Tuesday, June 2, 2015


“Inequality” is the most recent of the “social injustices” which politicians, pundits and academics have adopted as a movement.  “Inequality”, meaning “economic” inequality, expressed as widely divergent access to wealth and income among individuals and groups is a fertile field for advocates of economic restructuring, usually based on broader ideological or philosophical beliefs.  Thus, despite its objectively defined flaws as a national economic condition, it has become a subjective expression couched in terms of “fairness”, used by those individuals commonly associated with the political Left. 

This of course is not new in terms of social/political history.  The socialist movements of the mid-Nineteenth Century were born in the nurseries of the Industrial Revolution and the resulting unfettered system of early capitalism.  This of course was an era of significant social and economic inequality, stimulated by rapidly advancing technological changes and bolstered by the remnants of landed aristocracies and political oligarchies in Europe.  But as capitalism matured, it became subject to the growth of organized labor and government regulation, and its benefits as an economic system have since been proven by the spread of wealth and the attendant widespread improvement in the more broadly measured standards of living.  

Industrial expansion, cleansed of its early exploitive characteristics such as child labor, unsafe working conditions and lack of any kind of associated economic security, now commonly included as health care and retirement benefits, did indeed “spread the wealth” through massive job expansion and the creation of a true “middle class”.  In combination with the creation of widespread public education, American society became characterized by the opportunity for individual improvement or “upward mobility” and its expressions as the “American Dream” and the “self-made man”. 

The post-WWII years with their unprecedented industrial expansion in a world faced with the issues of rebuilding economic infrastructure, gave both American capitalism and the American labor movement enormous opportunities and thus the opportunity for American workers to achieve financial security.  The “wealth” of the nation was more evenly divided in these post-war growth years because the large and growing industrial sector made it so. 

But the world doesn’t stand still.  Developing nations found ways to utilize their built in economic assets, foremost among them being a large semi-skilled labor force, which for decades was concentrated in agricultural sectors, but now willing to work for wages that were largely unacceptable to workers in the industrialized economies of the West.  Rapid advances in communication, information processing and transportation made the utilization of these workers for the labor intensive industries in the developed world, a profitable business model which was rapidly reinforced by world-wide competition. 

The effect on U.S. assembly line workers in low value-added jobs was inevitable.  The transition in the economies of industrialized nations was supported by the spread of trade liberalization in the form of bi-lateral and multi-lateral trade agreements which allowed the re-importation of goods manufactured abroad by domestic companies.  It became common for raw materials, components and points of sale for products owned by the same company to be located in different locations. 
The lost manufacturing jobs in the U.S. were replaced with high tech manufacturing jobs requiring a more educated work force, and with the rapidly expanding service economy jobs in the financial and information sectors.  In both cases these jobs provided higher wages but by their nature were characterized by technology supported higher productivity with the use of automation and information technology which allowed for enormous market expansion.  Job opportunities for high school graduates with minimal job skills became a smaller part of the economy and commanded a relatively low level of compensation. 

The financial sector which greatly benefited from the technological revolution by allowing instant transfers of money, mass marketing of world-wide investment opportunities and the creation of whole new categories of derivative investments, created  more wealth for those who already had enough wealth to invest and for managers and executives who initiated and operated the enterprises in the this sector. 

Thus increased gaps in the distribution of wealth in the national economy was inevitable as the workers formerly employed in low end manufacturing jobs were left behind in the rapidly changing economy. Fortunes were made and lost in the so called “dot-com” global  internet bubble of the ‘90s and new fortunes were made as lessons were learned and young entrepreneurs entered the information and new social media markets. 

Economists are virtually unanimous in their opinion that extreme concentrations of wealth in the hands of a very small segment of society are bad for the economy as a whole because it retards demand and thus slows economic expansion.  A negative social dimension also results if the wealth concentration is seen to be a cause rather than a statistical result of income stagnation in the middle class and poverty in lower socio-economic groups.

But the political Left continues to see the problem as a “fairness” issue and seeks to imply a conspiracy theory-like cause.  The entire financial sector is collectively, and derisively labeled “Wall Street” and lumped together with “big corporations” as villains in a conspiracy to “buy” politicians to keep from paying their “fair share” of taxes.   These unpaid taxes would supposedly deal with the problem of economic inequality by funding more social programs like free child care, government subsidized job training, and higher income supplements for the poor.

But the conspiracy theory meme as a cause of inequality doesn’t hold up to even minimal scrutiny.  The beneficiaries of wealth accumulation have achieved their wealth for a variety of reasons which do not include the exploitation of the poor or middle class.  National wealth is not a zero sum based entity.  Aggregate wealth does not transfer between groups in a democratic capitalist society.  The new wealth was created by new opportunities, innovation, new technology, skill and of course plain luck.

Young entrepreneurs like Bill Gates and Microsoft and Facebook founder Mark Zuckerburg offered new products to the world and were rewarded with the benefits of mass marketing.  Handsomely paid hedge fund managers take no money from the poor and middle class.  Executives of large corporations make commensurately large salaries and bonuses based on large profits which are derived from products and services that benefit consumers and millions of stockholders which include labor union pension funds, liberal university endowment funds and millions of ordinary citizens who invest savings in mutual funds for retirement and income.

