I am growing ever more fearful of the plutocracy that is ravaging the spirit of my country and the pride of my people. Much like a cancer that has quietly metastasized undetected for so long that even chemotherapy is an unfeasible option (perhaps a lack of health insurance prevented preventative check-ups—God forbid they pay out of pocket in time to learn they cannot afford to pay for treatment!), I believe the governing system of America is so inflicted and full, not so much of corruption (although that is also true), as much as incoherent and therefore unenforceable rules and regulations, that it will inevitably implode and take the country--if not the world--with it. (Please note, as someone who has experienced the horror of watching a loved one succumb to cancer that went undetected until it reached stage-4, I am aware of the implications of this analogy.)
The intensity of economic inequality that has swept America and enslaved the ethos of its people is such that I no longer believe that a gradual structural revamping of the system is possible; the only way out of this mess is to hit the reset button or wait for nature to do it for us. What, exactly, it means to “hit the reset button” is surely a question worthy of significant attention and discussion, but suffice it for the purposes of this blog entry to say that some kind of major and immediate structural change—regulatory or not—resulting in a major redistribution of a significant portion of the wealth of the top 5% of Americans to the remaining 95% is necessary or we are doomed to suffer a civil war, another third world war, or both.
Before I enter into an endless filibuster with those who think they represent (or some day will)—and therefore feel the need to defend—the top 5%, permit me a few more moments of your time. First off, by the laws of probability, you most likely do not and never will represent the top 5%. Truly, one of the greatest illusions propagated by American plutocracy during the past 50 years, is the Reaganomatic three-class system. Apart from the fact that “upper class” sounds oh so much better than “rich” and “lower class” better than poor (albeit still a denigrating term), the fact of the matter is that socially, economically, and thus residentially, American society is divided and subdivided so completely and thoroughly that one can hardly maintain candid awareness of their place within it. I believe many individuals actually prefer it this way; as it is more palatable to trade away our consciousness than to accept that within the context of the actual, far more variegated, stratosphere in which we exist, the majority of us are really pretty damn far from the top, not “2nd best”, as our acceptance of “middle class” status would have us believe or even “upper-middle class.” There is plenty written on this subject so I defer to the Ackerman’s of the world for those that want to isolate discussion to Reaganomics. As for me, I am passed that as I think it is more pertinent to note that the average tax rate of the wealthiest 1% fell to its lowest level in at least 23 years in the year 2000 and has been maintained at such a level for 9 years. The group's share of the tax burden has risen, but only because its share of income has risen faster. This painful fact is only possible because over the past hundred years this group has had their taxes gradually lowered from 70% in the 1920’s to the current rate of 35% (I’m ignoring of course the Eisenhower time period in which they had a 90% tax rate because of the need to fund the war). [More on this topic can be found at: www.heritage.org as well as the IRS's income-statistics website.] The compounding impact of the increased wealth of the top 1% (you can use 5% if you prefer) creates an increasingly unfair playing field as these extremely wealthy individuals are provided with much lower risk opportunities to multiply their free and available money that unlike the “middle class” is not being tied up by liabilities connected to basic necessities. Yet, our regulators have not only accommodated the wealthy (forget for a moment that many of them belong to this privileged group), they have actually made it exponentially easier to compound their wealth.
It is important to note here that the word “wealth” is often confused with “income.” As noted in Wikipedia: “These two terms describe different but related things. Wealth consists of those items of economic value that an individual owns, while income is an inflow of items of economic value. The relation between wealth, income, and expenses is:
change of wealth = income − expenses
A common mistake made by people embarking on a research project to determine the distribution of wealth is to use statistical data of income to describe the distribution of wealth. The distribution of income is substantially different from the distribution of wealth. According to the International Association for Research in Income and Wealth, "the world distribution of wealth is much more unequal than that of income.
