Worldview Blog

Some Thoughts on the Distribution of Wealth
2 February 2008

The basic facts

It's clear from my articles that I'm antiwar, in the sense that we should not pursue an interventionist foreign policy and should only defend ourselves from direct attack. Our track record on intervention, however noble the motives may have been, is deplorable. But am I a progressive, who favors domestic government intervention to improve the lives of the less advantaged? Or am I a libertarian, who harbors such a deep suspicion of government that he wants it reduced as far as possible? In particular, how do I feel about the distribution of wealth, and what should the government do about it? This is a contentious topic. Indeed, much of our foreign and domestic policy has been guided by the determination of our wealthy elites to suppress any form of communism or socialism wherever they can. I can only sketch a few general thoughts regarding this complex topic, but let us start with some hard facts from Wikipedia (which I will assume to be correct):

DISTRIBUTION OF WEALTH
IN THE UNITED STATES
Wikipedia, 29 January 2008

The United States is one of the richest countries in the world (2nd behind Kuwait), and in 2000, the mean wealth was $144,000 per person.[6] In the United States at the end of 2001, 10% of the population owned 71% of the wealth, and the top 1% controlled 38%. On the other hand, the bottom 40% owned less than 1% of the nation's wealth.

In 2003, the most-earning 1% of the population in the United States, which has a system of progressive taxation, paid over 34% of the nation's federal income tax; the most-earning 10% bore 66% of the total tax load; the top 25% of income earners paid 84% of the income taxes; and the upper half accounted for virtually the entire U.S. income tax revenue (nearly 97%).

However, if the federal taxation rate ('Individual Income Tax Rates and Shares, 2004', published by the IRS) is compared with the wealth distribution rate, then the net wealth (not only income but also including real estate, cars, house, stocks, etc) distribution of the United States does almost coincide with the share of income tax — the top 1% pay 36.9% of federal tax (wealth 32.7%), the top 5% pay 57.1% (earning 57.2%), top 10% pay 68% (wealth 69.8%), and the bottom 50% pay 3.3% (wealth 2.8%).[8]

Frankly, my gut reaction is shock! The top 1% of population controls 38% of the nations's wealth, and the bottom 40% less than 1%! Are we a proverbial banana republic? Note that this means that the $144,000 figure for mean wealth is misleading; a huge chunk of people clearly owns much less than this. Such a gross disparity in the distribution of wealth cannot be healthy for a democracy. Not only does it lead to social discontent and political polarization, but it also gives unfair power to the wealthy, since it is no secret that our politicians are for sale, with a few honorable exceptions. It would seem that we have a democracy of the rich, by the rich, and for the rich.

What to do about it?

But what to do about it? Let me state right off that my bedrock political principle is democracy. Any alternative seems manifestly unfair. At the same time, I deny that the majority opinion is necessarily wise or virtuous. The inanity of our political process makes this abundantly clear. Democracy is simply the only way to prevent ruinous social conflict and to promote a semblance of justice. Philosopher-kings may sound good in principle, but who will choose them? Thus, if wealth is to be redistributed, it must be strictly according to a democratic process. Capitalists like to blur the distinction between democratic socialism and dictatorial communism, but this is dishonest and part of a longstanding (and effective) propaganda campaign to discourage socialism.

Basically, my feeling at present is that we should have a progressive taxation, without loopholes and tax shelters, which is intentionally designed not only to pay the government's bills but also to redress the gross imbalance of wealth to some extent. Yet the Wikipedia article suggests that we already have that! It may even seem rather fair, on the surface, that the tax bill simply reflects personal wealth and is not even more progressive. So what to do about the appalling fact that the bottom 40% own less than 1% of the wealth?

Well, we could make the tax system even more progressive. That said, I would immediately draw a distinction between the middle and upper middle classes, on the one hand, and the very wealthy, on the other. The middle class is preoccupied with paying their mortgage and sending their children to college. This is enormously expensive, even taking into account that many middle-class Americans enjoy living in 'McMansions'. Perhaps it is because I am from the middle class, but I feel that ordinary Americans have a fundamental right to provide their own families with a nice home and college education. And of course, an attack on the middle class would be political suicide. So any dramatic tax increase should be on the very wealthy. What would be fair? And are there enough of them to make a difference? Leaving aside the issue of fairness, I simply don't know if draconian taxation on the income of the very rich could significantly redress the imbalance. Somehow, I doubt it.

