Rising Economic Inequality…Does it Matter?

A new report from the Economic Policy Institute shows rising levels of income inequality in all fifty states. From 1979 to 2011, the top 1% saw their income rise 128.9%, while the bottom 99% saw their income increase by a mere 2.3%. To see how your state compares...Try this interactive from the Economic Policy Institute.

My friend and fellow futurist/scifi fan John Mauldin weighs in on the rising use of the word "inequality." He starts with what former Treasury Secretary Larry Summers was getting at in last week’s Financial Times op-ed:

"The share of income going to the top 1 percent of earners has increased sharply. A rising share of output is going to profits. Real wages are stagnant. Family incomes have not risen as fast as productivity. The cumulative effect of all these developments is that the US may well be on the way to becoming a Downton Abbey economy."

Mauldin comments: "That thinking assumes that if income inequality is rising, the top 1% is getting richer at the expense of the working class, because it assumes production still heavily exploits the relatively unskilled labor that most Americans can provide through hard work. It does not discriminate between value-added labor and value-added information and innovation. As I argued three weeks ago, the gains from the Information Age have been unevenly distributed throughout the economy. This is a structural problem in the sense that the productivity gains from the first two Industrial Revolutions are essentially thoroughly distributed through the economy. All workers saw their incomes increase along with increasing productivity for the 200 years of the Industrial Revolutions. Yes, entrepreneurs, innovators, and knowledge workers saw their incomes rise faster, but a rising tide of productivity lifted all boats.

"While populist politicians, mainstream economists, and envious market watchers would like to brand billionaire inventors like Tesla CEO and PayPal Founder Elon Musk, Facebook CEO Mark Zuckerberg, or eBay cofounder Pierre Omidyar as modern-day robber barons, they haven’t really robbed anyone. The emerging class of billionaires is creating value that did not exist before they arrived, and they’re doing it with relatively small teams of highly skilled knowledge workers. And they deserve every penny they earn.

"On the flip side, a growing majority of our labor force is responsible for a much smaller percentage of economic output. Their wages are stagnant because more people are competing for a shrinking number of jobs."

Mauldin admits: "Eighty-five people have as much money as do the poorest 3.5 billion. The top 1% have almost half the liquid wealth that has been accumulated in the world. There are 1,426 known billionaires, and gods know how many additional kleptocrats and people who have managed to maintain some semblance of privacy."

== Alas, it does not wash ==

Okay, here's my middle of the road response. I do not mind sharing the world with billionaires.  I know several on a first name basis -- and that plus $4 can get me a small latte. As long as they got their wealth on an even playing field, by organizing teams of engineers to deliver wonderful goods and services, “good on them.”  All of that applies to the tech moguls John gives as examples. Only…

… only John cherry-picked the very very best examples of self-made billionaires who got it all the way I just described.  Notice that he never mentioned the far greater numbers of New Oligarchs who leveraged inherited positions of dominance in an economic sector to squelch fair competition, or  Wall Street cheaters including those in the cartel-cabal of "seated members" of equities exchanges, or those who pay little or no royalties on resources extracted (with subsidies) from public lands, or those who slow down the economy by acting as Adam Smith described lords doing throughout history… passive "rent-seeking." Which utterly demolishes the lie called "supply side 'economics'."

Oh, there's one more thing about the list of examples of good billionaires that John supplied…. they are nearly all Democrats, who have joined Warren Buffett saying "raise my taxes" so that a society that's mostly flat and open can keep supplying the brilliant engineers who made… them… rich.

There is an IQ test for the rising aristocracy.  Can you spell the word "tumbrels" and do you really want to keep reflexively doing what dullard lords did in every other society before ours, pushing for oligarchy -- rationalizing reasons to ignore how much more power angry mobs will have in the coming era, than they did in 1789 Paris?

See my earlier postings: Does Inequality Matter?  and The Contradiction of Capital Markets.

== Help from the good/smart zillionaires == 

Oh, the here are smart moguls out there, who can spell and even see where the world is heading, and act in its (and their own) best interest!  I've long said that we, the people, have an ace up our sleeve, in this generation's struggle to prevent an oligarchic putsch.  That ace is the loyalty -- to our Enlightenment -- of many "good billionaires." See: Things Only a Zillionaire Could Do to Save America.

Those who got rich fairly, via great new goods and services developed by appreciated engineers and artists, and who feel grateful to an open and egalitarian and generally-flat society that is socially mobile and welcoming to fresh competition. Every generation -- especially of Americans -- has had to refresh markets and such, by retaining the competitive creativity of capitalism and the allure of wealth from innovative goods and services -- while finding clever ways to prevent a return to feudalism, while leveling the playing field just enough for the next wave of smart new competitors.  The balancing act recommended by Adam Smith.

See list of billionaires who have committed to the Giving Pledge -- to dedicate the majority of their wealth to philanthropy, including Paul Allen, Bill and Melinda Gates, Joan and Irwin Jacobs, Elon Musk, Nicola Berggruen, Mark Zuckerberg...

Now see this article about how one billionaire retired investor is forging plans to spend as much as $100 million during the 2014 election, seeking to pressure federal and state officials to enact climate change measures. The donor, Tom Steyer, a Democrat who founded one of the world’s most successful hedge funds, burst onto the national political scene during last year’s elections, when he spent $11 million to help elect Terry McAuliffe governor of Virginia.

All right, my admiration seems partisan.  Seems. But I don't like him because he's a democrat.  I like him because he wants to divert destiny from calamity. Because he can see what's in his own self-interest and his kids… and therefore ours. And the only place Rupert Murdoch has ever steered us has been over cliffs.

==And Finally==

There are glimmers of signs that some voices on the right want to move away from the murdochian madness.  I have cited the folks at The American Conservative.  Now comes a glimmer of cogency that was published from the belly of the monster itself -- the American Enterprise Institute, suggesting that conservatism "declare peace on the social safety net."  

I am boggled as much by the venue as by the brash reasonableness of the offer to negotiate and to stop waging war upon the poor..  Could it be that more of the smartest folks on that fringe are starting to realize what Tea Party Populism might become, if the lower middle class starts waking up and turning off Fox?