Sunday, August 18, 2013

Income Inequality Per Se Is Not the Problem


In an ideal world, at least in my mind, you would not have the extremes of rich and poor.  But people have different intelligence levels, different talents, and different aptitudes which, even with all other things being equal, would translate themselves in the real world to significant disparities in earning opportunities.  Add to that that all other things have never been equal and we have the situation in which rich and poor have always been a part of human existence and it will likely always remain so.  But that fact in and of itself is not the problem.

The problem is how the rich, or I should say the very rich, the top 1%, got there and are increasing their share of the economic pie at the expense of the rest of us.  It’s a classic case of exploiting those less powerful to make your own fortune.

“Oh come off it,” you  may well say.  “That’s a bit extreme.  A leftist diatribe.”  Alright, it may be, but lets see what the facts show.

The very rich, or those they inherited their money from, get there typically through a combination of two things.   First, they engage in an enterprise which in one of various ways exploits, which is to say unfairly takes advantage of, others for their own personal benefit.  (This does not gainsay the innovative value or quality of the product or the management excellence of the enterprise.)  Second, they influence Congress to slant the tax laws in a way which benefits themselves at the expense of everyone else.  

The first point is understood by anyone with an open mind as examples are everywhere.  Whether one looks at the classic robber barons of the early industrial revolution (and most corporate CEOs today) or the masters of finance who orchestrated the toxic investment instruments that resulted in the 2008 market crash, the very rich have achieved their wealth and power by exploiting others, whether it’s their workers or whether it’s investors (yes, they even prey upon their own clients) or whether it’s gullible people looking to buy a home. 

“How can you say that workers are exploited?” you may ask. “They have their contracts and if there’s a union, collective bargaining.”  Decades ago, when industrial jobs were plentiful and unions were strong, your point would be well-taken.  And in that era, the disparity between CEO compensation and worker compensation, although large, was far narrower than today.  Blue collar workers were solidly middle class, except in the South where there typically were no unions and workers were exploited.  

In today’s global economy, workers have no power, even if there is a union, because the job market is so bad and the owners have the practical opportunity in many cases to close and open up business in a lower-cost foreign country.  And so workers are taken advantage of because management and stockholders have only one concern ... improving the bottom line.  If the choice is between maximizing profits and giving the workers a higher wage, the choice will always be to maximize profits.  

As a result, workers’ wages have stagnated over the past few decades and if their jobs have gone and they’ve found other employment their wages have typically fallen.  In both cases, the working class has been left ever poorer, just treading water above poverty, as costs continue to rise.   While the CEOs and management keep getting richer.

But it is in the impact of the tax laws which have been passed to enable the rich to become richer (supposedly to grow the economy through increased investment and the “trickle down” effect, although that’s been shown to be nonexistent; the economy has not exploded in growth as we were promised) that the hidden and less known harm of income inequality has been felt.  The reason is quite straight-forward.  Lower taxes = less revenue for the government.

Because the tax breaks that the very rich and their corporations receive have greatly reduced tax revenues (15.8% of GDP in 2012, the lowest since 1950, compared with the high of 20.6% in 2000), there is less money available for government, whether federal, state or local, to accomplish their responsibility.  That responsibility as stated in the Declaration of Independence is to “secure the rights” of all people to life, liberty, and the pursuit of happiness.   

Government has for much of the 20th century tried to meet that responsibility and ensure the general welfare through programs that provide quality education for all, support for the poor, a sound infrastructure, and all the basic services that government needs to provide and pay for in order for the country and individual communities to functions effectively and efficiently and thrive.  

But with significantly reduced tax revenues, all levels of government are finding it necessary to reduce services and quality in almost every area of government activity (and no, the problem is not principally the recession but tax cuts for the rich and corporations as well as the holy cow of military spending).  This has not only resulted in exacerbating the impact of the recession, increasing the abjectness of those already living in poverty and throwing more people and families into poverty.  Through cuts in services, it is making the already disappointing experience of many of our citizens in the areas of education, health, income inequality, social mobility, and equal opportunity (see my post, “American Exceptionalism - A Myth Exploded”) even more dismal.

It is no crime to be rich and successful.  But to be rich and successful at the expense of others, especially those with less power, is a social crime.  And it is a violation of the American social contract under which we all as citizens share responsibility for government’s efforts to promote the general welfare, each contributing according to his means, which unfortunately is more violated today than honored.  

America has enough wealth to ensure that those who are poor, and everyone else for that matter, have access to good health, education, and housing and do not go hungry.  America has enough wealth to insure that the infrastructure on which our viability depends remains strong and world-class.  And still allow people to be quite rich.

If America continues on this path where the rich feel entitled to more and more and where they have no concern and feel no responsibility towards their fellow citizens, let alone employees, then America’s greatness will become a thing of the past.  Not because China or some other country vaults into first place as the largest economy in the world.  But because America will have failed its own people, its own heritage, its own promise.