Has Wealth Inequality Always Been Un-American? A Conversation

by Brian T. Lynch, MSW

Reaction to a previous blog post provoked a dialogue about wealth inequality which I am sharing here in the hope of generating a broader conversation. The post, which you can read in full here, lays out the premise in the initial paragraph:

In an Intelligencer article entitled, “AOC Thinks Concentrated Wealth Is Incompatible with Democracy. So Did Our Founders,” Eric Levitz writes, “ [Alexandria] Ocasio-Cortez’s second argument against the existence of billionaires — that concentrated wealth is incompatible with genuine democracy — was something close to conventional wisdom among the founders.”

ANON: Brian, this is debatable.

ME: So, what are your views?

As I see it, one of the main thrusts of the American Revolution as a rejection of the enormous inequality of wealth and power between the colonists and their land-owning aristocracy. The founders did not want there to ever be such a large inequality here so they created a democratic republic. Every initial sale of property in the settlements involved payment to the royal aristocracy who literally owned everything in the new world. And unlike the wealthy landowners within the English system, colonists who managed to purchase large land holdings here had no voice within their own Parliament in London.

Today we tend to forget that the wealthy landholders in the colonies were clearly not considered wealthy or powerful within their own country, England.

ANON: Brian, wealth inequality is not in and of itself immoral. What is immoral is when people gain wealth through a rip-off of other people.

ME: Your point about wealth inequality no being immoral is also debatable (see Mark 10:25 for an example), but that would be a complete change of topic that we need not go into here.

The question here is whether or not extremes of private wealth is incompatible with a democratic form of government, and the answer to that question is yes, they are incompatible.

As a way to think about this, imagine how radical it would be if corporate governance adopted a system of one vote per shareholder rather than one vote per share of stock to reflect an ownership stake in the company. This is sort of the situation we are faced with today in our republic. The vote per shareholder method of corporate governance is a democracy, and the basis of our republican form of government, the latter and usual method, one vote per share of stock, would result in a plutocracy if it was applied to nations. That is what we very much want to avoid, and have always wanted to avoid from our founding. The wealthiest individual in this country should have no more influence over government decisions, theoretically, than their one citizen vote. We are already very far from that democratic ideal.

ANON: Brian, why should wealth be taken from people who created it and redistributed to people who have done nothing to deserve any right to it?

ME: I have seen commentary similar to yours in response to a discussion of wealth inequality. It is a familiar conservative talking point, and not a very good one. It is more of a dodge using a dog-whistle reference to higher taxes on high-income earners while pitting them against the “undeserving” poor who don’t materially contribute to our GDP.

But we aren’t discussing the redistribution of income here, nor are we discussing the fair distribution of income wages generally. We are discussing wealth inequality and extreme accumulations of private wealth. We are also not talking about you or me or almost anyone else. The extremes of private wealth are concentrated in less than a thousand families, wealthiest elites who own nearly all of the equity in this country.

There are two primary methods to redistribute wealth and neither one benefits the poor. In fact, the poor, the working class and almost have of the middle-class have no wealth at all, so it isn’t being redistributed to them.

The first wealth redistribution scheme is property tax. Owners of personal property are taxed on the estimated sales value of their property. But even here homeowners are not taxed on their equity stake in their homes, but on the value of their houses as if they owned them free and clear. It is really a tax on their future equity if they can hold on to it for 30 years. This is a very regressive wealth tax and a steep price to pay for new membership into the property-ownership club.

The second method of wealth redistribution is estate taxes that are paid once in a lifetime after you die. The vast majority of citizens will never pay a penny in estate taxes after they die because, again, they have no wealth. Estates that have at least a few million dollars or more may pay some small percentage in estate taxes, but most of the wealth and assets of the very rich, when they die, end up in the hands of their children and named beneficiaries.

The vast majority of estates — 99.9% — do not pay federal estate taxes. While the top estate tax rate is 40%, the average tax rate paid is just 17%. The estate tax is only paid on assets greater than $5.3 million per individual ($10.6 million per couple). https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-the-estate-inheritance-tax/

Most of the wealth passed along after death goes to children and beneficiaries who never earned any of it, and therefore are “underserved” in the exact same context as your meaning of that word in your comments above. Inheritance is the direct transfer of wealth and power by right of succession.

