U.S. Income Inequality is Bad. But Wealth Inequality is the REAL Problem


#1

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.

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Not trade. Not e-mails. Not Obamacare.

This is the real problem we should be very concerned with. Because it is REAL.


#2

Don’t you think, even if just for a second, that lower taxes across the board would be the best thing to bolster savings and decrease income inequality?

The less that people are taxed the more money they have to spend on out on the economy.incom inequality would decrease if more Americans earned more and were able to spend more.


#3

Probably the most common charge against capitalism is that it creates wealth and income inequality. The frequency of this allegation testifies to the fact that it strikes a chord with large numbers of people. It’s so believable. After all, who can deny that Bill Gates, Warren Buffett, and bond traders each have vastly more money than ordinary folks do?

Friends of capitalism typically concede that it promotes greater wealth inequality. Even Ludwig von Mises wrote that “inequality of wealth and income is an essential feature of the market economy.” But, like Mises, pro-market scholars go on to point out that inequality is the price paid for the immense and widespread prosperity unquestionably made possible only by the free market. “Sure, there’s more wealth inequality,” the concession goes, “but even the poorest people are much better off with capitalism than without it.”

Let’s not be so quick to grant that capitalism creates greater wealth inequality.

Do a mental experiment. Imagine resurrecting an ancestor from the year 1700 and showing him a typical day in the life of Bill Gates. The opulence would obviously astonish your ancestor, but a good guess is that the features of Gates’s life that would make the deepest impression are that he and his family never worry about starving to death; that they bathe daily; that they have several changes of clean clothes; that they have clean and healthy teeth; that diseases such as smallpox, polio, diphtheria, tuberculosis, tetanus, and pertussis present no substantial risks; that Melinda Gates’s chances of dying during childbirth are about one-sixtieth what they would have been in 1700; that each child born to the Gateses is about 40 times more likely than a pre-industrial child to survive infancy; that the Gateses have a household refrigerator and freezer (not to mention microwave oven, dishwasher, and radios and televisions); that the Gateses’s work week is only five days and that the family takes several weeks of vacation each year; that each of the Gates children will receive more than a decade of formal schooling; that the Gateses routinely travel through the air to distant lands in a matter of hours; that they effortlessly converse with people miles or oceans away; that they frequently enjoy the world’s greatest actors’ and actresses’ stunning performances; that the Gateses can, whenever and wherever they please, listen to a Beethoven piano sonata, a Puccini opera, or a Frank Sinatra ballad.

In short, what would likely most impress a visitor from the past about Bill Gates’s life are precisely those modern advantages that are not unique to Bill Gates–advantages now enjoyed by nearly all Americans.

And while we modern Americans focus on how much more money Bill Gates has than the rest of us, our time-traveler would likely find the differences separating Gates from average Americans to be much smaller than the gargantuan differences between his own pre-industrial life and that of today’s ordinary Americans.

He would also likely find the wealth differences between ordinary Americans and the richest Americans trivial compared to the differences between most pre-industrial folk and the royalty who ruled them.

Before capitalism, royalty and the nobility had exclusive access to a deep pool of servants and amenities that made their lives vastly more agreeable than those of ordinary people. For example, monarchs spent no time washing clothing; their servants washed it for them. When dusk came and indoor lighting was needed, the rich just snapped their fingers and servants lit the chandeliers and candles of the great houses–and these or another set of servants emptied their masters’ chamber pots when necessary. Whenever the king fancied listening to a string quartet or watching a play, his court musicians and actors performed for him. If he or a powerful noble wanted to send a message to someone miles away, a messenger galloped off to deliver it. Needing to bathe, members of the royal household counted on servants to draw and heat the water for their baths. And only the rich could afford books.
A Flick of the Wrist

In modern America, no such differences separate the rich from the rest of us. We have automatic washing machines and clothes dryers (and inexpensive neighborhood laundries) that rescue us from the time-consuming, backbreaking, and dangerous labor of washing our clothes the pre-industrial way. When we need light, or want to listen to music or watch a movie, a flick of the wrist brings light instantaneously and a touch of a button brings expert performances to us in the privacy of our homes. When we wish to gossip with a friend 3,000 miles away, we do so effortlessly. Each of us bathes or showers whenever we want simply by turning on hot and cold running water from our taps, and our modern version of the chamber pot is emptied whenever we wish by indoor plumbing. Our homes are full of books.

