In this post, I will discuss the issue that has me very concerned for America’s future – income or wealth inequality. In the opening to this series, I mentioned that we have the most powerful economy in the world but many people are being left out of the American Dream. What happened? Unless you are one of the top 1%, you probably agree that this inequity is a problem. However, whenever you hear anyone seriously try to have a conversation about the issue, you hear labels like Income Redistribution, Economic Controls, Class Warfare, etc. Class warfare is not just something the poor may decide to wage on the rich. It is something that has been going on for decades and the poor have already lost. Our government spends all its time arguing about political differences concerning peripheral issues instead of putting a laser focus on the single most important issue –rebuilding America’s middle class and restoring the American Dream. According to a study by the Boston Consulting Group, the top 1% now own 39% of the world’s wealth. The bottom 50% own only 1% combined! That’s obviously a big disparity – but does it matter? The following is my understanding of why this disparity is a bad thing. My understanding is composed of several components. The super-wealthy can’t and don’t spend even a small percentage of their money. Most of their money is tucked away in financial investments. Here is where I need help. Some of those investments are made in projects or programs that create jobs for people. Some of the money simply makes money at some favorable interest rate. A lot of the wealth is ‘parked’ in interest-paying off-shore accounts. Two of those three categories take money out of the economy as a whole and stash it away as a part of some global egomaniacal competition among the super-rich. Many of the super-rich are satisfied with staying in the political and public background. The rules work for them, so as long as others allow the existing rules to continue to govern the system, they are satisfied. Some of them use their wealth to pursue social, religious and political agendas. America is in danger of becoming an oligarchy. During the past few elections Conservatives have accused the Liberals of wanting to engage in income redistribution – as though it is a bad thing; and perhaps it is. Over a couple of decades, the very wealthy have used their money and power to change the rules of the game to redistribute income from the middle class to the very wealthy. In 1970 the average CEO earned $25 for every dollar the average worker in the company made. By 2000, that ratio was $90 to $1. In 2013, it was about $350 to $1. (The largest was $1,795:1 for the JC Penny CEO, Ron Johnson – and the company lost $3.5B in a year and a half resulting in the CEO’s firing. Looking at the issue from the other end, the bottom 80% of the population owns only 7% of the financial wealth. In 2005, the combined wealth of the 400 wealthiest people in the country was greater than the combined wealth of the 155,000,000 other US Citizens. In politico-speak, the Republicans consistently referred to these wealthy people as job creators. It’s just not true. The vast majority of their combined wealth is invested in making more wealth, not creating jobs. Nick Hanauer in his TED Talk titled Rich people dont create jobs (youtube/watch?v=CKCvf8E7V1g ) does an excellent job of making this point. America is facing a form of tyranny by the rich. Thomas Jefferson feared this possibility and even forecast it in 1779 “. . . experience has shown that even under the best forms (of government), those entrusted with power have, in time, and by slow operations, perverted it into tyranny.” It’s time to consider changing the rules to a different model of income redistribution. Let’s make these most wealthy citizens act like the job creators they are pretending to be. The wealthiest 10% should pay a much heavier tax. The revenue generated from these taxes would be spent on rebuilding America’s crumbling and outdated infrastructure and public services. The larger tax burden would not make even a minor difference in the quality of life for the super-rich; but it could make a huge difference in improving the quality of life for the rest of the citizens. I am not talking about some ‘Robin Hood’ (Take from the rich and give to the poor.) type of program. We would not be giving the money away to people just because they need it. We would be building things (power and water distribution grids, highway and bridge construction and maintenance, water and sewer systems, renewable energy facilities, schools, etc.) and providing essential services (teachers, firemen, policemen, healthcare, national research labs, etc.). These are all things that are needed for maintaining and improving every citizen’s quality of life. All of the projects create real productive essential jobs; reducing the unemployment rate and lessening the strain on social safety-net programs. Most of the jobs would not be ‘government jobs’. The infrastructure rebuilding would be done by private contractors paid for by tax dollars. These federal programs are the first step in what is referred to as the multiplier effect. I’m going way over my head here, so I welcome your corrections if what I say is flawed. When the federal government pays a contractor for a project, the contractor hires and pays workers to do the job. The contractor also purchases supplies from companies that pay the people who produce them. These workers then spend their pay for essential goods and services. The people providing those goods and services take their income and they buy goods and services. All of the people who are being paid are paying taxes on their income and their purchases – contributing to the next round of federal programs. Many of these workers have come off from the social safety-net programs like unemployment and welfare, saving tax dollars and improving their self-image and feeling of personal value. In addition to infrastructure jobs, the country needs to reinvest in its public-service jobs like education, police and firemen, universal healthcare, basic research, etc. All of these are real jobs that improve the quality of life for everybody. They also are subject to the multiplier effect. The result of this type of program after a few years will be the rebuilding of the middle class and the restoring of the American Dream. Please tell me what is wrong with this model – other than the fact that the super-rich have control of the system and won’t allow it to happen. Congress has been totally ineffective at doing anything. It is controlled by the people with money. The super-rich wrote the bills and regulations through lobbyists and think tanks and paid the elected representatives to pass them. Now that the rules favor the fat cats and allow them to amass huge wealth, it is in their interest for Congress to do nothing – so it does. The system is broken. There are some well-meaning people in congress, but the structure and policies they must follow allow the minority to prevent anything from getting done. I don’t believe it is either the Republicans or the Democrats who are at fault. Both sides have some legitimate concerns and ideas. The problem is that the rich and powerful have control of enough votes to prevent anything from getting done. Who wins when Congress does nothing – those who created and like the present rules! Please tell me if you agree or where I am wrong.
Posted on: Tue, 19 Aug 2014 03:25:22 +0000
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