Z Magazine, October 2011 . By Paul Street
A recent broadcast on the “Public” Broadcasting System’s “News Hour” reported some chilling news on American life. The top 20 percent of Americans, it turns out, owns 84 percent of the nation’s wealth. That leaves 4 out of 5 Americans to fight it out for little more than a sixth of the nation’s net worth. Most in the nation’s bottom 40 percent are getting pummeled in that battle with only 0.3 percent of the nation’s wealth, basically nothing.
The PBS story, titled “Land of the Free, Home of the Poor” (aired August 16, 2011) may have understated the wealth mal-distribution problem. As of 2007, the leading wealth and power analyst, G. William Domhoff, notes that the top 1 percent owned more than a third (34 percent) of the nation’s privately held wealth. Worse, the top hundredth owns 43 percent of the nation’s financial net worth, including 38.3 percent of all privately held stock, 60.6 percent of financial securities, and 62 percent of business equity. The top 10 percent have 90 percent of stocks, bonds, trust funds, business equity and more than three-fourths of non-home real estate. “Since financial wealth is what counts as far as the control of income-producing assets,” Domhoff notes, “we can say that just 10% of the people own the United States of America.”
But the really super-rich are found in the top thousandth, not the elite hundredth. In 2007, the top thousandth received 6 percent of all U.S. income. The top five hundredth, with incomes of $1 million or more, got 13 percent of all U.S. income. The top 400 income “earners” averaged $344.8 million per person.
Last year, by stark contrast, the U.S. Census Bureau reported that the quantity of Americans living in poverty in the U.S. in 2009 was “the largest number in the 51 years for which poverty estimates have been published”—44 million. The Census Bureau forgot to add that the official U.S. poverty level, based on an arcane formula (the minimum adequate cost of food multiplied three times) is an open joke among serious poverty researchers (try to maintain a family of four at the official poverty threshold of $21,954 in any major U.S. metropolitan area today) and that many millions of those officially poor live in what those researchers now call “deep poverty”—at less than half that level. As the Center for Budget and Policy Priorities reported last year, the number and percentage of people mired in deep poverty hit a record high in 2009. Nineteen million Americans were stuck in deep poverty in 2009, up 2 million from 2008.
Pavé Rings for the Rich
This wealth and power pyramid has certainly become steeper and its poverty base wider since 2007, thanks to the Great Recession that began at the end of that year. The collapse of home values beginning in 2006 and the epidemic of foreclosures has particularly hurt the net worth of the middle and working classes, whose net worth is far more tied up in home ownership than in financial assets when compared to the rich. From 2005 to 2009, a recent Pew Research Center study shows, inflation-adjusted median wealth plunged two-thirds among Hispanic households and 53 percent among black households, compared with just 16 percent for white households, leading to an expansion of the black-white median household wealth gap to 5 black cents on the white dollar. Millions have been thrown out of work, feeding extreme poverty across the land.
A New York Times article last August reported that the rich and super rich have fully resumed their ways of conspicuous and opulent luxury consumption. “Even Marked Up,” the headline runs, “Luxury Goods Fly Off Shelves.” Further: “Nordstrom has a waiting list for a Chanel sequined tweed coat with a $9,010 price. Neiman Marcus has sold out in almost every size of Christian Louboutin ‘Bianca’ platform pumps, at $775 a pair. Mercedes-Benz said it sold more cars last month in the United States than it had in any July in five years…. Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering—they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price…. The luxury category has posted 10 consecutive months of sales increases compared with the year earlier, even as overall consumer spending on categories like furniture and electronics has been tepid.”
The Times noted that, “the success luxury retailers are having in selling $250 Ermenegildo Zegna ties and $2,800 David Yurman pavé rings—the kind encircled with small precious stones—[stood] in stark contrast to the retailers who cater to more average Americans.… Apparel stores are holding near fire sales to get people to spend. Wal-Mart is selling smaller packages because some shoppers do not have enough cash on hand to afford multipacks of toilet paper” (NYT, August 3, 2011).
Wealth is Power
Morally problematic in and of itself, such extreme inequality makes functioning democracy impossible. Domhoff explains: “Wealth can be seen as a ‘resource’ that is very useful in exercising power. That’s obvious when we think of donations to political parties, payments to lobbyists, and grants to experts who are employed to think up new policies beneficial to the wealthy. Wealth also can be useful in shaping the general social environment to the benefit of the wealthy, whether through hiring public relations firms or donating money for universities, museums, music halls, and art galleries…certain kinds of wealth, such as stock ownership, can be used to control corporations, which of course have a major impact on how the society functions…[and] just as wealth can lead to power, so too can power lead to wealth. Those who control a government can use their position to feather their own nests, whether that means a favorable land deal for relatives at the local level or a huge federal government contract for a new corporation run by friends who will hire you when you leave government” (G.W. Domhoff, whorulesamerica.net). Domhoff could have added media ownership, a critical, reality-framing, populace-deadening, and mass-“consent-manufacturing” asset of the rich.