Corporate and individual income taxes may or may not be judged “fair” but while changing them may put more money into government coffers and will reduce income levels and wealth accumulation at the top, it will not significantly increase these two factors at the middle and bottom even while providing more financial comfort to individuals who may be the beneficiaries of government social services.
Still, significant concentrations of wealth in an economy reflect lost opportunities at the lower end.  They also reflect a level of social dysfunction at the very bottom of the socio-economic scale.  Simple government mandated transfers treat only symptoms and ignore cures.
The process needed to increase income and the related accumulation of wealth in the bottom half of the work force is a long term enterprise.  It will require education, adaptation, and the support of government to promote economic expansion in the new economy. 

Senator Bernie Sanders (I-VT), now a candidate for the Democratic presidential nomination, emphasizes the conditions of “inequality” more than offering practical solutions, a tactic that approaches simple political demagoguery exemplified by his pronouncement that “inequality is immoral”.  His focus on higher taxes for “the rich” ignores some important facts. 

According to the Tax Foundation the “top 1 percent of taxpayers pay more in federal income taxes than the bottom 90 percent.”  “Since the early 1980s, the share of taxes paid by the bottom 90 percent has steadily declined.”

“In 1980, the bottom 90 percent of taxpayers paid 50.72 percent of income taxes. In 2011 (the most recent year the data is available), the bottom 90 percent paid 31.74 percent of taxes. On the flip side, the top 1 percent paid 19.05 percent of taxes in 1980 and now pay 35.06 percent of taxes. “  Stated a bit differently, the National Tax Foundation reports that in 2011 the top 10% of income earners paid 68.26% of income taxes although they made 45% of all income.  The bottom 50% of earners paid just 2.78% of all taxes.

According to the Tax Policy Center at Syracuse University (2013): “Because of the refundable tax credits, individual income tax burdens are actually negative for the lowest-income households, averaging minus 6.9% of income, meaning that the average household gets a refund in excess of taxes paid.”

The very label of financial “inequality” is calculated to inflame, shame and rationalize the problem of the poor as simply a matter of greed on the part of the successful and victimization on the part of the poor.  There of course, can never be “equality” in a free market economy.  The variables which lead to economic security are numerous but like those mentioned above, they inevitably include such things beyond government control as intelligence, motivation, innate skill sets, and family stability and support during childhood.  

This of course is not a problem for Sanders who is a self-described “democratic socialist”; too far Left for even the current Democratic Party and hence an “Independent” in the Congress. The remedies which Sanders and other “progressives” offer are more of the types of existing income subsidies which have been in place for decades.  These include, the Earned Income Tax benefit, food stamps, Aid to Dependent Children, school lunch and breakfast programs, Social Security, Medicaid, and direct welfare payments.  Sanders would support paid leave for new parents and paid sick leave.  But many of employed individuals working above entry level jobs already have these support benefits. 

Raising the aggregated wealth of the poorest groups is a long process in which the fundamental factor is employment in sectors with opportunities for advancement.  Concentrations of high unemployment are most visible in urban districts of the nation’s larger cities.  This fact has been identified as an underlying cause of racial unrest in recent confrontations with police.  But the “race analysts” simply state the fact of low employment without citing the causes or the solutions, as if governments at the local, state, and federal level could simply wave a magic wand an create meaningful employment for the disaffected in these areas.  

But as stated above, the requirements for “good jobs” with advancement opportunities and benefits are increasing while the basic education standards in areas of high unemployment are either being ignored or lowered for purposes of “social promotion”. 
The unemployment rates in the racially segregated areas of like Ferguson, MO,  Baltimore, MD, Cleveland, OH and Philadelphia, PA are reflective of large cities across the nation.  The inescapable, but rarely mentioned fact is that the high school graduation rate among black males is only 59% nation-wide with even higher rates in inner city urban areas. The graduation rate for Hispanic males is only 65% with thousands more under educated Hispanic immigrants joining the potential work force each year.  

Together blacks and Hispanics represent 30% if the total U.S. population. While it is certainly true that not all members of these groups are statistically poor, the low average high school graduation rates which are not a new reality, obviously exacerbate the income/wealth distribution problem and will continue to do so as these populations continue to grow.  

So how would Sanders solution of  increased tax revenue from higher rates on the “rich”, impact the larger problem?

The fall-back recommendation of the Left seems to be increased federal spending for “infrastructure” i.e. bridges, roads, waterways, (but not oil or natural gas pipelines). Transportation infrastructure is of course important in any modern industrialized country and represents an on-going need for maintenance.  But the labeling of basic construction needs as a cure for economic disparities among groups is simplistic.  The semi-permanent underclass, the urban poor, are not construction workers and the supply of actual and potential construction workers keeps growing with the continued flow of legal and illegal immigrants from Mexico and Central America.  

The path out of concentrations of wealth is education and training for professions which offer upward mobility.  Simple transfers of wealth through government sponsored temporary jobs and subsidies perpetuate the current socio-economic disparities.

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