On August 3, 2018, Andrew Berryhill writes on Intellectual Takeout:
Is wealth inequality bad? Here are three important questions to ask.
A 2017 study found that 66 percent of Democrats view economic inequality as a “very big” problem, and 93 percent believe it to be at least a “moderately big” problem. And it’s not just the public – politicians like Bernie Sanders and Elizabeth Warren have frequently argued that the wealthy elite of society represent a danger to the economic wellbeing of average Americans.
Their concern isn’t totally unfounded – in 2015, two economists published a paper arguing the top 1% own roughly 40% of privately-held wealth in America.
But is wealth inequality bad? Here are three important questions to ask.
1. Is wealth inequality moral?
The answer is: it depends on how the inequality came about. Economics professor David R. Henderson uses Bill Gates as an example of a good inequality:
“Gates got rich by starting and building Microsoft, whose main product, an operating system for personal computers, made life better for the rest of us. . . [each] gain we consumers got from each step of the PC revolution occurred a year earlier because of Bill Gates. Over 40 years, that amounts to trillions of dollars in value to consumers.”
Gates deserves his wealth because he created innovative products that improved people’s lives. But Henderson notes that not all wealth is earned this way:
“Mexican multi-billionaire Carlos Slim is currently the seventh-richest man in the world. The Mexican government handed him a monopoly on telecommunications in Mexico and he uses it to charge high prices for phone calls. Slim is clearly exacerbating income inequality in a way that makes other people poorer.”
If wealth is earned through political favoritism and regulatory protections from competition, then such activity is detrimental to society.
2. Is wealth inequality justified?
To answer you must ask: what kinds of people are in the top 1 percent and how do they make their money?
A University of Chicago study found:
“Nearly all of the recent rise in top incomes has come in the form of business income.
“. . . Typical firms owned by the top 1-0.1% are single-establishment firms in professional services (e.g., consultants, lawyers, specialty tradespeople) or health services (e.g., physicians, dentists). A typical firm owned by the top 0.1% might be a regional business with $30M in sales and 150 employees, such as an auto dealer, beverage distributor, or a large law firm.”
These findings help illustrate the incredible diversity of economic success in America. Across the entire economy, technology and globalization have enabled a scale of wealth creation never seen before. One of the study’s authors explains:
“There are a few Carnegies and Rockefellers, a Bill Gates and a Jeff Bezos here and there, but there are a lot more people earning between $300,000 and a few million dollars doing a lot of different things.”
And according to a recent study, these successful people are less privileged than they used to be:
“The share of Forbes 400 individuals who are the first generation in their family to run their businesses has risen dramatically from 40% in 1982 to 69% in 2011 . . . [and] the percent that grew up wealthy fell from 60% to 32%.”
Declaring that the 1 percent are largely privileged Wall Street financiers is misguided to say the least.
3. Is wealth inequality detrimental to average workers?
One common fallacy is that the size of the economic pie is fixed – if someone gets more, another must get less. However, an article from FEE explains this is not the case:
“Economist Gary Burtless of the Brookings Institute showed that between 1979 and 2010, the real (inflation-adjusted) after-tax income of the top 1% of U.S. income-earners grew by an impressive 202%.
“He also showed that the real after-tax income of the bottom fifth of income-earners grew by 49%. All groups made real income gains. While the rich are making gains at a faster pace, both the rich and the poor are in fact becoming richer.”
The article also points out that lower prices of food, material goods, and technology have drastically increased living standards for the poor.
Corporate welfare, however, does create harmful wealth inequality. When the government picks economic winners and losers by handing out tax-financed subsidies, the consumer is harmed because firms prioritize lobbying over innovation. If government regulations were not so voluminous and arbitrary, a more competitive market would likely arise.
Ultimately, wealth inequality is a highly contested topic among economists. While certain causes are commonly acknowledged, their degrees of impact are far from decided. Unfortunately, politicians frequently spread erroneous information disguised as “facts”: CEO’s are not earning 350 times what their employees do, the income tax is highly progressive, the government heavily redistributes wealthalready, and the 1% did not profit from the Great Recession.