So, the short answer to your question is that there is no redistribution of wealth from those who (may have) earn it to the “undeserving” poor you referenced above.

[Please feel free to add your comments to this discussion]

Grasping the Scales of Wealth Inequality

by Brian T. Lynch, MSW

The human brain has inherent limitations built-in when it comes to imagining the relative differences of huge numbers, whether they are describing the very small or the very large. Genetically speaking, we don’t have the intuitive capacity to handle very large numbers. We distort the scale and tend to group together orders of magnitude that aren’t at all alike. The best we can do is evaluate good, often visual comparatives.

Another brain limiting feature is that we tend to perceive things by putting similar things into the same buckets in order to make sense of a world of infinite variability. If we see a color that is red, slightly bluish red or slightly red-orange, our brain puts the visual input into the red bucket, and that is what we see.

In the same way, when we see big numbers or even bigger numbers we tend to group them in the big numbers bucket without really noticing just how out of scale our perceptions might be.

This human limitation doesn’t often matter in the day-to-day experience of most people, but it matters a great deal when it comes to understanding concepts such as our growing wealth inequality. There is at least a thousand-fold difference between a millionaire and a billionaire, yet most of us put them both in the “rich” bucket.

If we say that one dollar equals one unit of social power (social power being the ability to coordinate the actions of other, as a quick and dirty definition), then a “rich” billionaire is a thousand times more powerful than a “rich” millionaire, but it doesn’t seem that way to us. Many US billionaires have more than 20 billion dollars and they are major influencers in government policy and political decision making, yet we see them as merely rich.

So, this is an attempt to put wealth into a proper sense of scale using visual comparisons.

BASED ON THE WEIGHT OF A $1 BILL

$100 in singles

A single US dollar bill (a US Treasury note) weighs .04 ounces. Stack a hundred $1 bills together and they weigh just 4 ounces. In other words, a hundred dollars in singles weighs 4 ounces. That happens to be the exact weight of my favorite sandwich, peanut butter and jelly. I would never pay for my PBJ according to its weight in dollar bills, but to me, it tastes like a hundred bucks.



 



$1,000

A thousand one-dollar bills, or 10 stacks of one-hundred US Treasury notes, weighs as much as 10 peanut butter and jelly sandwiches, or 2.5 pounds. That weight is equal to a very full glass of water in a pint-sized beer glass. But, beer weights less than water in case you happen to be staring at your fresh pint of Guinness right now.





$1,000,000

A million dollars is a thousand times more than a thousand dollars. It’s a big leap, so all the weights go way up. A million one-dollar US Treasury notes weigh 2.5 tons (or the same as 10,000 PBJs). Your average pickup trucks couldn’t haul that much weight. You would need two ¾-ton pickups to haul a million one-dollar bills around town. And if you do, you really need to trust that other driver.


 

$1,000,000,000

A billion dollars is another giant leap. It isn't in the same bucket as a million bucks at all. It is a thousand times more than a million dollars. A billion US treasury notes would weigh a whopping 2,500 tons (ten-million PBJs). That is just shy of the weight of two fully grown Sierra Redwood trees with trunks so wide you could carve out a tunnel through them and drive the two pick-up trucks above right under the trunks. Keep in mind the weight of a million Treasury notes is only the cargo in the bed of two pickups, not the trucks themselves.  I visited the Redwood Forest last summer and I still can't imagine the weight of those trees.

The point here is to help everyone see that billionaires and millionaires are very different species. We must be put them in a very different bucket when we think about wealth and wealth inequality. Most of the billionaires in the world are here in the USA. We have over 500 of them. Together they control almost all of the wealth in this country.  They exsert an unimaginable influence over our government. If 90% of the people in this country want sensible gun control legislation and can't get it passed in Congress, it is because of the enormous power of a handful of uber-wealthy individuals who control enormous wealth and power.

So, the next time you pick up a peanut butter and jelly sandwich, remember that someone like Jeff Bezos privately owns the dollar-weight equivalent of a billion PBJs and Michael Bloomberg's wealth in the weight of a dollar bill is equal to the weight of 120 redwood trees.

