The Best of Times or the Worst of Times?

best and worst

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way–in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.” Charles Dickens, A Tale of Two Cities

Which of the following is true? (A) The last 25 years have shown amazing advances in the lives of mankind across the world; or, (B) The last 25 years have seen developments which seriously threaten the lives of many across the world. Which?

In his impressive new book (The Great Surge, the Ascent of the Developing World), Dr. Stephen Radelet makes a credible case for A. I had the privilege of meeting Dr. Radelet over dinner this week, and I was impressed.  I’m sure all his findings will stand the test of verification by anyone similarly encouraged and wishing to check. He cites 1 billion escaping extreme poverty since 1990, dramatic reduction in deaths of both children and mothers in childbirth, a huge increase in the number of girls getting an education, a reduction in the number of civil wars, an increase in the number of democracies, and more. His message is that we are far better off now then ever before, and that the trends are almost all positive.

I have also been reading Robert Reich’s new Book, Saving Capitalism. Those who follow this blog know that I have been focused on the issue of inequality for some time, since studying it in some detail in London in a graduate program in 2012/3. This is a phenomenon which is very troublesome, approaching dangerous levels in some major parts of the world.

In fact, here in the US (remarkably similar to China), inequality has risen to the levels of what is known as the “robber baron era,” around 1925. Here is what has happened to the percentage share of US earnings and wealth for those at the top of our income and wealth, just since 1960, accelerating when neoliberal economics began to gain control and when globalization began its third and rapid rise, around 1980:

Share of US Income

1960                   2015

Top 1%:      10.03%              21.24%

Top .1%:       3.25%              10.26%

Top .01%      1.17%                4.89%

Meanwhile, average hourly wages of $19.18 in 1964 rose only to $20.67 in 2014, in constant 2014 dollars–meaning that hourly workers had only $1.49 in increased wages per hour across 50 years (Pew Research)! Our hourly workers’ share of the increasing pie when to the top of the income scale, as shown in the chart above (from World Wealth and Income Database).

Too much of the pie is going to corporate chieftains, whose pay has risen from 20 times those of the workers in 1965 to 303 times that of the workers today (Fortune, 2015). And it cannot be true that American CEO’s are worth $5 million more than those of Switzerland, and $9 million more than those of the UK (Washington Post 2014). Certainly there are competent people who do not require the $13 million we pay annually, to do an excellent job as CEO. Studies have shown reverse correlation to highest pay and highest performance, so we know the pay is not properly tied to performance.

Some people argue that inequality is simply natural and good–this is simply how the free market rewards those who are most competent. But as Dr. Reich explains, it is far from natural. Conservative powers have found they can galvanize many in the middle class by pitting government against freedom in their political messages. But the mechanisms that enable the free market to be defined, are all crafted in government. This is done through legislation and regulation, how law is interpreted, and how penalties are assessed. Without government, there is no free market, no freedom, just a lawless and dangerous landscape. Conservatives at the top fully understand this, and are really not opposed to government–they recognize that government is critical to assure their property and other rights, and they work hard to craft it as they desire, with squadrons of lobbyists and lawyers.

With the recent shocking Supreme Court decision in Citizens United, the gates were opened for big money to spend just as much as they please to assure the candidates who agree to their desires get elected. The Nation reports that the Koch brothers plan to spend $900 million on this presidential election.

Some people argue that any tinkering with rewards will destroy motivation so fundamental to the US ethic. But, Thomas Piketty points out in his best selling 2012 book Capitalism in the Twenty-First Century,  that we have had periods with much higher tax rates for the wealthy (as high as 90%). The economy prospered and new businesses starts were high during such times.

Why should we be concerned with increasing inequality?

  • It’s morally unfair.
  • It relegates a large number of people to subsistence, when there is enough for all, if shared more equally.
  • More equality is good for the wealthy too, in the long run–consumers with a little more money spend more, and they expend greater effort if they too can hope for a salary increase.
  • The logical extension of increasing inequality is protest, leading to revolution and bloodshed.
  • We are in the process of destroying an important element of the American ideology–that there is prosperity for all. We are at risk of becoming an oligarchic nation, where a very few take increasing spoils, while the masses suffer.

We don’t ask for 90% effective tax rates on the wealthy–but 14% effective (in many cases) is terribly unfair (Mitt Romney, 2011). Warren Buffet said his tax rate was lower than his secretary’s. We just don’t want workers in San Francisco to have to support a family on minimum wages here. That’s less than $30,000 annually. We have one of the highest minimums in the US, and people cannot live on that in our beautiful city.

With all the resistance to any form of redistribution, no one has made a cogent argument that these trends will correct themselves without government intervention. Dr. Piketty explains in his book that the reason the US experienced a long period of relative egalitarianism in the 60s and 70s was due to legislation–government actions taken in response to the Great Depression and World War II. He fears that without such a cataclysmic economic shock, there is no reason to expect that “normal politics” will result in any government action to move us gradually toward improving inequality.

And, as to “redistribution,” a word that even Bernie Sanders will not use (because it can be interpreted as cavalierly taking from those who earned it and giving it to those who want to live off the government), the fact is that we have enormous amounts of redistribution going on now–but in the wrong direction. Just consider carried interest tax benefits to hedge fund managers, protections legislatively given to gun manufacturers, and patent extensions given drug companies and technology companies. This is redistribution. And redistribution in the reverse direction does not mean handouts–we could start with infrastructure and schools, which benefit even the wealthy. Fixing some of these “loopholes” would be another way to slow the growth of inequality.

Dr. Radelet said of those amazing advances he documents, the most successful were the result of collaboration between private industry, government, and philanthropy. With respect to inequality, none of these three forces even take a strong stand that inequality is a problem–yet. Talk is always cloaked in “opportunity” instead, and conservatives argue that nothing more than increased economic growth is necessary to solve that problem. We have had periods of strong economic growth since 1960, and inequality has only steadily increased during these periods.

Dr. Radelet is not seeking instant fame by publishing an extremist view that all is well in the world. He identifies many of our major problems, such as unresolved climate change, population growth and resource inadequacy in the developing world, wars over resources, terrorism, and more. He also offers three future scenarios in his final chapters, one of which is not pretty.

Both A and B are true. Yes, the world has improved in some very important ways. Even the poor of the world benefit from the remarkable advances in medicine and education, as well as technology, especially since 1990. These advances deserve celebration and there may be justification to believe they will continue.

But, No, we cannot conclude that the trends of major imperatives in the world are all positive. There are still winners and losers. Too much is won by big pharma, too little shared with the neediest who cannot afford the cost. Too much is gained by the creators of technology, too little shared by those who work for them at the lower levels. Increasing inequality is a dangerous issue, leading to starvation, homelessness, unrest, and eventually to retribution by the underprivileged against the privileged.

I continue to argue that the most dangerous risk for the US is the continued rise in inequality. It leads to danger for all of us, and there is no solution short of government redistribution in one form or another–which does not see remotely possible. It is time for us to agree to start moving the pendulum back.

 

 

 

 

 

 

 

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