So perhaps the only way to distribute wealth in an equitable fashion, in a reasonable amount of time, is through a massive transfer of wealth (rather than mere income) from the very rich to the poor (and perhaps to some of the middle class as well). We might call this the 'Robin Hood' solution, after that beloved hero of English-speaking peoples. Naturally, this would be outrageous to our ruling elites, and any president brave enough to propose such a thing could expect to be promptly assassinated. But even if such a bold move were attempted, by what formula would it be carried out? Would there be undesirable consequences? And would it be fair?

A complex topic: Some basic guidelines

I cannot answer these questions in detail. They are too difficult, and economics is not one of my strengths. However, I will state as a basic principle that I see nothing inherently unfair with using government to effect such a redistribution of wealth, provided it is carried out democratically. The question of how much should also be answered through democracy. What I reject is the conservative notion that such a democratic transfer of wealth is inherently unfair, even when it is from the very wealthy to the rest of society. This idea seems well on its way to being taken for granted in America, thanks to the powerful influence of the rich over the political process, over the media, and increasingly over our universities. It was not always so, but times have changed.

One reason for this is the clear failure of communism and the alleged failure of socialism, during the course of the twentieth century. I won't argue on behalf of communism, since its denial of democracy makes it unworthy of consideration under any circumstances. However, the supposed failure of socialism, say in Europe, is more problematic. It may well be that unions have too often voted for benefits that were not healthy for the economy, or that amounted to depriving others not much wealthier. Yet the increasing acceptance of so-called free trade has been a major factor in the loss of jobs in both Europe and America. This free-trade has ruthlessly pitted Western wage earners against third world wage earners, while benefitting the capitalists rather than the third-world wage earners. It has amounted to union-busting and was carried out, in the United States at least, with the acquiescence of both major political parties, whose corruption has made them little more than the servants of the rich. It is remarkable how NAFTA and similar measures were passed by Congress with so little criticism. Perhaps that was because the intellectual classes were also for sale, for the most part, not to mention President Clinton.

Now I can agree with Hayek and the libertarians that the government should not try to set prices and manage the economy, as it simply lacks the knowledge to do this properly. In addition, the inevitable corruption of the democratic process is a powerful argument against managerial socialism. All I advocate is the basic idea of using the tax system to redistribute wealth, in a way that does not favor one industry over another and that does not interfere in actual management. After all, our huge debt means that we are going to have to raise taxes before long, so we might as well start with the rich. But there should be no targeted loopholes, often masquerading as charity or government help. (I feel similarly about scholarships and quotas in universities. I am in favor of helping the needy, but not according to specific divisive criteria such as race. In that sense, I disagree with much of the 'left'.)

As I said, this brief sketch can hardly to justice to the complexity of the topic, and there is much I do not know. I simply want to fight the pernicious idea that any redistribution of wealth via the democratic process is inherently wrong. I guess that means I'm a progressive and not a libertarian, as far as economics is concerned. However, I am a libertarian in the sense that I wish to get government out of my private life as much as possible, and also I believe in the importance of personal responsibility. I realize that socialism can lead to the public becoming spoiled and irresponsible. Bur right now, the greater danger seems to be that the insufferable conformism of American society has made most of us too timid to even discuss the topic of redistribution of wealth in a serious way. We should at least begin (or rather resume) this important and urgent discussion.

Smearing progressives

UPDATE (2 Feb 08): There are so many lies or distortions one could make about a 'radical' position like mine! And conservatives do this all the time, as part of their never-ending wealth-preserving propaganda campaign. It is remarkable how many ordinary Americans have been brainwashed by this 'free enterprise' rhetoric, even against their own economic interests. It seems that people simply believe what they hear frequently, especially if on television or from their priests and preachers. People want to be sheep. Maybe it's more comfortable.

Perhaps the most common charge is that I am some kind of 'Marxist'. My article should answer this silly charge, but it is worth spelling out. The problem with Marxism is not the redistribution of wealth but the lack of democracy. When wealth is distributed democratically, that is called socialism, at least according to my definition. As long as there is one-man one-vote, then the rich must acquiesce, unless they wish to foment a coup with the armed forces, or something like that. So far, their successful propaganda campaign has forestalled the need for such drastic action, helped along by maintaining a constant state of war or quasi-war, whether with Soviets or Muslims.

A second common charge is that I am a socialist in the sense that I want the government to control the economy. That may be one sense of the word 'socialism', but I have made clear that I only want a tax system to redress the horrible imbalance in wealth. I fully accept that a dynamic economy will only happen if the managers can make enough profit to reward their efforts. Perhaps they don't need the huge sums that some of them are getting, but they do need incentives. Also, I agree that only motivated managers with hands-on experience of their companies have the information to make wise decisions. We must never forget how the totalitarian planning under the Soviets and Communist Chinese led to famines. And Hayek's idea that only markets can determine efficient and proper prices makes intuitive sense to me. Furthermore, I would concentrate on the very wealthy and avoid interfering with so-called 'family' businesses, such as restaurants or small companies. I merely want to go after that 1% who own 40% of the wealth for the sake of the 40% who own 1% of the wealth!

