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Distribution of wealth in the US: what's the problem?

Peder D4

Interesting piece from Eric Black here, on wealth distribution and reaction to it on the right. Here is the key quote (but do read the whole thing):

On the other hand -- this is only my impression but a strong impression, at least in my addled brain -- I don't hear Republicans even acknowledging that the maldistribution of wealth and income is a problem, or even an issue, or even a fact.
Perhaps representatives of the various factions of the right should be asked about it more. Is there any percentage of the nation's wealth that could be concentrated in the top one or five or 10 percent of the population that would be a problem, and if so what is the Republican plan for addressing it?

I can't speak for all Republicans, of course, but I do swim in those waters. I've got an idea of the general thoughts on wealth distribution from the right. (For simplicity of response, I'm going to number my points.)

1. To start with, I've long been skeptical of the timing of this argument. We didn't talk much about income inequality during the 2008 campaign. It wasn't thrown around as a reason for the Great Recession until a couple of years later when charts like this came out:

Take a look at a couple of things here. Right before the recession hit, we had the greatest inequality since before the Great Depression. When did we have the second highest? The late 90's. Do you remember all of the arguments about wealth inequality during the second Clinton term? Of course not. They didn't happen. Somehow that wasn't a problem then, during boom times. I'll also note that most of the charts that I've seen cut off in 2007 so we don't get a feel for what's happened since the recession began.

2. Another popular type of chart is this one:

This chart shows that the wealthy have more space and will eventually push the rest of us into the ocean. Except that isn't how wealth works. For instance, even as wealth inequality has been growing, the average house size has too. The middle class of today owns more house, better cars and is able to afford more entertainment than they could have a generation ago. In real terms, each generation is wealthier than the previous one. If you want to visualize wealth as some kind of divided pie, then you have to understand that the pie is growing larger and larger.

Ok, so I'm skeptical. What about the questions that Mr Black asks?

3. Yes, there is some percentage at which maldistribution would be a problem but I don't know what that percentage is. It wouldn't bother me if the top 1% had 90% of the wealth if the rest of us could still live well. This is the heart of how the right understands wealth distribution. We think that people will try to keep up with Jones, but not the Rockefeller family. As long as we still have sustainable paths for average people to create the lives they want, the overall American dream is fine.

Let me unpack that a bit. I'm not saying that people should be content with any old hovel and a ration of food. I'm not talking about just the bare necessities. There is a standard of living that every culture comes to expect and we want it to keep getting better. I do too! I want people with stable jobs to be able to afford nice homes, have nice cars and playthings, go on nice vacations, etc. The normal path is something like: go to school, get a job, get married/get house/get career, spend excess money on things you want/like. I want this path to work.

4. Right now there are two big obstacles on that path: health care and college expenses. Neither one of those obstacles are obviously connected to wealth distribution. In fact, both of those areas have been heavily influenced by government efforts to fix the problem. We've had de facto price controls in health control ever since Johnson's Great Society. Prices have shot up. The latest effort, the Affordable Care Act, aka Obamacare, seems to also be raising prices (though we'll need to check on that after the system is actually in place and we have better numbers).

College prices have been a mess too. We've been giving more and more money to colleges, both directly and through grants and cheap loans. Colleges have taken that money, captured the increases and still the prices are going up and up. My father could work his way through college. My kids will have to go deeply in debt to get a degree.

5. Can we make the path easier? Sure. Here are some ideas off the top of my head:

  • Ease regulations and make it easier to start a business. Right now the regulatory thicket is so tough that you almost need a lawyer to get through. That's a problem. A related problem is the out of control licensing issues. It shouldn't take several hundred hours of licensing to open a beauty shop.
  • Recognize other paths than the university model. We should be encouraging vocation and technical schools. A degree in humanities may make you a better person (I believe it does) but it won't make you a better programmer.
  • A related point, we should encourage employers to ease off on degree requirements for hiring. A couple of years ago I saw a job where someone would go from hotel to hotel, making sure that mattresses were installed correctly. The company wanted a two year degree or higher. That's a pretty obvious mismatch of training and needed skills. This kind of thing is widespread and a problem.
  • One big problem is the growth of the single parent family. It's much, much harder to create stable wealth with one parent. I don't have any specific policies in mind to help this, but the first step is to recognize the problem.

6. My biggest worry with concentration of wealth is that the 1% will buy themselves favors from government. That's happened even in the Obama administration, though doubtlessly his supporters thought it wouldn't when they elected him in 2008. I'm skeptical that we can ever regulate away from this problem and I flat out don't believe that a 'watchdog media' will ever give scrutiny to the party that they support. The only way to combat this is to have some broad and flat rules for companies and leave it at that. Every time we have exceptions and carve outs, it will favor the wealthy or the well connected. Waivers present an obvious problem that's been almost completely ignored. The typical shorthand for this on the right is that 'if we don't want money to corrupt the government, then we shouldn't give money a reason to do so'. A large company without lobbyists is in trouble today and that's a huge problem for our country.