Two important points need to be extracted and highlighted here: first, the wealthy do not grow wealth-y by spending their money, they do so by hording it or by having such a disproportionately large income compared to that of the rest of the individuals in society that they cannot spend it all without gratuitous effort; second, the more wealth an individual has sitting in appreciating assets, especially those that pay dividends, the more powerful the compounding effect of such wealth becomes, allowing such an individual to take from the economy without producing an equivalent worth of production.
Thus, without voluntarily giving back, or being compelled to give back (via taxes for instance) an amount of that money proportional to the amount of energy that created it, the said wealthy person is essentially sucking net value and currency flow from the economy, thus defeating the two purposes of using a currency system in lieu of a bartering system, which was intended to facilitate the transfer of value (and individuals net production to society) over space and time. Does that mean that we should get rid of interest rates and capitalism? Absolutely not! I have a retirement account and I completely agree that those who have the prudence and gumption to endure short-term pain for long-term gain (my definition of “investing”) should be rewarded. What that individual is giving up (and it is not merely the unit value of the money, but the comforts that such money could have provided) allows for multiplied production. At some point, however, an individual’s wealth is so great that he endures no pain whatsoever, and hence could not possibly buy any further reasonable comforts, yet he is rewarded as if he has given up an incredible amount for the good of society.
Apart from forcing the wealthy individual to give back, what else can be done to return balance to the economy? We could cut expenses. Certainly excessive and unnecessary public spending should be avoided as it ultimately causes the same concern as the previously described super wealthy individual, the money controlled by the government is granted to them under the pretense that if combined it will be able to provide a quality of life enhancement that in general is greater than the pain caused by taking it from the individuals for whom it belonged.
I can already hear someone in the back of the room yelling, that’s exactly why the wealthiest 5% should not have to pay their money into the pot since they do not utilize public resources. Such a skewed perspective is how we got to this point to begin with. Lloyd Blankfein may never need to use the Metrorail system, but 95% of the persons that are somehow connected to the success of the company he runs do (think pension funds) and will continue to depend on public investment. Out of sight out of mind, I guess.
We live in a society in which everyone is convinced of two seemingly connected but really very separate things: one can achieve anything in this world if one wants it badly enough; and the wealth that one has is the result of one's hard work--hence, you’ve earned it. One does not magically result in the other, especially when one thinks of, say, Paris Hilton. Such ideologies allow the wealthy to feel like they are entitled to the disproportionately easy living they have and the un-wealthy believe that the energy they are transferring to the wealthy is just part of the due-diligence process at the end of which they will some day enjoy the benefits of a role reversal. The misdirection lies in the fact that very, very, seldom, if ever, will roles actually be reversed. Sure, it is quite likely that our un-wealthy worker will one day meet another hardworking individual with even less wealth than he, but that does not mean that roles have been reversed. The flow of real wealth, the flow of real power and of economic value in America is for the most part unidirectional and exponential. Furthermore, since it is customary to inherit one’s family wealth, it is not at all obligatory for an individual to produce their wealth’s worth of production.
Continued denial of the state of disequilibrium in our country will only bring us to an ever more painful inevitability. What happens when the masses stop believing? Worse, what happens when those who stop believing begin to mobilize? A friend of mine recently told me that he does not believe in recessions, that they are merely the result of people resting on their laurels after a period of time in which things came to easy. He went on to say how he was at Target and was waiting in line for so long (because there weren't enough employees) that he just put his stuff down and left. He said, on the way out he saw a "we're hiring sign" on the door and continued with a smugness that made me question if he was the same person I played t-ball with as a kid 25 years ago. All I could think to say to him was "the other possibility is that the cost of living has increased so quickly relative to wages that in the end it's not worth working at all." He was disgusted with my response, and as someone who has held multiple simultaneous jobs for most of my life, I wasn't sure I believed the words coming out of my own mouth. Then my 23-year old brother called me to tell me he had quit his job because after subtracting the cost of commute (two hours a day), taxes, and other basic job-related expenses he was working for $4.90 an hour. How can anyone believe in the "American Dream" when they work their ass off for $4.90/hr during one of the worst recessions in history while the front page of the newspaper reads: Goldman Sachs’ profit and remuneration soars?