villains) is profiting at
the expense of those below the poverty level. The wealthy can and do employ
“creative accounting” in myriad ways to decrease their tax burden. The poor can
only take what is given to them. Yes it is true that universal basic income
would be a form of socialism. However, Steve Roth points out in an article
referenced below, a healthy economy should be composed of aspects of democracy,
capitalism, and socialism. He says that most economies are indeed necessarily composed
of all three and that the purists who are staunchly anti-capitalist, or
anti-socialist, or anti-democracy, are all deluded. We have long been
redistributing wealth and for many years now that wealth has been trickling up
to the wealthy. Milton Friedman was wrong. Reaganomics failed. Unfettered
deregulated free market capitalism needs checks and balances and those are
provided by democracy and socialism, both of which invoke our sense of
fairness. We like to say so and so worked hard and so deserves to be rich but
in reality some people work just as hard, whether in a job or in everyday life,
and gain little.
Charlie Young, in the Evonomics article referenced below,
notes that the various UBI scenarios proposed by both liberals and
conservatives, vary considerably. He puts the various proposals in three basic
categories: 1) recalibrating existing tax and benefit systems, 2) replacing the
welfare state, aka “voucherisation,” and 3) communalizing common assets. The
first category involves re-structuring existing taxes and benefits to be more
efficient and fairer and is seen as a “no-frills” version of UBI. Much of this
method involves wealth redistribution from the wealthy to the poor via taxation
and benefits and is generally favored by liberals such as the UK Green Party.
The second category, replacing welfare with vouchers, is favored on the
political right, particularly among libertarians. One version of this is
neoliberalist Milton Friedman’s notion of a UBI as a negative income tax. Matt
Orfalea, in an article referenced below gave five reasons Friedman advocated
for such a UBI: 1) reduced bureaucracy – lump sums instead of hundreds of
administrated and watched-over anti-poverty programs, 2) relying more on the
free market – giving poor people money to spend as they wish rather than
tallying their assets and liabilities and basing what they get and how they get
it based on that, 3) to end the so-called welfare trap, where people on welfare
find work and lose their welfare, with only small overall gains from before
which reduces the incentive to work, 4) it enables other kinds of “work” like
charity and family and community development and enrichment by lessening the
demands of basic income maintenance, and 5) the negative income tax treats
everyone the same (in reference to the poverty level as defined by tax
categories) – Friedman’s idea was a flat payment to all of 50% of how much
money they are below their designated poverty level. Simplification of welfare
certainly has merits. Young’s third category, communalizing common assets,
seems to involve paying for UBI by taxing things like land ownership, financial
trades, and resource ownership and extraction – which in effect are all
basically wealth taxes. The idea is that ownership is shared by all. Other
versions of this are automation taxes. Young also notes that his three
categories are not necessarily mutually exclusive.
I think the main solution to income and wealth inequality is
fairly simple: make the ultra-wealthy pay more, much more, in taxes, fees, and surcharges
– tax the super-wealthy more. Increasing incentives to work and decreasing
disincentives to work will be useful to a point until things like automation
make jobs more scarce. Give public money and food stamps to the needy as well
as job training and other assistance. Keep social spending at healthy levels or
increase it. We should see social spending as an investment in the overall
health of our society. In reality, the poor are being aided by their very
slightly more affluent families and friends as well as by the government.
Either way it is a point of shame that there are struggling poor in our modern
affluent technological society that are not being assisted while they could be.
Reversing the trend by increasing wealth equality should be a goal as the
benefits to society are proven and significant. We have situations in
government spending where whole programs in the hundreds of millions of dollars
up for renewal or cuts could be easily funded by one single billionaire without
affecting the billionaire much. Morbid inequality makes that possible. It is
almost surreal. Is income inequality a form of corruption? I think an argument
can be made that a welfare state, which has proven to lead to more overall
affluence and equality, is preferable to a state soaked in the corruption of
morbid income inequality. The world is awash in corruption and fraud. In some
countries dealing with bribes is the only way to do business. Although we in
the U.S. like to think we are the least corrupt we should consider that the
system as it now is with increasing income inequality, many opportunities for
creative accounting, lower tax rates for the wealthy compared to other countries,
and calls to decrease social spending, is innately corrupt. The morbidly
wealthy are defrauding the poor, not so much intentionally, but by
participating in a system that is quite obviously rigged in their favor –
otherwise their wealth would have some sense of boundary. No one person or
family on earth “needs” a billion dollars. The fact that there is increasing
wealth at the top indicates that there is some capital there to help pay for
social programs.
We reasonable and compassionate humans value personal
freedom, equality under law, and equality of opportunity. Why should we not
also value some degree of wealth equality? Is it because of some ideological
thinking about economics? Or could there
be darker reasons for our tolerance of a high degree of wealth inequality? Do
some see the poor as a lower caste, somehow unworthy of access to wealth? The
wealth inequality that Occupy Wall Street demonstrated against in 2009 has
gotten significantly worse since then. Those who follow Ayn Rand might say that
the government has no right to take the money of those who earned it. Paul Ryan
seems to think that redistribution is inherently bad and that people are poor
because they are lazy. As he said referring to social assistance programs at
the recent Conservative Political Action Conference (quoted from article
referenced below): “The left,” he said, “thinks this is a good thing. They say,
‘hey this is a new freedom – the freedom not to work.” I know a few people dependent
on welfare and they are just trying to survive, sometimes close to literally. And
of course many people work and also get assistance. Sure it helps but even with
it they are still far below most or all of the working class and often below
their own basic subsistence levels. While the aggregate costs of social
assistance programs are indeed very high, some say unsustainable, the benefits
are palpable and the social costs of cutting them may be worse. Cutting social
programs may put a few more people into the working class where they can be
accommodated but it would also increase income inequality by making some of the
dirt poor even poorer, it would increase insecurity for those at the bottom
which is a real threat rather than the mere anxiety of insecurity among those
who actually have incomes, it would likely increase participation in shadow
economies and black markets, and it could even lead to increases in crime and
homelessness. None of those possible outcomes are beneficial to society.