BASED ON THICKNESS OF A $100 BILL

Instead of a US Treasury Note's weight, how do millionaires and billionaires stack up based on the thickness of a $100 dollar bill?  If you are of average height, make two stacks of $100 bills the hight of your knee cap. That is approximately one million dollars. Now keep stacking those two piles of $100 bills until they are about 400 feet above the Empire State Building. Congratulations, now you have your first one-billion dollars. And if you are Michael Bloomberg, you have about 160 stacks of bills higher than the Empire State Building.

And here is why it matters so much in our republic, in the words of Franklin D. Roosevelt:

"The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group, or by any other controlling private power." 

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2/28/2020 - I have added the following video link. It is a fantastic visual aid in understanding the scale of wealth inequality and I highly recommend you watch it.

https://twitter.com/i/status/1233405556796403714

And here are a few graphs to consider when thinking about Wealth and Income Inequality

Wealth Inequality has Always Been Un-American

by Brian T. Lynch, MSW

In an Intelligencer article entitled, “AOC Thinks Concentrated Wealth Is Incompatible with Democracy. So Did Our Founders,” Eric Levitz writes, “ [Alexandria] Ocasio-Cortez’s second argument against the existence of billionaires — that concentrated wealth is incompatible with genuine democracy — was something close to conventional wisdom among the founders. Levitz goes on to write:

“The notion that political freedom has a material basis did not originate with Karl Marx and the creed of Communism; it was a core idea of the 17th-century British political theorist James Harrington, and his formulation of classical republicanism. A man who does not own the means of his own reproduction can never exercise political freedom, Harrington argued, because “the man that cannot live upon his own must be servant.” Likewise, the man of immense wealth — whose fortune consigns great masses of men to servitude — is inevitably a kind of tyrant. After all, 'where there is inequality of estates, there must be inequality of power, and where there is inequality of power, there can be no commonwealth.'”

Having seen the ravages of extreme property-based wealth inequality in England, Thomas Jefferson was concerned that measures needed to be taken to prevent such inequality in America. Among his ideas, he wrote:

“Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.”

The vast concentrations of private wealth we see today is incomparable with a democratic society - and our founding fathers knew it. Regardless of if they were for or against democracy as a form of government, there was agreement that this nation needed to guard against the extreme accumulation of property in the hands of a few.

While Jefferson and the founding fathers understood this, they nevertheless adopted a Constitution which only permitted a flat tax (Art. 1, Sec. 9, 4th paragraph). It wasn't until the Sixteenth Amendment was adopted in 1913 that the idea of a progressive income tax became possible.

The progressive income tax of 1913, as it was originally designed, did exactly what Thomas Jefferson had suggested. It was not intended that wage earners would be taxed at all. The bottom tax bracket began with incomes over $100,000 in today’s inflation-adjusted dollars and many higher marginal tax brackets climbed upwards from there. The one reason most wage earners ended up paying income taxes is that the 1913 law was not indexed to inflation. Just like the alternative minimum tax today, the progressive income tax crept down the income scale over time as wages were adjusted upward for inflation and productivity growth.

Up until World War II the top marginal income tax rate was over 90%. It was set that high to help prevent the unchecked accumulation of private wealth for the sake of maintaining a functioning democracy. President John Kennedy scaled back the top tax bracket to 70%, but it was Ronald Reagan who destroyed the whole purpose of the progressive taxes by cutting the top rate to less than it is now. At the same time, he adjusted the bottom rate to increase income taxes paid by lowest-paid workers. These changes, along with a law to tax capital gains at 1/2 the rate of wage income, set-in-motion one of the main conditions that would result in the creation of today’s billionaire class.

The other changes that allowed for the current unchecked accumulation of vast amounts of private wealth were the rise in the mid-1970s of organized capital in the form of political associations and PACS, (Political Action Committees) bent on killing unions and electing pro-business politicians. To this end the practice of sharing growth in the hourly gross domestic product (GDP) with workers in the form of productivity wages ended. Since then the US economy has nearly tripled but nearly all of that new wealth has gone to the wealthiest owners of capital. Wage growth, adjusted for inflation, has been nearly flat since 1975.

