On October 24, 2014, Michael Hiltzik writes in the Los Angeles Times:
Emanuel Saez, that assiduous tracker of economic inequality in the U.S., has been shifting his attention away from income inequality to a broader, thornier and more intractable issue: wealth inequality. As he observes in a paper published this week at the blog of the Washington Center for Equitable Growth, wealth inequality is “exploding,” constituting “a direct threat to the cherished American ideals of meritocracy and opportunity.”
Saez, an economics professor at UC Berkeley, wrote his paper with Gabriel Zucman of the London School of Economics. A longer, more technical version of their post can be foundhere. They draw a line from “Capital in the Twenty-First Century,” the magisterial book by Saez’s frequent coauthor, Thomas Piketty, to point out that increasing concentration of wealth feeds on itself, becoming ever more difficult to remedy.
Saez and Zucman find that current sharp uptrend in wealth inequality is a reversal of nearly a half-century of “democratization of wealth,” from the 1930s through the late ’70’s. At that point, the top 0.1% owned 7% of total U.S. household wealth. By 2012 that figure was 22%. Today their share of wealth is “almost as high as in the late 1920s.” And we know how that turned out.
Among the fascinating findings of Saez and Zucman is how thoroughly the top 0.1% have shouldered their way past all other households. While their wealth share was soaring, that of the next 0.9% was barely growing, while that of the “merely rich” — those ranking in the top 10% but below the top 1% — actually shrank.
But the real victims of the trend are in the middle class. Saez and Zucman show that the wealth share of the bottom 90% grew from the 1920s through the mid-1980s, from 15% to 36%. Mostly the gain was due to the growth of pensions and of homeownership. Since the mid-1980s, however, middle-class wealth has evaporated, falling to 23% in 2012, about the same level as 1940.
The authors blame sharply rising indebtedness; of course, the collapse of stock values and home prices in recent years has destroyed a huge volume of middle-class wealth. The top 1% have been able to recover much of that wealth, but the bottom 90% have continued to fall. They’ve continued to be dependent on housing and pensions, both of which have continued to be very shaky legs of a tottering stool.
Wealth inequality is also an artifact of income inequality; the two trends work together to magnify the former. As the bottom 90% struggle to make ends meet on stagnant incomes, they’re unable to accumulate savings. “Today, the top 1% save about 35% of their income,” the authors write, “while bottom 90% families save about zero.”
Strong measures will be needed to reverse this otherwise inexorable trend, they write. “Ten or twenty years from now, all the gains in wealth democratization achieved during the New Deal and the post-war decades could be lost. While the rich would be extremely rich, ordinary families would own next to nothing, with debts almost as high as their assets.”
Among their prescriptions for the rebuilding of middle-class wealth are higher taxes on capital income — “current preferential rates on capital income compared to wage income are hard to defend in light of the rise of wealth inequality” — and on inheritances. “Estate taxation is the most direct tool to prevent self-made fortunes from becoming inherited wealth — the least justifiable form of inequality in the American meritocratic ideal.” Progressive estate and income taxation were the key tools that reduced the concentration of wealth after the Great Depression,” they write. “The same proven tools are needed today.” (N.B.: See Ed Kleinbard of USC for a related take.)
Modern-day conservatives will shudder at the Saez-Zucman program, but it would fit well within the world view of the Founding Fathers. Thomas Jefferson and his fellows were deeply hostile to the accumulation of great wealth, especially by inheritance. In a famous 1812 letter to the printer Joseph Milligan, Jefferson acknowledges that “the overgrown wealth of an individual [may] be deemed dangerous to the State.”
In economic terms, he wrote to James Madison, “whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right.”
And in his autobiography Jefferson wrote of the bills he had advocated or passed to form “a system by which every fibre would be eradicated of antient [sic] or future aristocracy; and a foundation laid for a government truly republican.” His goal was to “prevent the accumulation and perpetuation of wealth in select families, and preserve the soil of the country from being daily more & more absorbed in Mortmain” (that is, the perpetual ownership of real estate by a church, corporation, or other legal entity).
Jefferson was in many ways a modern man, but his goals have come to naught, in part because the very legal measures he advocated have been dismantled by conservatives acting, supposedly, in his name. The aristocracy is again on the rise, and the republic and its economy are very sick.
While Emanuel Saez points out that “increasing concentration of wealth (the ownership of valued assets) feeds on itself, becoming ever more difficult to remedy,” the article fails to focus the necessary policies to broaden OWNERSHIP participation. The authors do though get the following realization correct: “As the bottom 90% struggle to make ends meet on stagnant incomes, they’re unable to accumulate savings. “Today, the top 1% save about 35% of their income,” the authors write, “while bottom 90% families save about zero.”
The problem is rooted in the archaic notion that savings are required to finance economic growth and attain ownership of valuable productive capital assets. Emanuel Saez, Gabriel Zucman, Michael Hiltzik, Federal Reserve Chairwoman Janet Yellen, other Federal Reserve Board members, influential economists and business leaders, as well as political leaders, should read Harold Moulton’s “The Formation Of Capital, ” in which he argues that it makes no sense to finance new productive capital out of past savings. Instead, economic growth should be financed out of future earnings (savings), and provide that every citizen become an owner.
The Federal Reserve is the instrument that can abate wealth inequality by providing capital credit loans at zero “0” percent interest to local banks who would in turn lend this interest-free money (at no additional cost, except for minimum administration fees) for the specific purpose to finance the creation of new wealth-creating, income-producing capital assets to grow the economy. Who should benefit from such interest-free capital credit should be EVERY child, woman and man, who would then be empowered to acquire over time significant portfolios of self-liquidating capital asset investments in the American economy with the capital credit loans repaid out of the FUTURE earnings of the investments.
