By Chris Cronin
Part 4 in a monthly series on the falsehoods and misremembered facts behind some of America’s most cherished cultural touchstones. For the first article in the series, see the Oct. 26 issue of The Elm.
A 2008 study by Thomas Piketty and Emmanuel Saez, two leading experts on income inequality, found that the top percent of earners in America went from taking about 32 percent of total income in the 1960s to over 45 percent in 2006, excluding capital gains, and trends point to that figure increasing. If we include capital gains, which is profit from the sale of an asset, like stocks, bonds, or precious metals, that exceeds the price paid to purchase it; that share rose to above 50 percent in 2007.
Thus, about a tenth of the American working population is taking about half of the total income, leaving the other half disbursed among the other nine-tenths. But despite the careful study and close attention paid to this problem in the sphere of economics, income inequality remains a relatively little-known problem, something to be debated within the Beltway and ignored outside. As is so often the case in American politics, this ignorance has allowed liars the opportunity to spread misinformation and myths. Today, we will discuss two of these myths.
The first myth is that economic inequality is not a problem. For instance, the Heritage Foundation, that venerable mouthpiece for conservative myth-artists, published a lengthy piece by David Azerrad and Rea S. Hederman Jr. on why income inequality is simply not a problem.
Azerrad and Hederman argue that it is a uniquely American phenomenon, one that should be embraced, because our system of government endorses a lack of income parity. They even go so far as to claim that “by and large, those who rail against inequality either do not bother to explain why inequality is bad or do so as a mere afterthought.”
Never mind that this is demonstrably false, as anyone reading the authors they accuse of ranting against disparity can clearly see a well laid-out argument that has evolved over years of progressive discomfort. Let me explain, in the clearest of terms why income inequality is a bad thing.
For one, our politics are already dominated by money. With enough money, the wealthy can buy advertisements, pouring millions into shadowy Political Action Committees (PAC). They can even launch their own campaign, bankrolling it with their own money, as politicians like Michael Bloomberg and Meg Whitman have done in recent years. True, money does not buy success, but it carries with it influence, and when so few have so much more than so many, those few will certainly have a vastly outsize influence.
For the second reason, we must turn to history, and thus to our second myth: that income inequality is a new problem. It is, in fact, an old one. The last time income inequality was a national problem was in the first quarter of the 20th century, when it reached its height just before the Great Depression (a height, by the way, which is about the same as where we are now—45 percent before capital gains). After the Depression and World War II, inequality leveled out at a much lower rate, and did not start to increase until the 1980s.
And a hundred years ago, as today, those aware of the problem faced the same fear: that an American aristocracy is arising.
Because the wealth is passed down from generation to generation, the children of aristocrats are freed from meritocracy—they do not have to work for their success, as it is guaranteed in the form of their inheritance. This is why social mobility in our country is lower than in seemingly more stratified societies like Britain and France.
Because money equals influence in politics, this wealthy class will dominate politics, writing its own laws, and dominating the financial system in such a way that regulation is not appropriately proportioned. It is no coincidence that the two highest periods of inequality in our country’s history precede the two greatest economic crashes.
And because we have so much space in our nation, aristocrats can live in their own wealthy conclaves, separate from the crime and poverty affecting large swathes of our country. Thus, crime and poverty continue on a massive scale, as we have seen in this country: despite massive economic growth since the late 1980s, working wages have barely risen, and continue to be far too low to, say, raise a family on, even as the cost of living has greatly increased.
A hundred years ago, our ancestors fought this problem with measures like an inheritance tax, but it was not enough. Unless we act to change this trend, the “land of opportunity” will become a distant memory.