7. If you want to convince me that wealth inequality is a problem in the U.S., then you need to show me that our bottom 20% is worse off than, say, that of the EU. I haven't seen any such thing.

8. This point probably should have been higher up, but another problem I have is that I haven't seen a good attempt to walk the problem through from A to Z. I need something like, "A: we have great wealth inequality. B: This is causing something. C: That is causing an additional something." Until we get to the explanation for why inequality caused the recession or is keeping us from recovering or whatever. What we're seeing now is simply that some people have a lot more than others so we should be outraged. That doesn't convince me at all.

This post was written by Peder DeFor and originally published on peder d4.

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Comments (14)

Any such thing?

"If you want to convince me that wealth inequality is a problem in the U.S., then you need to show me that our bottom 20% is worse off than, say, that of the EU. I haven't seen any such thing."

You're not looking very hard Peder. Unlike the US, everyone in the EU, even those in the bottom 20%, have access to the same health care that the top 20% has. They also have better public education systems, more food security, and are far less likely to be homeless. This information is readily available.

Bottom 20%

Who makes up the bottom 20% in the EU? Are they immigrants or natives? Do they stay in the bottom quintile all of their lives, or only when they're young? What job opportunities do they have after their better public education?
Being homeless in the US is overwhelmingly tied to drug/alcohol abuse or mental illness. Is that different in the EU? I honestly don't know the answer to that.

I don't know about the entire EU

but at this point, most European countries have HIGHER social mobility than the U.S. A Google search will yield any number of articles from all over the political spectrum making this point.

For one thing, while university admissions criteria in Europe tend to be stricter than ours, anyone who gets in receives a free or low-cost education. Furthermore, the university is not the only path to success. Germany is especially well known for its vocational education programs created in partnership with the industries that will take on the young workers.

Although it's not an EU country, I visited Sweden two years ago, and one Sunday, I attended services at the English-language Anglican church in Stockholm. Talking with the members during coffee hour, I heard about their charitable work. It seems that the social safety net in Sweden is so good that the only homeless or destitute are late-stage alcoholics and drug addicts and illegal immigrants, populations that are easily taken care of by the kinds of "skid row missions" that we have here.

The average church, however, has to reach out to the former Soviet Union, where the end of Communism meant an end to the social safety net. The Stockholm church supported a meal program for destitute seniors in Riga, Latvia, one of the countries that went gung ho into shock therapy-style "reform" after gaining its independence.

What makes up the bottom EU 20%?

Moving the target eh? It doesn't matter who or what they are, regardless they are better off than they would be in the US because regardless of the factors your asking about the resources are deployed.

I am amazed

I'm amazed that I agree with you on some of your numbered points, #6 particularly. I also agree that if the 1% had 90% of the wealth and the 99% could live good lives in spite of that, I wouldn't have a problem. But that is not possible with anything similar to the current economic model and limits from energy.

Some speculative fiction writers envision a post-scarcity world, and that's an enticing vision, though I always wonder who's growing and harvesting the food, who's hauling the garbage, and so on. But short of that, which is generally premised on some version of a limitless source of clean energy, there's no way your 1/90 scenario could ever happen.

90%

Pat, I'm not predicting such a split of wealth. I was only trying to emphasize what I think is important in the overall picture of wealth. As long as most people have an honest chance at making the life they want, it doesn't really matter that some of them are hyper rich.

You're making an argument for the lottery.

"As long as most people have an honest chance at making the life they want, it doesn't really matter that some of them are hyper rich."

Clearly, it does matter, as I've demonstrated in my posts below. The nation as a whole does far better when the middle class is permitted to compete on a more level footing with the rich. That is to say, the nation does far better when Democrats are in charge.

How much better? Comparing the two periods of Republican domination of our politics since WWI (1921-1932 and 1981-the present) with the period of Democratic domination (1933-1980), our GDP adjusted for population and inflation grows *3 times* as fast under Democratic economic control.

Trickle Down has failed again, almost as badly as it did the first time we tried it. It's time to return to an economy that helps the middle class. It's time to restrain the boom-and-bust mentality that makes a few people very rich, but makes the rest of us, and the nation, poorer.

Peder, since you plead confusion, let me help you out.

We've already run the experiment, and the results are conclusive.

The nation's economy does better when Democrats are in the White House than when Republicans are in charge. This difference is statistically significant over the past 92 years (1921-2012) and applies to a variety of measures, including number of jobs created, increases in wages, stock market growth and growth of GDP. In the case of GDP, for example, the growth rate during Democratic administrations is nearly four times that of Republican administrations for the entire 92 year period.

The difference is the result of Republicans tilting the playing field in favor of the rich, and Democrats tilting it back toward the middle class. The economy simply functions better when a large middle class has the opportunities (education, health, economic choice, etc) that Democratic administrations are more prone to provide, even though that balance may cost the rich a few of their millions.

When the Republicans support the rich at the expense of everyone else, the middle class inevitably shrinks, and the rate of economic growth drops commensurately. It's a fact.

