On February 13, 2019, Kevin Kelleher writes in Fortune:
Income inequality in the U.S., which has steadily been increasing since the 1980s, has reached levels last seen in the years just before the Great Depression, according to a recent economic analysis.
In a paper authored by UC Berkeley economics professor Gabriel Zucman and published by the National Bureau of Economic Research, Zucman determined that in 1929, just before the Wall Street Crash that helped precipitate the Great Depression, the top 0.1% richest adults’ share of total household wealth was close to 25%. During the Depression and World War II, the share of the top 0.1% declined until it “reached its low-water mark in the 1970s,” the paper said.
“Wealth inequality has increased dramatically since the 1980s, with a top 1% wealth share around 40% in 2016 vs. 25%–30% in the 1980s,” Zucman wrote, noting that “the share of wealth owned by the bottom 90% has collapsed in similar proportions.” The only country Zucman found with similarly high levels of wealth inequality was Russia.
The paper also cautioned that, as bad as these numbers look, they could be even worse in reality because the recent decades of financial globalization have made it harder to measure the wealth of the richest people.
“It is not enough to study wealth concentration using self-reported survey data or even tax return data,” Zucman wrote. “Because the wealthy have access to many opportunities for tax avoidance and tax evasion—and because the available evidence suggests that the tax planning industry has grown since the 1980s as it became globalized—traditional data sources may under-estimate inequality.”
Even with the data that is available, income inequality appears to have gone back to the levels of the last gilded age. “U.S. wealth concentration seems to have returned to levels last seen during the Roaring Twenties,” Zucman said.
Gary Reber Comments:
It comes down to the tiny few capital asset owners vs non-owners of the non-human means of production––productive capital assets that provide the bulk of the input to produce goods, products and services in an economy.
Not only have the non-human means of production replaced the necessity for masses of workers, but tectonic shifts in the technologies of production will continue to do so in the future. Those who own the “technologies” of production are and will be the earnings beneficiaries of their position as owners.
Another factor contributing to economic inequality is the outsourcing of supply chain parts and finished products and the off-shoring of our manufacturing capabilities. This shift from production in the United States to foreign countries that can offer far less costs to produce are the magnet for American manufacturers to source their needs for assembly and finished product manufacturing results in propping up manufacturing and economic growth elsewhere, instead of investments in developing manufacturing capabilities in our own country. Who benefits? Whoever owns the businesses outsourcing and off-shoring. Americans, who no longer can be productive, are in a race for bottom-barrel consumer pricing, which outsourcing and off-shoring manufacturing provides, while increasing profits and thus incomes for the relatively few people that own.
Virtually no one, including Gabriel Zucman, the UC Berkeley economics professor sourced for the article, talks about the necessity of creating new productive capital asset owners simultaneously with the growth of the economy, and thus provide a new source of earnings, a second income not tied to a job. Zucman does state that “U.S. wealth concentration seems to have returned to levels last seen during the Roaring Twenties” and “the share of wealth owned by the bottom 90% has collapsed..” but offers no viable solution.
Others, including progressive politicians, focus on job creation in the face of job-destroying shifts in the technologies of production, such as in temporary employment in infrastructure construction or dependency on a guaranteed job. Why? Because they only see a job as a means for people to earn an income. Yet, clearly, common sense should tell these narrow thinkers, that the wealthy few are wealthy because they own wealth-creating, income-producing capital assets, and the rest (the masses) of the citizenry are essentially job serfs or dependent on taxpayer welfare support.
The obvious solution is to create financial mechanism which will provide equal opportunity for EVERY child, woman, and man to acquire productive capital assets, as they are being formed, with the earnings of the investments. The rich understand how to do this but never share how they do it with those dependent on them for jobs.
The only impediment to ordinary Americans, working or not, who are propertyless in the capital asset context, from becoming an owner of newly formed, self-liquidating productive capital assets is putting up collateral as insurance or a guarantee against a capital credit loan for an investment that does not perform as expected.
As every rich person knows, capital acquisition takes place on the logic of self-financing and asset-backed credit for productive uses. People invest in capital ownership on the basis that the investment will pay for itself. The basis for the extension of capital credit and commitment of loan guarantees is the fact that nobody who knows what he or she is doing buys a physical capital asset or an interest in one (existing or to be formed) unless he or she is first assured, on the basis of the best advice one can get, that the asset in operation will pay for itself within a reasonable period of time — five to seven or, in a worst case scenario, 10 years (given the current depressive state of the economy). And after it pays for itself within a reasonable capital cost recovery period, it is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.
Still, there is at least a theoretical chance, and sometimes a very real chance, that the investment might not pay for itself, or it might not pay for itself in the projected time period. So, there is a business risk. This is why the lender has no reason to loan to anyone unless it has two sources of repayment. In addition to determining that the investment is viable and that the person or business corporation is creditworthy and reliably expected to make loan repayments, there needs to be security against default. Thus, for the lender to make the loan, loan security must be provided. This is always in the form of some type of equity accrued through past savings.
But, there is another path to solve the security issue, that is, the risk can be absorbed by capital credit insurance or commercial risk insurance and re-insurance. Thus, in order to achieve national economic democracy, we need a way to handle risk management in finance by broadly insuring the risks. Such capital credit insurance would substitute for the security demanded by lenders to cover the risk of non-payment, thus enabling the poor and others with no or few assets (the 99 percent) to overcome the collateralization barrier that excludes the non-halves from access to wealth-creating, income-generating productive capital.
And because financing does not require borrowing from past savers, the capital credit loans can be interest-free, as well as insured.
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.
The solution is embodied in the proposed Capital Homestead Act. To read how capital homesteading works, see this section in my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.