When these processes of top-down domination are seen against the background of extreme wealth concentration in the U.S., the shocking disconnect between majority progressive public opinion on numerous key policy issues and the regressive plutocratic reality of actual policy on those and other issues becomes less than mysterious. So what if most Americans think that the ideal wealth distribution should be far more egalitarian than what actually exists? As business professor Michael Norton and psychologist Dan Ariely show in a recent study, most Americans think that ideal distribution would be one in which the top 20 percent owned between 30 and 40 percent of the privately held wealth and the bottom 40 percent had between 25 and 30 percent (Norton and Ariely, “Building a Better America One Wealth Quintile at a Time,” Perspectives on Psychological Science, 2010).
None of this sort of longstanding majority progressive opinion ever seems to matter in the U.S. where, as the American philosopher John Dewey noted more than a century ago, “politics is the shadow cast on society by big business.” Welcome to America’s gaping “democratic deficit,” a significantly greater problem than the nation’s much bemoaned and overplayed financial deficit. As Noam Chomsky recently noted, “Since the 1970s, [Dewey’s] shadow has become a dark cloud enveloping society and the political system. Corporate power, by now largely financial capital, has reached the point that both political organizations, which now barely resemble traditional parties, are far to the right of the population on the major issues under debate” (Chomsky, “American Decline: Causes and Consequences,” Alakhbar English, August 24, 2011).
How and why are such astonishing disparities tolerated in the U.S.? Part of the answer is that—thanks in no small part to the aforementioned problem of privately owned media—most Americans are ignorant of the depth and degree of wealth inequality in “their” country. When shown three pie charts representing possible wealth distributions, more than 90 percent of 5,522 respondents —regardless of gender, age, income level, or party affiliation—thought U.S. wealth distribution most resembled one in which the top 20 percent possesses 60 percent of the wealth. Most people in the survey guessed that the bottom 40 percent had between 8 and 10 percent.
It’s hard to be angry about a problem you don’t know exists. Here we confront a viciously circular fact of ruling class power. The top 1 percent owns the major media that millions rely on for information about the world they inhabit. The wealthy few are hardly eager to see the citizenry accurately informed about the distribution of wealth and, hence, power in the U.S. As a result, the problem of extreme wealth concentration and its negative consequences does not receive serious and sustained treatment by the five giant media conglomerates that own more than half the nation’s media print and electronic. The recent “News Hour” story on wealth inequality is an anomaly, crafted for PBS’ relatively affluent audience amid the wild stock market volatility of August 2011.
“They Earned It”
Manufactured mass ignorance aside, plutocrats still fall back on powerful myths to justify America’s spectacular wealth inequality. One standard fairy tale holds that the rich deserve their wealth because they “earned” it on their own and that it is “none of anyone’s business” what they do with the riches they obtained because of their own special talents and efforts. It is “robbery,” this narrative holds, to tax their wealth and “give it to someone else.”
This longstanding fable of the elite is so full of holes it is hard to know where to begin in tearing it apart. In terms of the egregious negative consequences wealth inequality holds for democracy and social experience more broadly, it is neither here nor there whether or not the rich worked hard or well for their wealth. It is very much “our business” what they do or don’t do with their fortunes.
In fact, the wealthy classes are loaded with people who are rich, independent of any special effort or skill on their part due to the simple fact of inheritance. The passing on of net worth and connections and other benefits across generations covers up the stupidity, decrepitude, and/or laziness of many rich people and offers stupendous advantages to more able and/or energetic elites who profit from the fact that success in the “free market” of the present and future depends significantly on how much accumulated capital you bring to that market from the past. Bad behavior and poor skills have little negative economic impact on those born into wealth; they stay rich regardless, just as most born into the lower and working classes remain there regardless of how hard, honestly, and skillfully they toil.
Even in cases of remarkable first-generation ascendancy into the wealthy elite (without the benefit of big inheritances), the notion that the rich “earn” their fortunes on their own is false. As the U.S. ultra-billionaire investor Warren Buffett has acknowledged more than once, people can earn large amounts only when they live under favorable social circumstances. They certainly don’t create those circumstances by themselves. Society, Buffett admits, is responsible for his wealth. “If you stick me down in the middle of Bangladesh or Peru,” he once said, “you’ll find out how much my [special talent for sensing market opportunities] is going to produce in the wrong kind of soil.” The Nobel Prize-winning economist and social scientist Herbert Simon has estimated that “social capital” is responsible for at least 90 percent of the income that people receive in rich nations. By social capital, Simon means not only natural resources but also technology, organizational skills, and “good [wealth-friendly] government. On moral grounds,” Simon added, “we could argue for a flat income tax of 90 percent.”