The irony here is that if productivity wages had been allowed to keep pace with America’s growing wealth (hourly GDP), the average family of four today would be making over $100,000 per year, the point beyond which they might have had to start paying income taxes if the original 1913 progressive tax law had been indexed to inflation.

How many more billionaires can we sustain before we collapse?

by Brian T. Lynch

The New York Times recently asked each of the Democratic primary candidates for President a series of identical questions. The last question on their list was, “Does anyone deserve to have a billion dollars?”

The trivial framing of that question bypassed the grave urgency for asking it in the first place. In a variant form of the question the Times was essentially asking, “Isn’t it OK to be a billionaire if you played by the rules and worked hard to earn it?”

The wording of the question pre-supposes that the laws and social rules in place, by which a person may accumulate a billion-dollars, are fair and open to anyone. It ignores whether inherited wealth is also deserved.  Most importantly, it treats wealth as if it is only a money count and not a measure of privilege and social power. By doing so, the question as it was posed ignored the essential problem that extreme private wealth is toxic to human society regardless of a person’s character or how they obtained it.

A more salient question would have been, “How many more billionaires can this human society sustain before it collapses?

In the 50,000-year history of human civilization, the concepts of private ownership and private wealth are recent developments. The full ramifications of these constructs on our social cohesion and collective welfare are still being revealed. The written history of civilizations offers no comfort. There are no examples of a happy, stable society where extremes of wealth inequality existed. The lessons of history seem to be that a suitable balance of power is required to sustain a healthy and stable society. Human populations simply cannot tolerate distributions of wealth/power that either force unnatural equality or permit unlimited extremes of private wealth.

There is no question that we crossed the Rubicon into a world where extreme wealth inequality is corrupting world governments and destroying the balance of nature. The questions we should be asking candidates for President and all our elected officials are, “What are your plans to rebalance the distribution of wealth and social power in America?"   And then the follow-up question, “What are you going to do to stabilize and rebalance the Earth’s damaged ecology?”

Data Analysis Shows a Dem Centrist Candidate Loses

by Brian T. Lynch, MSW

Here’s a quick summary of how U.S. politics has evolved over the last 50 years, according to a massive analysis of exit polling data conducted by economist, Thomas Picketty.

The ultra-wealthy elites were always conservatives on the political right in the 20th Century. They were traditionally represented by the Republican Party. The lower economic classes were always progressives on the political left represented by the Democrats.

Massive income growth by the wealthiest citizens and changing patterns of wealth accumulation at the top of the scale created a new, high education/high wealth class of elites on the political left. Their power and special interests realigned the priorities of the Democratic Party and shifted focus away from those on the lower end of the economic scale. For over 20 years Democratic candidates for election barely ever mentioned America’s poor. This is especially true for America’s rural poor. With neither party representing the interests of the working class or the poor, these citizens became disaffected and radicalized against elites in both parties, and also against the federal government in general. This gave rise to the Tea Party movement. A vast swath of the Democratic base switched allegiance and became the radical Republican base we have today.

To attract and hold on to these radicalized low wealth/low education voters the industrialist elites have funded and vastly expanded the alt-right media machines to appeal to their radical base. They also pushed radical policies to appease and manipulate their new base. The Republican party today would not have enough members to be a national party if this shift had not taken place.

So, this is how United States politics stands nearly 20 years into the 21st Century. On the Right, we have a radicalized Republican Party comprised of the same ultra-wealthy industrialists at its core. But today they have created this subversive coalition of traditional conservatives and a pantheon of disaffected, low education/low wealth former Democrats. These voters at the lower half of the economic scale include a disparate collection of alt-media radicalized single-issue voters, fringe groups, hate groups, and the disaffected rural poor. All of these groups have otherwise unpopular goals, which the traditional party elites exploit by pushing a radical Republican agenda that is harmful to a majority of Americans, but not to their own bottom line.

On the left, we have a modulated Democratic Party unwilling to challenge the influence and power of the ultra-wealthy, left-leaning elites whose economic interests are best served by maintaining the status quo. The Party is no longer the champion of the poor and marginalized citizens that it once was. The party fauns over the “middle-class” (the upper 40% on the economic scale) in order to hang on to them while strategically ignoring the poor and working-class that once formed its base. Instead, it panders to its former base voters without actually pushing an agenda that would improve their lives.

