Income and Wealth Concentration

 

Being against income and/or wealth inequality has become synonymous with communism in our public discourse. This charge is commonly made against liberals and progressives like Bernie Sanders. In reality nothing could be farther from the truth. Although on the surface, I could see why the argument would be tempting (aside from the obvious political rhetoric it generates). If someone is anti-inequality then it must naturally follow that they are pro-equality. While this is technically true, it’s that word “equality” that really throws a wrench into things, because it makes it sound like if you’re against income and wealth inequality you’re then for income and wealth equality. And from there it’s just a hop, skip, and a jump to “everyone makes the same amount of money.”

Of course that’s never what Sanders or his followers have argued. And as far as I know, nobody in this country–even the most progressive liberals–is arguing that everyone should make the same amount of money. Bernie and his supports were never anti-money or anti-wealth, they never wanted to punish success and redistribute the country’s wealth until everyone was equal. That’s a nice conservative political narrative, but it isn’t factual.

What we progressives need to do in order to take back the conversation is to re-label the issue. Instead of income or wealth inequality, I would propose that the term be changed to “Income and wealth concentration.” Because really, the problem isn’t that wealth and incomes aren’t equal–the problem is that too much of the wealth is concentrated in too few hands. 

Now we can debate until the cows come home what “too much wealth in too few hands” actually looks like, but I’d be willing to wager that any economist worth his or her salt and anyone with a modicum of common sense would agree that giving too much of the money to too few of the people is bad on several levels.

wealth-inquality-chart.jpg
This might be a good place to start defining what’s “too much”

First there are the social and political consequences. When too much wealth and income goes to a small amount of people, everyday folks are going to stop and look around and say, “Hey, I’ve worked hard my whole life and I just can’t seem to get ahead.” And that’s how you get this man as a presidential candidate:

nbc-fires-donald-trump-after-he-calls-mexicans-rapists-and-drug-runners.jpg
Pictured: a sack of shit with a tie and bad toupee.

And they have a point to a certain degree. Most people, regardless of political affiliation, would agree that the amount of work put in should be reflected in pay: the harder you work, the more you make. Makes sense, right? Well, take a CEO who makes $20 million a year and compare him to his janitor who makes $20,000. Does the CEO really work $19,980,000 harder than the janitor? Put another way, does the CEO work 1000x harder than the janitor? Well unless he works 40,000 hours a week, no.

Now obviously, that isn’t the same thing as saying that the janitor and the CEO should make the same amount of money. Clearly, the CEO has the job that carries more responsibility, that requires more education, experience, and expertise. The CEO should indeed make more money. But there’s no magic economic formula that justifies the dramatic differences in pay between the top brass and their workers. Making 1000x more than your employees is pure greed. If someone can mathematically demonstrate to me why the enormous gaps in pay we see are good, I’m all ears. Saying that income is tied to labor and value sounds great, but when you look at the work that people do and their pay, that clearly isn’t the maxim that we follow.

Which brings me to the economic reasons why wealth and income concentration is a big deal. At any given moment, there is a finite amount of money or resources in the economy. The economy is capable of generating new wealth and new resources, but at any one time there is a discrete amount of economic capital available. Now, what happens when more and more of the existing AND new capital is given to fewer and fewer people? The short answer is that it’s taken out of the economy, i.e. consumer purchasing power and spending stagnates or falls.

You know when someone says, “That’s more money than you could spend in one lifetime!” Well, yeah, that. Rich people don’t spend their money. That’s precisely why they’re rich. Give one man a billion dollars and he’ll save or invest most of it–give a million people $1,000 and they’ll spend it, pumping it right back into the economy. That’s why wealth and income concentration is important.

Now, we can have discussions about how to prevent those bad things from happening, and that’s where we’ll fall along ideological lines. What gets me the most is that even if we can’t philosophically agree on what exactly constitutes greed, we can very much objectively look at the quantitative data related to wealth and income concentration and the economy. I like data, so I’ll let the data do the talking:

u-s-_income_shares_of_top_1_and_0-1_1913-2013

Now I know that correlation doesn’t imply causation. But a trend is worth investigating. It seems to me like it would be a truly remarkable coincidence that those lines just happen to peak right before the Great Depression and again right before the Great Recession. It also seems like it would be an improbably huge coincidence that the flat part of those lines happens to fall during the booming decades between WWII and the Reagan years.

