The Argument Against Income Inequality

Why don’t you go after celebrities rather than just businessmen and bankers?

When people bring this up, it’s often because they don’t quite understand the difference between normal rich – which most celebrities fall under – and oligarchical rich – which only maybe a couple hundred families in the US qualify for.  Most of the destructive rich are as many times richer than celebrities, as celebrities are richer than you.

A huge point to drill home is just a perspective one; a billion dollars is 1,000 millions – one has to really stop and think about that.  A billionaire is one-thousand times richer than a millionaire, and our country now has multiple multi-billionaires!  Share this concise visualization of money from a single dollar all the way up to the hundreds of billions:

Also, consider these ways of thinking about the astronomical amount of wealth that someone like Jeff Bezos has:

• Jeff Bezos earns the amount equal to a median Amazon worker’s yearly salary every 9 seconds.  If he stops to eat a sandwich for 15 minutes, he’ll have earned 100 employees’ yearly salaries in that time.
• If you earned a dollar per second, every moment of your life, it would take about 11 days to make a million dollars.  It would take 32 years to make a billion dollars.  It would take 4,950 years to make Jeff Bezo’s net worth (~$150B) at the time this article was written.
• In 2020, Jeff Bezos bought the most expensive home ever sold in California – at $165 million.  This is equal to 0.1% of his net worth.

And what’s the difference between “movie-star rich” and “oligarch rich”? Several points here:

• People love to say “well most of their wealth is tied in with their companies”, and therein lies the problem; it’s money tied in company stock, that isn’t being used to pay workers, that isn’t being spent, that isn’t being circulated in the economy.  When you or I, or even a movie star, gets paid, we generally spend a large portion of that money, which then goes into paychecks, and cycled back into the economy again, and thus there is constant velocity of money.  Billionaires do not spend their money.  And then, when you consider the likely $7.6 trillion hoarded in offshore bank accounts  that is essentially pulled out of the global economy and not doing anything for anybody, we can start to see the problem.
• Billionaires have so much money that they are able to buy influence and change politics on a level that only blocs of millions of voters should be able to.  Research has shown most of America’s top 100 billionaires spend their money to lobby for tax breaks and loopholes that would get them even more money.  Decisions like Citizens United have opened the floodgates, allowing corporations to freely throw their money around in elections for the people.
• Billionaires have so much money that they are able to buy adoration by spending a nominal amount of their wealth.  For example, Jeff Bezos was widely lauded and adored for donating $100 million to food banks during the Coronavirus crisis.  Commendable when you look at the absolute value, but this relatively huge donation only equals %.06 of his net worth – the equivalent of someone with $50,000 in his bank account donating $33.  Perhaps it’d be better if that money had circulated through his workers and into the economy in the first place rather than given to one man to control.  One must question why one person can wield that amount of money like pocket change and in exchange buy the allegiance of millions of people in the public eye, all while doing things like cutting employee healthcare for thousands and forcing employees to work under dangerous conditions.
• On a very surface level, most billionaires have so much money that several generations of their family, freely spending, could not spend it all.  This tool, “Spend Bill Gates Money“, is an excellent demonstration of how one cannot materially spend the amounts of money that certain people have accrued.  Many billionaires could lose substantial amounts of their wealth and it would have no impact whatsoever on their lifestyle or ability to afford it.

But they earned all their money!

This statement can be questioned on multiple levels.  Consider the following:

• A third of the Forbes richest 400 inherited companies founded by earlier generations
• For the top 0.1%, 69% of their wealth comes from capital income – that is, money is passively earned through investments and stock dividends, not hard work.  Due to our lax capital gains tax structure, the richest households are simply able to continue making money from their existing money, without doing any additional work or adding value at all, and they do.
• Three dynastic wealth families—the Waltons, the Kochs, and the Mars increased their wealth nearly 6,000% since 1982. Meanwhile, inflation-adjusted median household wealth over the same time went down by 3%.  Remember, the workers who created the value for these companies were worse off over 4 decades while these couple families reaped astronomical amounts of the value from that labor.
• The Panama Papers revealed that there was an international conspiracy among the super rich to rig banking to hide and hoarde money.  Global investigations happened, politicians resigned, banking regulations were strengthened overnight.
• During the Coronavirus Crisis, between March 18 and April 10, 2020, 22 million people lost their jobs as national unemployment spiked toward 15 percent. Over the same three weeks, U.S. billionaire wealth increased by $282 billion, a nearly 10% gain. At what point do we concede that the real economy has entirely separated from the stock market, and the destructively rich have rigged it to make up money, as they want, with nearly no obstacles?

While it is certain that if one is the head or founder of a company, they deserve to reap the benefits to a greater degree.  So how do we know that the money that the richest of the rich accrue today isn’t all earned and largely extracted from the productivity of the workforce?

If we look at data from the Bureau of Labor Statistics, we can see that during times of economic prosperity, the median hourly compensation rate (that is, what the guy in the very middle of the country makes) should rise about proportionally with the country’s Gross Domestic Product, which is the total monetary value of all of the products and services created by a country’s economy.  However, somewhere around the 1980’s, during unprecedented Reagan tax cuts and the advent of Trickle Down Economics, these two figures started decoupling.