It is for these reasons that Picketty draws the conclusion that a centrist Democratic candidate for President may be a losing strategy. A centrist who tries to thread the needle between ultra-wealthy elites on the left, and the poor and working classes at the base, will neither energize progressives at the bottom of the income scale nor win over the disaffected voters who have turned to the Republican Party to make themselves heard. It is against these new political realities that Democratic progressives must come to terms before it is too late.

A Blight of Billionaires

by Brian T. Lynch, MSW

To quote a recent Newsweek article about our first elected billionaire to the Office of President:

"Anybody with $1 billion in net worth possesses a tranche of wealth greater than the gross domestic product of 60 nations. So what can a president give to these men who have everything? And what can they do for him and to the rest of America? The answer may be found in the most famous line from the Italian classic novel The Leopard, about the decaying Sicilian aristocracy: “Everything must change so that everything can remain the same.” The best gift Trump can give his rich friends from Manhattan is to appear to be shaking up the system while leaving their myriad tactics for manipulating and amassing capital unaffected by federal regulation and higher." NINA BURLEIGH, Newsweek 4/5/17

By the latest count there are 1,542 billionaires worldwide, 560 of whom live in the United States. There has never been a cohort of so many billionaires in the world before. It is a mistake to lump them in with the millions of ordinary millionaires that we think as being rich.

There is a huge difference between billionaires and millionaires in wealth, in power and in their world view. Consider this: Two stacks of $100 bills pilled as high as your knee equals a million dollars (each bill is .0043 inches thick). Two stacks of $100 bills pilled as high as the Empire State Building equals a billion dollars.

Most millionaires, on the other hand, start out as hard working folk on whom good luck has smiled. You can't accumulate a million bucks without good health, good timing and other matters of chance. 

Millionaires, however, will often say they don't believe in chance. They will say they earned what they have through persistence, hard work, education, bright ideas and going that extra mile, which is all true... so long as their good luck doesn't run out.

How many millionaires are there? In 2014 it was estimated that there were 920,000 new millionaires created, bringing the global total to 14.6 million. At that rate there would be no fewer than 18 million millionaires today.

The problem for the rest of us is that the more knee high stacks of $100 dollar bills millionaires have, the more they benefit from the tilted playing field created by the vastly wealthy billionaires. More importantly, the richer they get the more they begin to act as courtiers to the royally rich. The majority of our elected federal officials are just these sorts of millionaires.

Billionaires are immensely powerful. The majority of them inherited this wealth and power, much like royalty. And like royalty, most of them feel entitled and especially worthy of their rank and position. Many of them  think government and our social institutions should reward them , so they tilt the playing field to accelerate their capital growth.

People becoming millionaires is generally a good thing for the economy, for job growth and national GDP. The problem with millionaires arises when they fall under the influence of billionaires. The the more knee high stacks of $100 dollar bills millionaires have, the more they like the tilted playing field created for them by billionaires. More importantly, the richer they get the more they act as courtiers to the royally rich. It's more than a fascination, it becomes an addiction. The majority of our elected federal representatives are millionaires who engage in just these sorts courtier activity.

The world is rapidly approaching the point where a single multi-billionaire could control enough wealth to directly compete with national governments. We are already beyond the point where even loosely coordinated actions among billionaires can sway or defeat the popular will within nations. On example of their power is the "death tax" movement to eliminate the U.S. Estate Tax. As a percentage of the population, federal inheritance taxes affects very few families, just 0.2% of the population. The push to kill the death tax was created and funded by just a handful of super wealthy families. Billionaires want to secure their children's right to succession of their money and power. The Estate tax is the last bulwark our society has in defense of a democratic society. It is not sufficient when it can be so easily defeated by just a handful of billionaires. 

In his book, Capitalism in the 21st Century, Thomas Piketty takes on these issues directly and in great detail. Among his conclusions is that the march towards wealth inequality can only quicken over time without significant democratic controls. His primary suggestion is a global, progressive tax on wealth ownership. The barriers to establishing that are formidable, as he discusses in his book. But the greatest obstacle to any social intervention to save our freedom and self-governance is our failure to even recognize the threat that billionaires and wealth inequality pose to our future.