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The Wrong Way To Fight Inequality

Last year the US made great strides towards a more equal society: we cut the number of millionaires by more than 100,000. According to a study from the Boston Consulting Group, 129,000 evil US millionaires rejoined the ranks of the proletariat last year as the value of their stocks, cash and other non-business and non-property assets fell below the magic number.

4.3 percent of US households still qualify as millionaires by that measure, but OWS partisans shouldn’t despair. Perhaps with another few years of stock market declines, slow or negative economic growth and low interest rates we can take another big whack out of that number.

This is, of course, exactly the wrong way to think about things. Poverty is the problem we want to fight, not an excess of wealth. And the best way to fight poverty is for the overall productivity of a society to grow. That only comes when new products, new enterprises and new and more efficient ways of doing things are entering the market — and that generally means that the people who thought up those new ideas and did the hard work to make them real are getting rich.

True, huge fortunes and interests tied to the government in an incestuous mix is a danger to the republic. This is why so many Americans are worried about the way that the bailouts of the financial system and various large industrial corporations did so little to penalize powerful and politically connected interests linked to the regulatory-industrial complex.

Not every millionaire makes his or her money in an ethical or socially productive way. (Think of the Hollywood moguls, actors and musicians who rake in the cash while producing entertainment that mocks and cheapens the values and ideas that help poor people hold their lives together and get ahead.) Still, a society that isn’t making new millionaires is unlikely to be a society where the lives of the poor are going to improve.

America needs more millionaires, not fewer — and we also need those millionaires to think hard about how their talents and their money can do more to spread the good life around.

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  • FredB

    “The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery.”

    Winston Churchill

  • Jim.

    This is brilliant.

    Once again, Professor, why are you a Democrat?

  • Luke Lea

    It is not inequalities of income but of consumption that really matter. Or as Hobbes once put it, it’s not what you put into the common pot but what you take out that should be taxed.

    Hence the concept of a graduated expenditure tax, which is like an income tax but with savings tax exempt.

    Why graduated? Because all else being equal we assume that a dollar will always be worth more to a poor man than a rich one.

    And yet we must still maintain the link between effort and reward. Those who do not work shall not eat. Those who work harder shall eat more. The earned income tax credit honors that principle.

  • Anthony

    America needs more equality of opportunity and maybe result. That is, the removal of every removable obstacle to the fulfillment of the individual (whether prejudice, ignorance, physical impairment, etc.) – perhaps then tools against inequality can be quantified and material poverty lessened. Alas, WRM the principle of which I speak recognizes the range of opportunities available in this particular society.

  • Kris

    “4.3 percent of US households still qualify as millionaires by that measure, but OWS partisans shouldn’t despair.”

    To the contrary, the despair must be ramped up! The proportion of millionaires among the oppressed 99% is decreasing, while their proportion among the 1% remains unchanged! We might soon face a millionaire gap! Woe! Alack! Man the barricades!

  • thibaud

    This is more of the kind of finger-in-your-eye ignorant snark that doesn’t advance anyone’s understanding or move us toward more intelligent policies.

    You don’t have to be a raving socialist to agree with the obvious fact, supported by every possible hard economic measure, that Inequality in the US is far worse than it’s been at any time in the last 85 years; that social mobility in the US is significantly below social mobility across Europe; and that such inequality is a huge drag on US economic growth.

    In other words, we have greater inequality of outcomes AND greater inequality of opportunity.

    That’s not the American way. That’s the latin American way.

    All the evidence we have is that we are moving more and more in the direction of Mexico and Brazil’s socio-economic structure, with a shrinking middle class squeezed from above and below by a tiny stratum of windfall-gazillionaires and a huge and swelling proletariat.

    In fact, California’s already moving headlong toward that kind of “hourglass” social structure. The irony is that the middle class in Brazil and Mexico is now growing while ours is shrinking.

    Doesn’t this trouble you, Mr. Mead? As a student of history, aren’t you aware of what happens to “hourglass” countries in which top and bottom hollow out the middle class? How is that compatible with a stable and prosperous democracy?

  • Jacksonian Libertarian

    6. thibaud – Once again thibaud provides not one piece of evidence to back up his outrageous [statements].

    Here are some ugly numbers:
    1. A few years ago 60% of the American Family net worth was held as equity in their home. This figure was much higher for lower and middle class families that tend not to own Stocks, Bonds, IRA’s, 401k’s, or a private business.
    2. 30% of home owners with a mortgage are upside down, meaning they owe more on their mortgage than the home is worth. When you add 8%-10% in closing costs to sell a home, even more home owners are upside down than the 30% number indicates.
    3. While the number of millionaires has fallen by 129,000, the number of American Families that have lost their entire nest egg if not their home to foreclosure, numbers in the millions.

    I leave you with a question:
    How much have you lost on your home? Or in other words, how much poorer are you?

  • Mannie

    Not every millionaire makes his or her money in an ethical or socially productive way.

    Not every plumber makes his or her money in an ethical or socially productive way.

  • SDN

    “In fact, California’s already moving headlong toward that kind of “hourglass” social structure.”

    It’s probably not a coincidence that California has also moved further in implementing the Fascist ideal pushed by the Left: having the government de facto running private business through regulation and manipulating the tax code. So far, the productive have been able to flee to freedom in places like Texas… and they have.

