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

Until we get to the explanation for why inequality caused the recession or is keeping us from recovering, I’ll be skeptical of complaints about wealth distribution in the US.

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.

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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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