The fact is, material benefits enjoyed in the past only by the superrich are, in today’s capitalist societies, enjoyed by nearly everyone. This undeniable fact demolishes accusations that capitalism creates inequality.
https://fee.org/articles/equality-and-capitalism/


#4

Jeff you raise a common sense question one would think your premise is correct no? for most of us it would be, those of us who tend to have had some success and know the importance of investing and building something that we migh call a legacy.

but for 47% of Americans they don’t pay any taxes already spending most 100% of what they make into the economy already.

the problem is that 47% simply does not make enough money to make a difference no matter what they do they will NEVER move up. They can work 20-30-40 years and a few will progress out of the swamp, maybe 10%. Another 30% will move to get their heads above water into “Lead” type positions still not professional level, still hourly, but they will make a decent amount maybe $50-$65k after a significant time.

The rest will never move past $15 and hour. some will be because they have no desire, drive, intellect, etc., but the majority will be because they simply did not get advanced training and they just don’t know what to do, so they will languish.

And the problem with this scenario is WE end up paying for all of them in thei old age.

NOW…I do agree we obviously should not tax more than needed and it is much better for people to spend directly into the economy than give their money to the government.

But that’s not the problem.

The problem is we need to change how we pay people in this country.

And we need to mandate some kind of employer sponsored savings based on profit and/or equity so that everyone at every level can have the opportunity to build some wealth and even pass it on so the next generations don’t have to start as if they are the first generation all the time.

Excellent question, Jeff!


#5

we can see factually that is simply wrong. I’m not trying to shut down the conversation in fact I agree our ancestors would be impressed that even lower middle class enjoy a life better, safer, longer, than some royals ever did. but that is not the point. As technology evolves it makes sense we would benefit in all ways.

But we are not accumulating and certainly not transferring any more .wealth

which is why I have made it my personal goal to leave my kids a legacy.

I have trusts for them plus I set up a Roth IRA for each and at each special event throughout the year I don’t buy them any new electronic gadget IPhone or such.

I make a contribution to their Roth IRA, I print out a certificatie frame it and present that to them.

That doesn’t sound like your typical give me your money Liberal does it?


#6

So on the one hand, you buy into the notion that rich people should be unable to pass wealth on to their children- wealth on which they already paid heavy taxes, On the other hand you are preparing to pass on your wealth to your kids. Hmmm.


#7

that was your takeaway???

and you want me to take you seriously?


#8

But there are levels where we need to punish people.

The big exception coming soon, Buffet is donating his wealth to the Gates foundation avoiding all Federal Income Taxes.


#9

I was pointing out that your belief that wealth should not be passed on is at odds with your own behavior. By the way I admire that you do that with your kids; you are teaching them that money actually has value- most parents are fools with money and their habits are absorbed rather than passed on to their children. As to your taking me seriously, that is really up to you.


#10

There is a new iteration of the data on income inequality from Piketty, Saez and Zucman. It specifically addresses some of the concerns of conservative economists that tried to call into question their earlier studies. The picture is not pretty and I think this one clambers to the top of the pile in any discussion of what the next big issue for progressives will be. However, I will say that this has been a multi-decade problem in how it developed and to successfully address it will be a multi-decade effort. The problem is, can it be addressed in any other way than calling out the people with pitchforks?

Here is a link to the original article and also a Vox explainer.


#11

So what’s the solution? The uber rich have a firm grip on the means of production and on the government. Unions are fading fast. What do we do?


#12

I think fairness is the word that should be used the most. The details are complicated. A few ideas or principles:

  1. Fairness in taxation - income from employment and from investments should be taxed at something much closer to the same rate. Some of the distortions in our current economy are that capital gains are taxed much lower than dividends and wages. Therefore the management effort is put into pushing up the stock price rather than making a profit. (Yes, I know they are related, but…)
  2. Inheritance taxes - for those who are afraid that by providing a safety net for the poor undermines their work ethic, we should help the rich instill a stronger work ethic in their offspring by a more effective inheritance tax.
  3. Raise wages - I am ambivalent about whether this should be done through making it easier to form unions or through legislation. In a consumer economy, consumers need to have money in order to consume. The German model where worker associations sit on corporate boards seems to work for them.
  4. Crack down on tax havens - this would require a multinational effort.
  5. Get serious about monopolies and antitrust. In the gilded age, prior to Teddy Roosevelt, there was as much concentration of wealth as there is today.
  6. Maybe encourage ownership of stocks. I suspect this is going to be more important as automation elimiinates more jobs. This, I know, is anathema to many, but it is one way to protect people against job loss.
  7. A concerted effort to inform people that we are all in this together and that rich people in more equal countries are actually better off on a whole range of social indicators than rich people in more unequal countries. This case is made by Wilkinson and Pickett, economists from the UK. I put in a link to their website and the core publication ‘The Spirit Level’, a book that conservatives hate, but the main refutation is written by someone who got his start doing a screed against anti-smoking campaigns.