It’s, I don’t know, almost like when too few people have too much of the money the economy tanks, and when the wealth is less concentrated at the top we have a stable if not booming economy. Imagine that. Food for thought.

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4 thoughts on “Income and Wealth Concentration

  1. Wealth and money are finite? You seem to promote the zero sum fallacy again. Although you do state that wealth can be created and moved around. For a lot those people in the top 1 or even top 10 percent don’t remain their indefinitely. It’s as if your promoting the age-old idea that people simply remain in poverty, middle class or stay rich. Also, wealth and income are different. Wealth is appropriated mostly buy buying stock. There are plenty of people with blue collar type jobs or a part of upper managerial staff that have slowly bought stock over the course of several decades, putting them into those “upper” figures. However, it doesn’t mean that that have taken the wealth from others, or stole it. It means they used their own money and bought into those stocks. They grow over time.
    I am not disagreeing with you that there is or is not any wealth concentration. This is true for many industrialized and globalized economies. However, everyone and especially progressives, like to point out at the pie “hey, their slice of the pie is bigger and their slice continues to get bigger.” That is true, according to snapshot-style statistics. What is not taken into account is that people move up and down the ladder here. Although it could be better, my point is that this does not represent flesh and blood people. Instead, it just shows us what given percentage of the population has that amount of wealth within that fiscal year. It does not represent the actual people that were once in a certain category, then moved up or down the next year. The same is especially true with income. What is not represented is this…..an example: an older person getting out of their career for retirement and they start selling some stocks or gaining money from their stocks (capital gains for example, usually take decades to start making money). Keep in mind, they have to pay their own money to gain that money back…but usually decades later. Now, take that same person (probably a business owner with no PERS etc) decides to sell their business a few years later….or maybe the downsize or upgrade their house… all of these things will attribute to pushing them into those higher income categories.

    1. I realize that this isn’t a zero sum game, and that wasn’t what I was stating. What I was saying is that at any ONE moment there’s only so much capital available. Surely this isn’t disputable from a mathematical standpoint. Yes, new resources are always being created, but I don’t have access to all resources, and I only have access to the resources that exists at the time that I need them. If I go to the bank and ask for more money than they can loan, they can’t jsut go into the back room and print me more money. If my collateral isn’t sufficient for the bank, I have to take steps to make sure that it is. But my overall point is that access to resources is a function of time. But that isn’t the same thing as saying that economics in general is a zero sum game.

      I’m glad to see that we agree that things could be better. I think we would both agree that a personal income should be a reflection of the degree to which they work and apply themselves (in addition to the value that their job provides society or a company). It’s my observation, and the observation of others, that this increasingly isn’t the case.

      I wasn’t trying to argue that the wealthy shouldn’t see their piece of pie get larger. The problem, in my opinion, is that the slices are increasing at vastly different rates. While there are rational explanations for that (it’s easier for Tim Cook to turn a profit int he stock market than for me to do so), philosophically I think it leaves many people in our system disenfranchised.

  2. The problem is that you mention about wealth inequality in the first place without discussing the means in which they acquire it or how its appropriated. It was money they spent and because they did that, it helped that business/industry thrive. In response for this, they were rewarded. A lot of people who buy stock also lose out on money as well when the business/industry takes a dump. These things are only measured in a fiscal year. It does not represent losses, the age of the person or the time it has taken for these stocks/bonds to mature enough. If anything, it shows a good representation or people spending their money to help businesses thrive therefore hire more people for jobs.

    1. That’s true, there are people who do lose out on the stock market. But stocks aren’t the only way to garner increased wealth. They’re certainly the fastest way, yes. And then there’s still the issue of ability to use the markets. While technically anyone can invest, you yourself mentioned that not everyone has the capital. It’s difficult to get your foot in the door, so to speak, unless you already have a bunch of extra money laying around. Shouldn’t there be an easier way to generate or accumulate wealth? or income, since people do use stocks as a source of income (granted, that isn’t the majority of people).

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