Growing income inequality between the top one percent and the rest of the population seems a wonderful political issue for progressives. This will only be true, however, if the issue is framed properly, which has not always been the case.
For starters, it’s important to appreciate that economically speaking, income inequality is both natural and appropriate. You work harder than me, you’re better educated, you’re more skilled, you simply care more about spending your time and energy making a lot of money than I do because I have other priorities, these are just a few of the good reasons why income inequality exists and should exist.
There’s also nothing inherently bad about very large and growing income inequality. You made 100 units of income last year and 200 units this year (a hundred percent income increase), while my own income just went from 10 units to 12 units (a twenty percent increase), so what? For most of us life isn’t a competition over who gets richer, faster before dying. As long as some of the economy’s extra income trickles down, as long as I get my taste, as long as I get a little richer, if you get a lot richer, God bless.
What makes income inequality such a bad thing these days in these United States is thus not that it exists, not even its extent and growth. And contrary to what apologists for this growing disparity claim, not that it is the inevitable and unavoidable consequence of macro economic forces such as technology trends and globalization. The present 99-to-1 divide is simply and obviously the result of an economy that has been engineered to favor of capital over labor, unearned income over earned income, investors and managers over workers.
Phrased another way, the top one percent have enjoyed great additional prosperity at the expense of the 99 percent. Their more is our less.
All kinds of stats and facts could used to illustrate this reality. Here’s a simple and obvious situation that gets the point across.
Imagine a company. The wages of its workers have been kept stagnant while the benefits enjoyed by these workers, once paid by the company, are now paid for in large measure by the workers themselves. The net compensation of these workers declines in consequence. This is the 99 percent story in this situation.
At this same company. Because profits go up when total worker compensation declines, top managers use this to pad their own compensation packages. Shareholders of the company [mostly one percenters because the top 1 percent own two-thirds of all financial securities such as stocks] also get a bump in the form of bigger dividends and capital gains. Such unearned income is taxed at favorable rates, rates much lower than the earned income rates paid by workers. This unearned income is also not subject to the Payroll (Society Security) Tax paid by workers on their earned income [and approximately two-thirds of workers pay more in payroll taxes than income taxes]. This is the 1 percent story in this situation.
The other side’s income inequality argument is well known and well honed. It portrays this growing disparity as a reflection of the success of the deserving, a reflection of the American Dream to achieve great personal wealth, a tribute to the joys of our opportunity society, and those angry over this growing spread as jealous and envious economic losers.
This, then, is the appropriate reply to this argument that doesn’t go against rewarding the successful or the American Dream myth: There’s nothing wrong with income inequality because some people deserve to earn more than others. There’s even nothing intrinsically wrong with great and growing income inequality, as long as everyone wins at least a little while a few are winning very big. But when this great and growing spread results from market and government policies deliberately warped in ways that favor the very few at the expense of the many it’s a very bad thing — bad for the health of our democracy as well as the health of our economy.
(Recent books from Michael Silverstein: The Devil’s Dictionary Of Wall Street; Fifteen Feet Beneath Manhattan; The Bellman’s Revenge; and Murder At Bernstein’s — To contact him: Mike@wallstreetpoet.com)