#13

Triple the taxes on the wealthy.
The wealthy scramble to to leave the country taking their wealth with them

Refocus on the upper middle class and double their taxes.
The upper middle class scramble to leave the country taking their wealth with them.

Everyone left have little and barely enough to survive and are equal in poverty as all investment capital has left the country.

I love it when a plan comes together.


#14

Seems logical and rational, not all that complicated unless you factor in the lack of motivation to do this by those who create and implement legislation.


#15

If tax revenues were more wisely spent, people would not find them so onerous. The problem is one of perception- and not without reason.

Trillions spent on the ‘war on poverty’ and all the stats are even worse. The go - to excuse is to blame ‘greedy Republicans’ for not ‘adequately funding it’. We waste billions (tens if not hundreds) paying for the broods of illegal aliens. “oh but they clean our toilets” guess what, in the East that sort of work is mostly done by African Americans in the East, and illegals in the West. Taxpayers get the bill for their healthcare, etc.

Our infrastructure is crumbling, our schools are pathetic, but we focus on Russian hacking and which restroom some screw up gets to use.

Bottom line- if you want higher taxes- you need to make a viable case that the money won’t be pissed away on parasites of every imaginable type. Not that many people really think about bilionaires, but they sure don’t like moochers on welfare, fake disability, etc.


#16

Or put in a more realistic way:

Seems logical and rational, not all that complicated unless you factor in the lack of motivation to do this by those who create and implement the jobs, innovation and rising standards of living with their hard earned money.


#17

Unions are a choice of the groups of people and they reject unions. Do you suggest that unions the law of the land regardless of the individuals choice?

The nation’s 100 highest-paid union bosses were paid a sum of $52.1 million during unions’ 2012 fiscal years, based on disbursements reported to the U.S. Department of Labor. This amount does not include insurance or retirement benefits.

And the little people pay dearly for their leadership.

And you bitch about CEO’s.

Do you realize income is a factor of supply and demand?

Income is affected by the relentless continuance and increase of immigration? More people, lower wages especially entry level people like illegals. Yet many encourage more illegals in the US.

If 5 million working illegals were deported tomorrow it would create a labor shortage and a increase in wages.


#18

Very interesting article from the liberal Atlantic Monthly:


#19

From the article: “One such finding is that of Emmanuel Saez, the Berkeley economist and Thomas Piketty-collaborator, who has found that America’s 1 percent’s share of total U.S. income is roughly 20 percent.” The Brookings Institute’s paper said more like 18%

With regard to total wealth - no, sorry it’snot 95% liberals, “…from 1992 to 2012, the top 1 percent’s share of wealth rose by 6 percentage points to 33 percent. This is substantially lower than estimates by Saez and his colleagues, which estimate that the share of wealth held by the 1 percent is 42 percent.”

The left wants to demonize the 1% any way they can. They will use pictures of magnates on yachts to represent the 1% next to images of homelessness and squalor to represent the 99%. Most of those in the 1% are in their 60’s and 70’s, and their wealth is primarily their home and investments. The number of people who are multi millionaires in the US: “There were 9.4 million individuals with a net worth of $1 million to $5 million, 1.3 million individuals with a net worth of $5 million to $25 million and 156,000 households worth more than $25 million, the report says.Jun 23, 2017” (CNBC). There are 565 billionaires in the US.

Now, let’s steal all of it in the name of progressives ‘it’s only fair if somebody else pays for me’ movement. We net perhaps 250 - 300 billion. Woohoo, all the problems are now solved! Except they aren’t.

The federal budget is just south of 4 trillion dollars; the deficit alone will be far greater than all of the ‘miyonahs and biyonahs’ money combined.

Oh and after the ‘appropriation’ those people will close their businesses, and you’ll soon find you can no longer get the dumb stuff you live to buy.


#20

Not really, many on the left are IN the 1%. Btw, the last time I brought up a thread this stale I was censured. Maybe you timers don’t have to play by those rules.