Reps and Dems

Alice, I'd welcome some comments on what I've actually written.
The comparison of GOP and Dem Presidents is ok for some high level view but it breaks down. It's too blunt to be useful. For instance, your exercise gives Clinton full benefit for the 90's boom. I'll note that the economy didn't really take off until the GOP took over the congress in '94. If you want to show me an analysis on how the economy does based on who has control of the House and Senate, that wouldn't be as kind to the Dems.
Not that the Gingrich revolution should get full credit either. The boom happened because of the internet explosion. That almost certainly would still have happened if Bush 41 or Dole had been in office. Your entire 92 year period is filled with similar problems. How much credit should FDR get for the economic productivity that happened as the US ramped up after Pearl Harbor? How much should Ford be dinged for the actions of OPEC?

Peder, Republicans always have an excuse

Your excuses are, however, just excuses. The numbers clearly state that, in all major categories, the nation's economy grows significantly faster when we have a Democrat in the White House.

But, to address your excuses, let's look at it a different way. Let's give Republicans credit for the Gingrich economic "improvements" and the Clinton boom. Let's split the 92 year period of modern American government into its three periods of obviously different directions in economic law making.

The 1st Trickle Down Period was from 1921-1932 - Republicans held the White House and both Houses of Congress throughout. The Keynesian Period was from 1933-1980 - the New Deal and its extended wake - Democratic Congresses for all but 4 years. Finally, the 2nd Trickle Down Period is from 1981-2012 - Reaganomics and its wake, as Congress grew increasingly dominated by Republicans.

Here are the results:

For the Republican Trickle Down economic periods 1921-32 & 1981-2012, net GDP growth adjusted for inflation and population was an annualized 1.0%.

For the Keynesian years 1933-1980, net GDP growth adjusted for inflation and population was an annualized 3.1%.

That's 3 times as fast, Peder!

So, Peder, no matter how you slice it, the nation grows a whole lot faster with Democrats and Democratic economics in charge.

You'll need to come up with more excuses. Subjected to hard, cold statistical analysis, the dogma of Trickle Down fails, utterly. Please get to work on those excuses, Peder. Your dogma is depending on you.

Awfully narrow historical view?

May we consider some other possible events besides nominal US economic policy that might have a affected the US economy in the 20th century: World War II, perhaps?

WWII was not merely a 5-7 year conflict, but a multi-decade economic event. WWII destroyed much of the industrial base of Europe, Russia and Japan, while simultaneously increasing the industrial base of the US. The US became a global political and economic power, supplying both aid and the material purchased with said aid; let's not devolve into whether the US was a good or bad actor (or how much of each), but just stipulate that post-WWII reconstruction was a net economic benefit to the US.

By the late 1970's, much of the developed and developing world had re-industrialized, OPEC emerged to manipulate energy prices to dramatic effect in the US, and global shipping costs declined dramatically. That last point is critical, since cheap "foreign" labor that is dominated by delivery costs cannot compete with local production (the irony, of course, being the invention of the modern shipping container by Malcom McLean in 1956).

Could any of this have influenced US economic growth independently of domestic economic policy? Could we argue it influenced US economic activity as much or more than US domestic economic policy? That the enormous gains of the US middle class in the '50's and '60's may be largely historical accident?

Correlation is not causation. Complex phenomena rarely resolve to a single vector. And then there's always the old "People who live in glass houses" aphorism. Not that I completely agree with the OP, but I disagree with the putative "historical proof" far more.

income inequality.

the issue is not the wealthy or envy of the wealthy. it does not take a rocket scientist to figure out that if 70% of our economy depends on consumer spending, and 40% of the country is living paycheck to paycheck just above poverty, that we cannot sustain a consumer economy unless wages are increased to allow for consumer spending on things other than food and rent. Currently 40% of Walmart's income comes from food stamps. The issue is not the haves, it is the have nots.

If you want an excellent walk

If you want an excellent walk through of A to Z points on Income Inequality, you must see Robert Reich's documentary "Inequality for All." I saw it last night and it addresses the very questions you ask.

Wealth Gap: Causation

I posted a comment on Eric's version of reality, however it has not shown up yet... Hopefully soon... I'll write a very short version of it here.

Do the readers of this post accept that many of them are a primary cause of the wealth gap?

I think most see the problem starting in earnest ~30 years ago. Which aligns nicely with when America went from "Buy American" to "Buy Foreign". Yes, consumers did not care about who lost their jobs, which unions collapsed, how work compensation growth would be slowed, which companies went bankrupt, etc in America. They just wanted that low price high quality product that the low compensation countries could offer.

The Conservatives and Liberals opened their wallets and happily paid overseas personnel lower wages just so they could get a better deal personally. Therefore American companies and Union personnel had to adjust to the loss of trillions and trillions of dollars. Much of which would have gone to the low academic high skill personnel that used to make up our middle class.

Now I expect this behavior from Conservatives of the Ayn Rand version. However it seems hypocritical for Liberals to put their personal spending above the good of American labor. And now it seems that many "Conservatives" I know are still driving their Fords and GM, whereas most of the Liberals love their Toyotas, Hondas, Subarus VWs, Hyundais, Kias, etc. Very Ironic...