Broadening capital ownership would “increase the pay of the least advantaged workers” (and non-workers) who would be contributing their productive capital to the expansion of the the economy.
But Saez and Zucman are focused on redistributive policies such as higher taxes on capital income and on inheritances. They completely ignore the necessity to broaden capital OWNERSHIP as part of an incentive package that eliminates corporate and capital gains taxes in exchange for creating new owners and, as a substitute for inheritance and gift taxes, imposes a transfer tax on the recipients whose holdings exceeded $1 million, thus encouraging the super-rich to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled.
As the economy continue to grow, even at present-day anemic rates, people are going to OWN the non-human factor––tools, machines, robotics, computerization, etc–– of any economic expansion, which as time progresses will continue to be the MAJOR input factor in ANY economic expansion. Just arguing for the opportunity to subsist on the crumbs of the expansion attained through further taxation of the wealthy and expressed as jobs, much of which will be government funded from the tax extraction, is at the heart of the injustice and non-equal opportunity that pits workers (non-owners) against owners and further widens wealth inequality.
What Saez and Zucman should be advocating is the passage of the Capital Homestead Act. That would enable every child, woman and man to gain equal access to capital credit for generating their own earned ownership income to engage in what Aristotle called “leisure work.” Saez and Zucman and other academics and politicians should take the time to study seriously the Louis Kelso-Mortimer J. Adler paradigm as presented in the free down-loadable books and articles on the Center for Economic and Social Justice “virtual library” at http://www.cesj.org. Then hopefully Saez and Zucman will come to understand that a growing percentage of every citizen’s income and wealth accumulation could conceptually result from the Just Third Way’s reforms to democratize personal opportunities to participate as an owner of future capital growth and non-coercive transfers of existing capital’s ownership opportunities. The Just Third Way strategy would enable a growing number of citizens to be educated, participate in and thus earn a sufficient and increasing capital income. As the market economy continues to become increasingly capital-intensive, more and more citizens would become economically liberated to engage voluntarily in the unpaid and unlimited work of civilization. This would also reduce the cost of education at all levels, and certainly, when implemented increase family choices over education and health benefits.
Saez and Zucman and others should also be aware that artificially raising the minimum wage is a strategy that necessarily results in higher costs of production, raising prices and thus hurting the poor more than the non-poor.
What is needed and necessary is a new policy direction specifically aimed at creating new capital owners simultaneously with the growth of the economy. The financial mechanisms used MUST NOT REQUIRE past savings and instead be available as a unique and exclusive opportunity for American citizens to access insured, interest-free capital loans for the specific purpose of acquiring newly issued full-dividend earnings payout stock in corporations growing our economy. In other words, we need to use a credit mechanism by which the loans are paid for with the future earnings generated by the creation of new capital assets, which result in products and services needed and wanted by Americans, which then further propels the economy’s growth. Such a policy program is what the Capital Homestead Act would achieve.
The Federal Reserve, which has been largely responsible for the powerlessness of most American citizens, should set an example for all the central banks in the world. Chairwoman Yellen and other members of the Federal Reserve need to wake-up and implement Section 13 paragraph 2, which directs the Federal Reserve to create credit for local banks to make loans where there isn’t enough savings in the system to finance economic growth. We should not destroy the Federal Reserve or make it a political extension of the Treasury Department, but instead reform it so that the American citizens in each of the 12 Federal Reserve Regions become the owners. The result will be that money power will flow from the bottom up, not from the top down––not for consumer credit, not for credit that doesn’t pay for itself or non-productive uses of credit, but for credit for productive uses to expand the economy’s rate of growth.
The Federal Reserve needs to stop monetizing unproductive debt, and begin creating an asset-backed currency that could enable every child, woman and man to establish a Capital Homestead Account or “CHA” at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. Steadily over time this will create a robust economy with millions of “customers with money” to purchase the products and services that are needed and wanted.
Our leaders need to put on the table for national discussion this SUPER-IRA idea and the necessary reform of our tax policies that would incentivize corporations to pay out fully their earnings in the form of dividend income and issue and sell new stock to grow. The CHA would process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets,
The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets with future marketable products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy.
Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance (ala the Federal Housing Administration concept), but would not require citizens to reduce their funds for consumption to purchase shares.
Essentially, the pressing need is for everyone in a position of influence to encourage President Obama to raise the consciousness of the American people by making his NUMBER ONE focus the introduction of a National Right To Capital Ownership Bill that restores the American dream of property ownership as a primary source of personal wealth.
This is the solution to America’s economic decline in wealth and income inequality, which will result in double-digit economic growth and simultaneously broaden private, individual ownership so that EVERY American’s income significantly grows, providing the means to support themselves and their families with an affluent lifestyle. The Just Third Way Master Plan for America’s future is published at http://foreconomicjustice.org/?p=5797 and the platform of the Unite America Party is published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.
The Capital Homestead Act (http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/) would grow the U.S. economy faster in a non-inflationary way, create new private sector jobs, finance new productive capital and provide capital incomes for all Americans from the bottom-up by enabling them to own trillions annually in new capital formation and transfers in current assets . . . without taking private property rights away from billionaires and multi-millionaires over their existing assets.
http://www.latimes.com/business/hiltzik/la-fi-mh-us-income-inequality-is-bad-20141024-column.html
http://www.latimes.com/opinion/readersreact/la-le-1031-friday-wealth-inequality-20141031-story.html
http://www.huffingtonpost.com/2014/10/20/middle-class-wealth-shrinks-1940s_n_6014874.html
http://www.huffingtonpost.com/2013/09/18/union-membership-middle-class-income_n_3948543.html