The
article referenced below of a rebuttal to an op-ed in the New York Times by
University of Chicago economist Diedre McCloskey shows that even an academic
economist can make math mistakes so fundamental that a grade-school person may
be able to see the fallacy of it, and present it as some sort of legitimate
argument (She claimed that wealth redistribution from the rich to the poor does
not help the poor very much using an arithmetic model assuming that both were
equally wealthy to begin with). Perhaps we should peer review op-eds? She also
referred to taxation as “state violence” and complained about forced equality –
giving away her strong ideological bias. The loss of integrity of information
and all this talk about fact-checking and ‘alternative facts’ seems to sow
uncertainty into arguments in general and such uncertainty tends to benefit
those with less palpable arguments – ‘your argument cannot be proven with
certainty to be valid so my more unlikely and less logical argument is just as
valid.’ If people cannot come to an agreement about what is most logical then
logic itself is devaluated. If logic is devaluated then ideology can fill the
vacuum. Economics is often seen as a hard science but in reality it is a set of
competing theories that are essentially ideological. In addition one has to
deal considerably with its social implications so it is really a soft
science.
References:
Why Welfare and Redistribution Saves Capitalism from Itself: Rich
Countries Share Wealth and Create Economic Security – by Steve Roth, in
Evonomics, Feb. 2017
Morbid Inequality: Now Just Six Men Have as Much Wealth as Half the
World’s Population – by Paul Buchheit, in Alternet, Feb. 20, 2017
Robots Won’t Just Take Our Jobs, They’ll Make the Rich Even Richer – by
Ben Tarnoff, in The Guardian, March 2, 2017
The Stiglitz Report: Reforming the International Monetary and Financial
Systems in the Wake of the Global Crisis – by Joseph Stiglitz and Members of a
UN Commission of Financial Experts (The New Press, 2010)
Robots Will Eliminate 6% of All U.S. Jobs by 2021, Report Says – in The
Guardian, Sept. 13, 2016
Richard Dawkins’s Tree Metaphor: Why Free Markets Are So Inefficient –
by Jag Bhalla, in Big Think (2015?)
Here is Why Economics is Built on a Monumental Mistake: It’s Time to
Update the Invisible Hand – by Jag Bhalla, in Evonomics
Universal Basic Income Accelerates Innovation by Reducing Our Fear of
Failure – by Scott Santens, in Evonomics, Feb. 12, 2017
The Science is In: Greater Equality Makes Societies Healthier – by
Richard Wilkinson and Kate Picket, in Evonomics, Jan. 26, 2017
Here’s How Much Millionaires Would Save Under GOP Obamacare Repeal Bill
– by Tami Luhby, in CNN Money, March 11, 2017
No Easy Answers: Why Left-Wing Economics is Not the Answer to
Right-Wing Populism – Updated by Zack Beauchamp, in Vox, March 13, 2017
Average is Over: Powering America Beyond the Age of the Great
Stagnation – by Tyler Cowen
Economist Dierdre McCloskey: False Math about Inequality – Adam M.
Finkel, in Evonomics, March 18, 2017
Paul Ryan Says He’s been “Dreaming” of Medicaid Cuts Since He Was
“Drinking Out of Kegs” – updated by Matthew Yglesias, in Vox, March 17, 2017
Canadian Province to Give Every Citizen $1320 Income Boost to Overcome
Poverty – by Gabriel Samuels, in Independent, Nov. 11, 2016
The Conversation about Basic Income is a Mess. Here’s How to Make Sense
of It – by Charlie Young, in Evonomics, March 19, 2017
Why Milton Friedman Supported a Guaranteed Income (5 Reasons) – by Matt
Orfalea, in Basic Income, Dec. 11, 2015
Milton Friedman – Negative Income Tax, 1968 interview on William F.
Buckley Jr.’s Firing Line (youtube)
Milton Friedman on Taxing the Rich to Help the Poor – at youtube.com
The Worldly Philosophers: The Lives, Times, and Ideas of the Great
Economic Thinkers – by Robert Heilbronner – (7th Ed.
Touchstone/Simon & Schuster, 1953, 1999)
The End of the Free Market: Who Wins the War Between States and
Corporations? – by Ian Bremmer (Portfolio/Penguin 2010)
The Price of Inequality: How Today’s Divided Society Endangers Our
Future – by Joseph Stiglitz (W.W. Norton Company, 2012)
How Accounting Smoke and Mirrors Makes Corporate Profits – and Rich
People’s Income – Invisible – by Steve Roth, in Evonomics, Feb. 17, 2017
How Economists Duped Us Into Attacking Capitalism Instead of Parasitic
Rent-Seeking – by Dustin Mineau, in Evonomics, Nov. 19, 2016
Democracy. Capitalism. Socialism. Choose Any Three of the Above – by Steve
Roth, in Evonomics, Oct. 2, 2016