Instead of fighting “inequality,” perhaps policymakers should focus more on lowering the cost of living and expanding economic opportunity. As global markets have opened, the returns to successful entrepreneurs and skilled workers are higher than ever. We should be ensuring that as many people as possible can take advantage.
Do you think economic inequality is a problem? If so, what could be done to address it?
https://www.intellectualtakeout.org/article/top-1-have-40-americas-wealth-problem
Gary Reber Comments:
No matter who these multi-millionaires and multi-billionaires are or how they became a member of the wealthy capital ownership class, they are hogist, as it relates to hoarding productive capital asset ownership. As concentrated capital asset ownership becomes increasingly concentrated, the result will be an economic inequality problem.
Please identify one of these multi-millionaires or multi-billionaires who advocate or seek to see his or her fellow men and women achieve wealth-creating, income-producing capital asset ownership. They seize any opportunity to substitute human labor with the non-human factor of production (production technologies).
The Effect Of Advancing Technology
My colleague, Michael D. Greaney, at the Center for Economic and Social Justice explains as follows: “As technology advances, the effect is to reduce the role of labor and decrease its value as a factor of production relative to technology. Advancing technology also spurs economic growth in general, which creates new jobs and increases the demand for, and thus the real value of labor overall…up to the point when the added value of the general economic growth spurred by advancing technology is less than the cost of the labor required for new jobs, or other new technology costs less than creating new jobs. Then labor will decrease in value in both relative and absolute terms to technology. Real income to labor will decrease at the same time the demand for labor declines, while real income to owners of capital will increase at the same time that the demand for new technology grows. That is, up to the point when the decrease in real income to labor is such that overall demand decreases enough to render new capital formation financially unfeasible, i.e., new capital won’t pay for itself out of future profits because future profits are either insufficient to repay the debt, or there aren’t any profits because the owners of capital can’t meet the costs of production out of sales to a diminished customer base.
“So what happens? Governments try to encourage new capital formation in order to create jobs by messing with the tax system, and to increase effective demand to make the new capital financially feasible by messing with the monetary system. Producers get favorable tax treatment to form new capital, and punitive tax treatment to redistribute the income from capital. The government creates massive amounts of debt-backed money to stimulate or increase effective demand, which redistributes demand by inflating the currency, decreasing effective demand and discouraging production.
“If we were thinking logically, we might reason that, if capital is producing the bulk of marketable goods and services in the world, the obvious solution is not to create fake jobs so people can have enough income to consume all that was produced by avoiding producing anything more to add to the presumed problem of market gluts. No, given that production equals income, the “demand” needed to clear “supply” already exists. It’s just in the wrong hands, i.e., of people who will reinvest it instead of spending it on consumption.
“The problem then becomes figuring out some way that people who don’t own capital can own capital and become productive once more, bringing supply and demand back into balance.”
It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic wellbeing.
Nearly 60 years ago, binary economist Louis Kelso postulated: “When consumer earning power is systematically acquired in the course of the normal operations of the economy by people who need and want more consumer goods and services, the production of goods and services should rise to unprecedented levels; the quality and craftsmanship of goods and services, freed of the corner-cutting imposed by the chronic shortage of consumer purchasing power, should return to their former high levels; competition should be brisk; and the purchasing power of money should remain stable year after year.”
Without this necessary balance, hopeless poverty, social alienation, and economic breakdown will persist, even though the American economy is ripe with the physical, technical, managerial, and engineering prerequisites for improving the lives of the 99 percent majority. Why? Because there is a crippling organizational malfunction that prevents making full use of the technological prowess that we have developed and are developing. The system does not fully facilitate connecting the majority of citizens, who have unsatisfied needs and wants, to the productive capital assets enabling productive efficiency and economic growth.
Kelso said, “We are a nation of industrial sharecroppers who work for somebody else and have no other source of income. If a man owns something that will produce a second income, he’ll be a better customer for the things that American industry produces. But the problem is how to get the working man [and woman] that second income.”
The solution is the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/; and support for Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