Our Sufferance is a Gain to Them
But the wealthy do not simply benefit from society; they accumulate fortunes at the expense of it. They profit from:
- mass unemployment’s depressive impact on wages, which cuts their labor costs
- regressive tax cuts and loopholes, which increase with wealth while shutting down social services for the poor
- the cutting and undermining of environment regulations, which reduce their business costs while spoiling livable ecology
- wars and giant military budgets that feed the bottom lines of the “defense” corporations they own while killing and crippling millions and stealing money from potential investment in social uplift
- a hyper-commercialized mass consumer culture that despoils the environment while reducing human worth to exchange value and destroying peoples’ capacity for critical thought
- deals with corrupt dictators who provide natural resources at cheap prices while depressing wages and crushing democracy in “developing countries”
- the closing down of livable wage jobs in the U.S. and the export of employment to repressive and low-wage peripheries
- a health care system that privileges the profits of giant insurance and drug companies over the well being of ordinary people
exorbitant credit card interest rates that lead to millions of bankruptcies each year
- predatory lending practices that spread and perpetuate poverty and foreclosure
- agricultural and trade practices that destroy sustainable local and regional food cultivation and distribution practices at home and abroad
- the imposition of overly long working hours that keep employee compensation levels down while helping maintain a large number of unemployed workers
- exorbitant public business subsidies and taxpayer incentives and bailouts to the rich at the expense of the rest
The list goes on and on. As the left political scientist David McNally notes, profits have been restored in the wake of the 2008 financial crisis “largely because working class people have paid for them, through layoffs, wage cuts, reduced work hours, and the decimation of social services. The rich are capitalists, for the most part, and under the modern marketplace and corporate capitalism—generator of contemporary fortunes—the wealth of the few is related to the comparative impoverishment of the many. Indeed, the exploitation of the latter by the former is the essence of what passes for reasonable and normal economic activity under the standard rules of the capitalist system. Most of us engage with the market (primarily by renting out our core human capacity for work to more privileged others) to survive, to purchase simple use values that make life possible. Capitalists are very different. They care about nothing but exchange value and profit and engage the market to exploit the world and its people. There would be no point in their investments without exploitation. There would be no point in paying wages and salaries without surplus value—extra labor value going to them beyond the commodity price of our labor power. When profit and its critical ingredient surplus value are deemed unattainable, they toss us into the gutter where, as members of the reserve army of labor, we help them bid down the commodity value of the labor.
Trickle Down Mythology
A second great fable holds that making rich people richer makes the rest of us richer. It’s called “trickle down economics.” It is rich people, the argument runs, who smell out market opportunities and exploit them in ways that create wealth for the rest of us. Like it or not, poor people can become more well off in the long run only by making the already opulent yet filthier rich. When you give the wealthy a bigger share of the pie, the pieces given to others shrink in the short term. In the long run, the poor get bigger absolute slices because the rich expand the size of the pie through investment of the wealth granted them by policymakers who understand that “populist” taxation of the rich to spread the wealth more equitably is “dysfunctional”—a drag on economic expansion.
As the liberal Cambridge (UK) economist Ha Joon Chang notes in his bestselling book 23 Things They Don’t Tell You About Capitalism (2010), recent economic history does not support the “trickle down” thesis. “Despite the usual dichotomy of ‘growth-enhancing pro-rich policy’ and ‘growth-reducing pro-poor policy,’” Chang writes, “pro-rich policies have failed to accelerate growth in the last three decades.” Thirty-plus years of “free market” policies that have given the rich an ever larger slice of wealth and income have only generated slow growth (the world economy’s growth rate fell from more than 3 percent in the Keynesian 1960s and 1970s to 1.4 percent in the neoliberal, “free market” years since 1980) and persistent high levels of structural unemployment within and beyond the rich nations.