    Which is why Obama has moved as fast as he can to implement that same Fascist model all over the country. Five More Months!

  • BackwardsBoy

    Only in the fevered mind of the typical OWSer or Progressive is this hailed as “progress.”

    Now, ask yourself if you are any better off now that these millionaires are gone, and how much, if any, of their money found its way into your bank account.

    Whining about inequity is an exercise in philosophical masturbation. There has been and will always be inequality in life. Attempting to assure equality of outcomes only guarantees the creation of misery for everyone, and is antithetical to our Founding Principles and human nature alike. It’s a perversion of religion, an example of elitism and an excuse for the fake “do-gooder” to play God, especially with our tax dollars.

  • Ritchie The Riveter

    When you are told again and again by the leaders of society that you CAN’T make it without their “help” in virtually every area of your life, the temptation to stop striving yourself and submit to their attempts at helping you can become irresistible.

    Since said leaders lack the omniscience to effectively deal with the challenges YOU face, giving in to this temptation — focusing less on your future and more on today’s “fun” — can easily lead to a slide to the bottom of that hourglass … as millions can attest to today.

    Where is the WORKER’S responsibility to take control of their own future, so they don’t end up at the bottom of that hourglass?

    Or is responsibility a function of pocket depth?

  • joel

    I beg to differ. The Liberals are worried about the gap, not the absolute wealth.

    For example, in terms of testing and the racial gap, the liberals were quite content when the racial gap in NYC shrank, due in part to the scores for the white kids falling.

    These people just see things differently.

    About the shrinking middle class, well, when you import 10s of millions of people from dirt poor third world countries, and export high paying jobs to those same countries, what did you expect?

    We are going to become like the rest of the world. That is also the hope of liberals. Shame, that the rest of the world sucks.

  • Sardondi

    Hey, it’s not just millionaires that have been demoted in Obama’s un-America: a few billionaires got sent down to the minors after the Facebook IPO debacle.

    The only saving grace is that without a doubt Mark Zuckerberg and the other former boy-billionares were huge Obama supporters and maybe even contributors.

  • Rich K

    “and we also need those millionaires to think hard about how their talents and their money can do more to spread the good life around.”
    No, we need those folks to do what they are doing and not get side tracked by attempting to show thier altruism is in good standing.This country has more than its share of do gooders and not enough doers.And way to many crony millionaires living off the DC tit.

  • richard40

    So basically Obama has succeeded in the socialist ideal, to make us all equally poor. Thank God we dont have all those evil millionaires out there anymore, and those people are now just as poor as the rest of us. Than makes me feel much better, not.

  • AreYouKidding

    “In fact, California’s already moving headlong toward that kind of “hourglass” social structure.”

    Is it possible that is the ultimate goal of the liberal elites and politicians in California? Squeeze out the middle class to the extent possible. If you are poor then you are willing to clean their houses, drive their cars, tend their gardens, lick their boots, vote for their politicians and thank them for the opportunity. If you are middle class then you are clogging their roads and crowding their beaches, ruining their views and messing with their environment.

  • Raymond S

    Billionaires getting wealthier causes as many lost millionaires as does the poor economy. Historically, the natural state of human society is for wealth to aggregate in the wealthy. Low estate and capital gains taxes accelerate the process.

  • thibaud

    @#16 AYK – this is not a partisan issue. The reality is that the steepest decline in California’s middle class, as a percent of population, occurred during the 1991-92 recession.

    I haven’t dug into the numbers, but the reasons for this appear to be a lot more complicated than the simplistic tropes of the right (LiBeRaL Fa$ciSM!!!) or the left (“All Prop13, all the time!”).

    Given that it happened in 1991 and 1992, the decline in defense spending – which used to be a huge driver of jobs and growth in Southern California – would have to be a big factor. The fact that neither party since then has been able to get manufacturing, energy and other traditional industries to come here and take up the slack of lost defense-contractor employment suggests a failure at many levels.

  • Mark Michael

    Re: The conventional wisdom (cw) that there’s been growing inequality between the rich and the poor in America

    Here’s a strong contrarian claim that the above cw is totally wrong – IF you compare (1) after-tax income rather than before-tax income, (2) if you include employer-paid benefits & government transfer payments (esp. in-kind) that are not part of your explicit income but clearly ARE part of your de facto income as well as any other government transfer payments, (3) adjust for the much smaller size of the 2007 family compared with the 1979 family.


    Here’s the bottom line income gains between 1979 and 2007 when you compare the after-tax, employer & government benefits included, and adjusted for the smaller household size for the 5 quintiles, plus breaking out the top 10% and 5%:

    Bottom quintile: 26.4% real (inflation-adjusted) income gain
    2nd quintile: 25.0%
    Middle quintile: 36.9%
    4th quintile: 52.6%
    Top quintile: 52.6%

    Top 10%: 56.0%
    Top 5%: 63.0%

    1979 Gini: 0.330
    2007 Gini: 0.362

    If the above percentages seem incredible to you, go to the website and see all of the intermediate steps by which the authors arrived at these bottom line figures. These figures were developed by researchers at Cornell University.

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