Some outraged wealthy people may feel that they 'earned' all of their wealth. This is true up to a point, if they built a business up from scratch. During the early phases of growth, they no doubt took much risk and invested much sweat. But once your wealth reaches a high level, all further profit becomes disassociated from actual work and effort. You may be taking some risk with your money, but you can't really say that you 'earned' your profit through raw labor, as Adam Smith would have it. Most likely, the money will come pouring in, provided you have a diversified portfolio, and the economy has not crashed. The very rich who lose a lot of money are generally those who took inordinate risks due to their inordinate greed.

I'm against all bullies

UPDATE (2 Feb 08): I may not be as pro-union as you suppose. I am reminded how Margaret Thatcher came to power partly because the general English population was fed up with constant strikes (or so I have heard). My notion of democracy is that it should allow the majority to restrain strategically-placed minorities from being able to blackmail society. These 'strategically-placed minorities' might be the proverbial fat cats, but they might also be, e.g., rail workers or coal miners who can bring the economy to a grinding halt if their demands are not met. There is no formula for how power should be distributed in society, but my basic goal would be to spread it out so that no group has a determining amount allowing any kind of extortion against society or against specific groups in society. (This inclination towards spreading power is entirely consonant with spreading the wealth.) For instance, NAFTA and similar measures might be considered such an extortion against Western workers, or at least a form of union-busting, which is the converse problem to unions that are too powerful. At the least, the third-world workers should have the same rights to form unions and enjoy comparable benefits. And I see nothing terribly wrong with tariffs to compensate for the drastic difference in the cost of living between different parts of the world. Big Business only loves 'free trade' when it benefits them, and go running to the government when they are in trouble (or even when they can simply get away with it). In all political discussions, one should never underestimate the prevalence of deceit and hypocrisy.

How we got here

UPDATE (19 Feb 08): Economics and tax policy are not my strengths, but here, briefly, is what I imagine has happened in America since WWII. The Democrats came out of the Great Depression and WWII in a dominant position, so that corruption, arrogance, stupidity and inertia were inevitable. In particular, they fell into the trap of promoting 'Great Society' programs while simultaneously funding the vast Cold War military-industrial complex, not to mention real wars like Vietnam (i.e. guns and butter). In addition, they became willing participants in a corrupt campaign-finance system in which private concentrations of money are allowed to buy up politicians. Thus, they were beholden to their rich benefactors and became more and more amenable to giving them tax breaks and other goodies. Certainly, Clinton was very generous with his Wall Street buddies, but it started way before that. This meant that the middle class had to foot the bill for an ever expanding program of guns, butter and corporate welfare. This gave an opportunity to the Republicans to sow a tax revolt among the middle class, which eventually put them in power. The guns are more lavishly funded than ever (including the Iraq war), the butter has been sharply curtailed, and corporate welfare (including tax breaks) is a rushing torrent of government-sanctioned highway robbery.

The Republicans also played a clever game of psychological warfare. In America, the word 'liberal' now means 'raise your taxes, promote cultural vulgarity, and attack your religion', none of these being winning issues. The middle class is now funding an unsustainable binge of endless war and corporate welfare, while getting shafted by the scandalous tax breaks for the rich. But the taxpayers don't seem to feel the sting, since the clever Republicans were careful to give ordinary folks their tax breaks of whopping hundreds of dollars, while placing a crushing burden of debt on their grandchildren. Did you ever notice how Republicans endlessly repeat the anti-tax mantra, while never being specific about who is paying how much in taxes? There is no limit to Republican ingenuity, or shame! And the Democrats can't fight back, and may no longer even want to, because they long ago sold themselves to a corrupt system, which has now enslaved their souls and campaign coffers. Thus does money short-circuit democracy, especially when the corporate media keeps the public woefully uninformed. But rejoice! You got hundreds of dollars back!

Greg Palast: Small Towns, Small Minds

Chalmers Johnson: Friedman's Folly: The Lies Behind 'Free Trade'

Paul Krugman: 'The Conscience of a Liberal'

Charlie Rose: Interview with Paul Krugman

ColdType: Joe Bageant page

Joe Bageant: Deer Hunting with Jesus (excerpt)

Joe Bageant: Redneck Liberation Theology

Joe Bageant: The Onion Eater

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