Larry Beinhart's Body Politic: Major Systemic Financial Failure
By Larry Beinhart
In December, President Obama gave a speech in which he said that income inequality "is the defining challenge of our time." Which makes it, probably, maybe, one hopes, part of our actual national dialogue.
It's about time.
Income inequality was one of the defining issues of the Roaring Twenties, which ended with the Crash of 1929 and the Great Depression. Then, with the New Deal, the United States went into a long period of increasing equality. Along with incredible growth. The conventional view used to be that the improvement in income and wealth distribution led to the growth. The egg that grew into the chicken. Nowadays, we're more likely to hear that the growth has to come first. Let the chickens run free and they'll lay enough eggs to feed the masses. Or something like that.
Until 1981, the rising tide lifted all boats. After 1981, the tide became selective, raising the yachts while leaving the barges and the tugs—the working boats—to get stuck in the mud. Which seems like the sort of thing a tide wouldn't, and couldn't, do. But it's just an inadequate metaphor. It was Ronald Reagan who stopped the progress of egalitarianism in modern America, like El Cid fighting the Moors to a halt in medieval Spain, making him the all-time great hero of the Right.
A few people on the Left noticed that the rich and the rest were growing farther apart, some fewer said that it was a negative trend, and even fewer insisted it was a result of government policy. It was dismissed, in the main, as a sort of artifact, collateral damage, from the sun rising on Morning in America. The down trends, especially, were said to not be a result of policy. They were natural, actually acts of God, the very Lord who gave us Free Markets. As for the losers in this Darwinian scramble for loot, it was their own fault. They were drug abusers, children of single mothers, who had failed to achieve better educations and had lost their moral fiber through dependence on government handouts.
Except for a brief correction during the Clinton administration, the accumulation at the top and the divergence became more and more dramatic. Working for the Few: Political Capture and Economic Inequality, a report from Oxfam released in January, details the split:
The richest 85 people in the world own as much as the bottom half of the world's population.
Almost half of the world's wealth is now owned by just 1 percent of the population.
The wealth of the 1 percent richest people in the world amounts to $110 trillion. That's 65 times the total wealth of the bottom half of the world's population.
Some of my less-than-liberal friends may scoff and sneer. Oxfam and Obama: What do you expect from a Lefty British charity group and a Kenyan socialist?!?
But once a year the people who own the world—the bankers, brokers, Bill Gates, the ghost of Steve Jobs, CEOs, and the like—get together to meet at the Swiss ski town Davos to schmooze, hold conferences, conspire, and publish lots of reports. Global Risks 2013, from the World Economic Forum, says that the danger "rated most likely to manifest over the next 10 years is severe income disparity, while the risk rated as having the highest impact if it were to manifest is major systemic financial failure."
The liberal-versus-conservative debate in America is stuck in the quagmire of pseudomorality. The Left cries about fairness. The Right shouts about liberty. But the League of Billionaires gets to the heart of it: Too much money in too few hands is a recipe for disaster.
Imagine there's a great big pile of money—which there is. If it gets distributed into many, many hands, then there are many, many people to buy things. I give lots of credit to businesspeople. If there's a customer with a dollar in his hand or a ducat in his pocket, an entrepreneur will find a way to get to him if it means fording frozen rivers and creeping through battle zones. When people accumulate more than subsistence and basic indulgences, they want to invest, for their money to make money. The more they have, the more they invest. Which is the argument that conservatives and free marketeers use in favor of income inequality. But as there's less money spread out among the masses, they reach the limit of their ability to buy. So there's no point in investing in producing things to sell them. As more money gets into the hands of the very few, they continue to want to invest at a profit. It creates a classic, but narrow, form of inflation: too much money chasing too few goods, the goods being productive investments. Stocks become overvalued. Then the money flows into nonproduct areas. Like tulips. Yes, there was once a tulip bubble. In Holland, ca. 1636-37. You can view the (simulated) Tulip Price Index on Wikipedia. Nowadays, the money goes into the financial sector and real estate.
All human impulses—war, competition, envy, vanity, sex, drugs, and rock 'n' roll—have real utility. Otherwise, evolution would have bred them out of us. Yet in excess they can be dangerous. The impulse to become rich, to speculate, to make money from money, is useful to us all. In excess, greed is as dangerous as drug addiction, and the addict will lie, cheat, steal, rob, and ruin all those around him, and believe that they're only doing what must be done.
There is one, and only one, remedy. The sanity that dare not speak its name. Tax the rich. Really, it's for their own benefit. More to the point, it's for your own.
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