On the (re)Distribution of Wealth

It should, first, be said that this is explicitly not about party affiliation.

McCain advocated a similar set of tax policies when he ran in 2000 and was even quoted as saying that people who made more money can afford to pay more (video link here). And the terms of Obama's plan (which, it's also worth noting, are being significantly misrepresented by McCain's campaign) are hardly extreme. The actual Socialist candidate for president, Brian Moore is fond of pointing out, Barak Obama is a pretty mainstream candidate over all. Here are interviews with him: print, FOXNews Video 1 and 2.

People making the assertion that Obama is "Socialist" or "Marxist" either have no idea what these terms actually mean or are being very disengenuous in their use of them. At most, he is recommending a more progressive income tax with government funded programs to improve access to market provided health care. In other words, he isn't even recommending a mild version of the social democracy they have in most other industrialized countries. Nor is he advocating even what we used to have before the Welfare State as it existed in the US was dismantled over the last thirty years.

In this regard, it's worth noting, that the latter has definitely been a bipartisan effort and the changes in the socioeconomic profile of the US were even more extreme--with the rich getting richer and vice versa--under the most recent Democratic president. As Robert Pollin notes, in his book on the Clinton Years, Contours of Descent:

The general requirement of product differentiation in an electoral market entails that at the margin any Democratic President will offer more social concessions than a Republican of the same cohort. Unlike Clinton, Bush is unabashed in his efforts to mobilize the government to serve the wealthy. But we should be careful not to make too much of such differences in the public stances of these figures, as against the outcomes that prevail during their terms in office. It was under Clinton that the distribution of wealth in the U.S. became more skewed than it had been at any previous time in the previous forty years—with, for example, the ratio of wages for the average worker to the pay of the average CEO rising astronomically from 113 to 1 in 1991 under Bush-1 to 449 to 1 when Clinton Left office in 2001.(9)

Just to clarify, that means that it would take the wages of 449 average workers to equal the wages of one average CEO. This is actually only the disparity in income: the actual distribution of wealth is even more skewed. It is difficult to find a study that states it in a comparable ratio, but here is a study which comes close. As many people point out, we don't actually know some of these numbers because people who have a lot of wealth are incredibly efficient at hiding some portion of it. Still, the study shows a large disparity in wealth, though there seeme to be little change in the proportion of wealth over the last 30 years.

In the United States, wealth is highly concentrated in a relatively few hands. As of 2001, the top 1% of households (the upper class) owned 33.4% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 51%, which means that just 20% of the people owned a remarkable 84%, leaving only 16% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth, the top 1% of households had an even greater share: 39.7%. Table 1 and Figure 1 present further details drawn from the careful work of economist Edward N. Wolff at New York University (2004).

The tables they provide here make it clearer, as do the graphs further down the page. It also distinguishes between financial wealth, trusts, stocks/mutual funds, business equity, and non-home real estate. Further down they make the point that, in so far as there was a change in the early 1970s,

this time in good part due to a fall in stock prices, meaning that the rich lost some of the value in their stocks. By the late 1980s, however, the wealth distribution was almost as concentrated as it had been in 1929, when the top 1% had 44.2% of all wealth. It has continued to edge up since that time, with a slight decline from 1998 to 2001, before the economy crashed and little people got pushed down again. Table 3 and Figure 4 present the details from 1922 through 1998

In other words, there has, in general, been very little redistribution of "wealth" but, despite the fact that many wealthy people have been rather secure in their wealth, over the past thirty years they have been given an increasing share of the income. Studies confirm this many times over. Another study on the increase in CEO pay is here. Here are a table and a chart, reporting similar data to that of Pollin, taken from the 2005 version of the Economic Policy Institute's "State of Working America" report. (The latest version can be viewed here). The longer article in which this appears is here.

Doug Henwood, the business reporter that I mentioned who'd been talking about the housing bubble and it's possible consequences for several years, also has some good data on this on his website, which he's been keeping up with for several years. Here is data from 1997; 1998; and here is an update in 2004. The upshot to these is that, as the 2004 article puts it:

Real income of the median household—the income of the household at the exact middle of the income distribution, adjusted for inflation—fell every year between 1999 (the peak of the 1990s boom) and 2004. As of the latest reading, it was off a total of almost 4%. That’s not as bad as the 5% drop from 1989 to 1993, the period of the first Bush recession and subsequent jobless recovery, but that time it took just two years for income to begin rising after the cyclical bottom. This is the first time since the Census Bureau began publishing figures for household income in 1967 that there have been five negative signs in a row; the previous records were four, clocked in the early 1980s and early 1990s.

And, upon inspection, he has an interesting chart which shows the increase in wealth disparity as well over the period of the last decade. As he points out later in the 2004 article, this wasn't just a natural change; not just the progression of one set of people working harder or getting luckier: this was structurally created, state policy driven. In short, it was an explicit redistribution of wealth from the previous era.

These contrasting material fates are succinctly illustrated by the nearby chart, a history of the Gini index for the U.S. since 1913. The Gini index is one of several stats used to summarize the course of income distribution over time, or to compare it across countries. The Gini is a number between 0 and 1; if a society were perfectly equal, its Gini index would be 0, and if it were perfectly unequal (one person had all the income), it’d be 1. In the real world, the Gini usually falls between .25 (the Swedish neighborhood) and .50 (the Brazilian neighborhood). As the chart shows, the U.S polarized in the early decades of the 20th century, reaching a peak in the late 1920s/early 1930s. The depression and New Deal began a process of equalization, which continued through World War II and into the late 1960s, thanks to unions, tight labor markets, and an expanding welfare state. For a while, it looked like what economists call “depolarization” was a natural feature of a maturing capitalist economy. But that was demonstrated to be false, as the U.S. repolarized, thanks first to the deep recession of the mid-1970s, the subsequent inflation, and then the long wave of social spending cuts, union-busting, factory closures, the explosion of Wall Street wealth and power, and all the other familiar features of the neoliberalism of the 1980s and 1990s. The Gini index for households was .466 in 2004, tying the level of 2001, which was the highest since the early 1940s.