The American workforce kept consistently pumping out more productivity with relatively little disturbance, but the median hourly wage stayed stagnant.  That ever-increasing gap between our GDP and the stagnant median wage represents the potential earnings of the middle class that is instead usurped by the richest.

Another way we can look at it is how new income has been flowing into the top 0.1%, both with and without capital gains (gains on the stock market).  Again, we see a consistent supporting trend where the income percentage stays flat and steady, then begins running away around the 1980’s.

Yet another way we can look at this data is to see how much income growth each section of the country experienced over time; opponents love to say that the middle class grew too, but this chart shows exactly how the top 0.1% has again unequally hoarded all of the gains for the last 40 years, regardless of inflation.

How did this happen? At one point in America, heavy taxation on the top 0.1% made it unappealing and unrealistic to hoarde billions of dollars, and so the money was put into paychecks. Born out of these policies, was American middle-class surburbia.

Starting with the trickle-down era, lax taxes have made it more appealing to just keep the money and hoarde it through bonuses and stock buybacks rather than reinvest it in their companies and their workers.  Policies such as lowering the top marginal tax rate, and rampant tax loopholes have incentivized the richest of the rich to keep more of their money than ever before.  If we think of the wealth of the rich as a pendulum, then American tax policy has pushed that pendulum all the way towards hoarding and away from general welfare.

Okay, so the rich are very rich…how do we know that’s hurting the average person?

One point to have someone agree on ahead of time is that money is zero-sum, meaning that there is a finite amount of it, and if some people have a lot, then necessarily everyone else has little.

If you’re on an island with 9 other people and 100 coconuts, and one person has 99 coconuts, then logically, the other 9 people will need to split that one remaining coconut.

The U.S. is a far bigger island and there are many more coconuts, but the principle is the same.

Now keeping the zero-sum coconuts in mind, consider that during the same time when people are imagining the advent of the first trillionaire…

• More than 11 million children in the United States live in “food insecure” homes; their households do not have enough food for each family to lead a healthy life.
• Over 1 in 10 households live below the poverty line.
• There isn’t a single congressional district in the U.S. where a full-time minimum wage worker can afford a two-bedroom apartment.
• A 2018 study by the Federal Reserve found that 4 in 10 American households reported that they would struggle to pay for an unexpected $400 bill.
• The bottom half of the entire country combined has negative net worth.
• Our income inequality has reached and surpassed Chinese and Russian levels

Perhaps most damning is that as of 2016, the ratio between S&P 500 CEO and average U.S. worker pay stood at 347 to 1, over eight times as wide as the gap in 1980, and with the rest of the democratic world’s pay gaps hovering around the 50:1 ratio.

We can see that the pendulum has swung very far away from the general welfare.

This is the reason why politicians like Bernie Sanders and Elizabeth Warren have gained popularity recently, who push for policies resembling Nordic-model Social Democracy, where anyone can make as much money as they want on the free market as long as they pay the taxes necessary to create a social safety net for everyone else.

The World Happiness Report, which is compiled every year at Columbia University, often has social democratic countries like Finland, Denmark, Norway, and Iceland consistently in the top 5.  Meanwhile, the U.S. most recently sits at #19.

There have always been rich people!

Again, the rich we’re talking about is a different kind of rich.  We can see by merely charting the number of billionaires year by year, that the number started running away as time went on; between 1987 and 3013, the number of U.S. billionaires ballooned 10 fold.  There has never been this many rich with these levels of wealth.  Now given what we know about the zero-sum nature of money – we must accept that there is an upper limit on billionaires at some point and the growth is unsustainable.

Here is another chart showing just the explosive hedge fund billionaire growth in the US – that is, billionaires who do not actually build companies or produce anything, and merely make their money on the market through a hedge fund.  Note that other modern democracies do not experience this kind of  rampant growth from hedge funds.

Our country is so wasteful of tax money now…why would I give the government more?

This is honestly a good question; currently with the way Congress works to appease the oligarchy rather than the average person, why would we trust them with more money?

The answer lies in the fact that higher taxes on the rich would never be implemented without a major political upheaval immediately prior to it.  That is, the current government, with the current representatives, would never implement these things, and the ones who would do so would also be a coalition that has already ignored corporate lobbying power.  It seems intuitive that those who successfully levied a tax for the people would also put it to use for the people.

Also, despite its many shortcomings, few private organizations have ever come close to executing large public works projects in a somewhat fair and equitable way like the government can.  Things like the electrical grid, the water system, telephone lines, the interstate highway system, the public school system, are examples of huge public projects that requires government-level coordination to complete.  Other social programs, like SNAP food benefits, still have the widest reach and meet the most need when compared to private food organizations.  Programs like Medicare still are able to help far more people than an organization like The Red Cross.  Even though companies like Amazon are built on the internet, it still required a government funded project to build the internet itself.

It’s more about how we execute public works to help the most people and maintain oversight – like FDR’s New Deal, which built the Interstate Highway System, created Social Security, and helped pull America out of The Great Depression – rather than have a pure-good or pure-evil view of the government.

You sound like a Communist!

Well…Communists, just for starters, want to abolish the money system entirely in favor of rationing, and I don’t think anybody is doing that.  As long as the free market still exists, and money is traded for goods and services, the “communism” argument can be thrown at the window.