This now puts the US as among the most unequal in the industrialized world and it makes it much more difficult for those who do work hard to ever save enough to get ahead. A larger study of this was done by an American University economist a few years ago. His analysis in "Understanding US Mobility" concluded that it was getting harder and harder for people who started out poor or middle class to ever make a transition to being economically secure, muchless wealthy. In fact, for people in the middle class, it was just as possible that their children would be *poorer* than they were as it was that they would make a transition to a higher class. This was especially the case for minorities. On all accounts, this trend is becoming worse, at least from the perspective of working Americans.

In 2005, Alan Greenspan--never one to advocate class warfare--noted that,

The income gap between the rich and the rest of the U.S. population has become so wide, and is growing so fast, that it might eventually threaten the stability of democratic capitalism itself.

In other words, the revolt we are seeing at the current moment against traders, hedge fund managers, etc. is the evidence of the fact that a lot of people are getting upset. As more people are made homeless by forclosures, as the unemployment and underemployment levels (right now, together, at about 10%) get worse, there could be the threat of people not believing the government is there to do anything but protect the wealth of the rich. This is a recipe for riots, looting, and all sorts of civic problems which, to be honest, would eventually be far, far worse for the value of the dollar than any apparent sharing of the wealth. As one of the threads on a listserve I'm on recently asked, of the recent rise in the US Dollar, "The U.S. economy is in very bad shape and the debt is ballooning. Why buy the U.S. dollar?" One of the answers, reflecting some of Lee's wisdom (things are bad here, but...):

Perhaps 'they' know something that we don't: That Europe, England, Russia, China are also in very bad shape, and that as bad off as the U.S. is, the rest are as bad or worse?? If the crisis is worldwide, then the safest place is whatever place is least apt to be wracked by riots.

Greenspan, of course, isn't anticipating riots, but that is because, every time we've gotten close to one of these precipices since the Great Depression, the government has stepped in to reassure everyone that it was trying to work for everyone's interest. If the "democratic" part of the capitalism really stops functioning--if we can't elect people who at least appear to have the interest of all Americans in mind, then protest becomes one of the more potent options.

The idea that the economy should work for everyone is a pretty widespread idea. It is, after all, ultimately regulated (even in its unregulated sectors) by the democratically elected government. I got the Greenspan quote quote in an AP report on a recent poll asking people about their feelings on the subject. In that poll.

A substantial majority of Americans say the rich don't pay their fair share of taxes, opinion polls show. A growing number say the U.S. is becoming a nation of haves and have-nots.[ . . . .] A majority of Americans — 51 percent in a poll by Gallup this past April — said they support "heavy taxes" on the rich to redistribute wealth. That is significantly higher than when the same question was asked in 1939, at the tail end of the Great Depression, when 35 percent agreed.

Of course, as the pollster says, "It's a complicated area to try to understand American attitudes, It's kind of like, in some instances, conflicting medical research ... There's no one answer." Still, in terms of recent history, the point is that there is objectively already a redistribution of wealth relative to the years before that, when the US was trending towards a more equitable distribution.

Meanwhile hedge fund managers in NYC are able to make hundreds if not thousands of times more than the security gaurds at their buildings--and are currently able to pay taxes at a lower rate than their secretaries. Here is an article that looks at each of these facts and here is a policy paper confirming the statistic about these taxes. We are living, more an more, in a guilded age.

Finally, a small note in terms of the national issue of taxes and spending. The Tax Foundation has numbers which show the ultimate irony about the supposed Red/Blue divide over the issue. Using the electoral college map of which states voted each way in 2004 and predicted in 2008, the states who vote against taxes (if that's what voting republican means) may not being paying them, but they sure are receiving the benefits. When you look at the federal money that is spent in each state, relative to the taxes that state pays, it is predominantly the "Blue" states which are taxed to provide federal services for "Red" states.

So the top ten recipients, in 2005, of federal spending, relative to taxes are:

1. New Mexico (RED 2004, leaning BLUE 2008)
2. Mississippi (RED 2004, 2008)
3. Alaska (RED: 2004, 2008)
4. Louisiana (RED: 2004, 2008)
5. West Virginia (RED: 2004, 2008)
6. North Dakota (RED: 2004; tied 2008)
7. Alabama (RED: 2004, 2008)
8. S. Dakota (RED: 2004, 2008)
9. Kentucky (RED: 2004, 2008)
10. Virginia (RED: 2004; leaning BLUE 2008)

On the other hand, the states that paid the most in federal taxes and received the least--in other words the states whose federal taxes were "Redistributed" to the states above--in terms of federal spending:

1. New Jersy (BLUE 2004, 2008)
2. Nevada (RED: 2004; leaning BLUE 2008)
3. Connecticut (BLUE 2004, 2008)
4. New Hamshire (BLUE 2004, 2008)
5. Minnesota (BLUE 2004, 2008)
6. Illinois (BLUE 2004, 2008)
7. Delaware (BLUE 2004, 2008)
8. California (BLUE 2004, 2008)
9. New York (BLUE 2004, 2008)
10. Colorado (RED: 2004; leaning BLUE 2008)

In other words, if there is a redistribution of wealth between the states, it is predominantly from the Blue states to the Red ones. This seems quite ironic, frustratingly so, to people who are more realistic about the role that government plays in our lives.