“Trickle down” leading to increased jobs does not happen without the intervention of public mechanisms and institutions to compel the rich to take their increased wealth and invest in job-creating activities—mechanisms that have been assaulted and undermined by concentrated wealth and its political agents in the neoliberal era. Without such mechanisms there is nothing to prevent the rich from spending on their luxury “needs” and using their surplus in other ways that do nothing to create jobs. As numerous media reported after Barack Obama agreed to extend George W. Bush’s deficit-fueling tax cuts for the rich last January, many leading U.S. companies have been sitting on capital and storing up liquidity like never before. Firms who no longer believe they can borrow quickly have decided to keep a lot more cash on hand for precautionary purposes. At the same time, low interest rates created an incentive for many firms to “exploit the spread between a zero funds rate and rates on Treasury bonds.” This permits corporations to “mark profits without selling much or hiring anyone” (Michael Powell, “Profits Are Booming, Why Aren’t Jobs?” NYT, January 8, 2011).
Some big American firms have shown higher profits because their competition has faded. Following the financial collapse of 2008, for example, the financial giants Goldman Sachs and Morgan Chase no longer have to compete with Bear Stearns, Lehman Bros., and Merrill Lynch. Many jobs disappeared with the collapse of the defeated behemoths, of course.
And then there’s the simple fact that a large reserve army of unemployed workers is a great profit boon to corporate America in its ongoing class war on workers’ income and security. As Desmond Lachman, a former managing director at Salomon Smith Barney who serves as a “scholar” at the influential right-wing American Enterprise Institute, told the Times last January, “Corporations are taking huge advantage of the slack in the labor market—they are in a very strong position and workers are in a very weak position. They are using that bargaining power to cut benefits and wages, and to shorten hours” (Powell, “Profits Are Booming”).
Sharing wealth and income more equitably would do more to create employment. “In an economic downturn,” Chang notes, “the best way to boost the economy is to redistribute wealth downward, as poorer people tend to spend a higher portion of their incomes. The economy-boosting effect of the extra billion dollars given to the lower-income households through increased welfare spending will be bigger than the same amount given to the rich through tax cuts.” Give ordinary folks more money and they quickly buy necessities, stimulating the economy. Extra money for the rich funds numerous activities that have little stimulus effect and some that are quite contrary to the growth and wages promised: the purchase of back-stocked luxuries, mergers and acquisitions that actually cut jobs, storage of surplus wealth in off-shore tax havens, the hiring of management consultants who advise on how to shrink payrolls and eliminate unions; the hiring of lobbyists who push for cutting public sector programs, jobs, and unions; the hording of cash reserves; the purchase of sophisticated financial instruments that cannibalize the economy; and numerous other forms of parasitism that “mark profits without hiring anyone.”
The Growth Sedative
Chang is empirically correct, but his critique of trickle-down mythology is too kind to the rich. In Chang’s 23 Things, modern “free market” or neoliberal capitalism’s greatest crime is not its role in furthering capitalism’s inherent tendency towards inequality and concentration of wealth, but rather its role in slowing growth. But growth has long been western capitalism’s false and environmentally (some would add spiritually) lethal “solution” for the inequality that capitalism creates.
“A rising tide lifts all boats,” the conventional western growth ideology proclaims, supposedly rendering irrelevant popular anger over the fact that an opulent minority sails in luxurious yachts while millions struggle on rickety dinghies and in leaking rowboats. As the liberal economist Henry Wallich explained in 1972, “Growth is a substitute for equality of income. So long as there is growth there is hope, and that makes large income differentials tolerable.” (As a Federal Reserve governor, Wallich was defending western capitalism against ecological economists who warned about the environmental limits of unchecked growth.) “Governments love growth,” British environmental writer and activist George Monbiot noted in the fall of 2007, “because it excuses them from dealing with inequality…. Growth is a political sedative, snuffing out protest, permitting governments to avoid confrontation with the rich, preventing the construction of a just and sustainable economy.” As Le Monde’s ecological editor Herve Kempf noted four years ago, “the oligarchy” sees “the pursuit of material growth” as “the solution to the social crisis,” the “sole means of fighting poverty and unemployment,” and the “only means of getting societies to accept extreme inequalities without questioning them.” When growth stops, William Grieder notes, “the political system loses its cover. The safety valve is off. The comforting mythology about growth loses its power to distract the public from anger and to discourage critical inquiry into how the system actually functions.”
The Rich We Cannot Always Have With Us
The pressure on business and political elites to keep the safety valve on—the secret behind the growth attachment that has snared even a clever economic critic like Chang—comes at an unsustainable price, setting up a devil’s choice between jobs and income for proletarianized masses on one hand and livable ecology for humanity (and other living things) on the other hand. The wealthy few’s reliance on growth to cloak inequality and keep “populist” sentiments at bay is at the heart of, to use the title of Kempf’s most recent book, How The Rich Are Destroying the Earth. The ruination of livable ecology seems to be nothing less than an “institutional imperative” (Noam Chomsky) for the capitalist elite, which spends billions of dollars on a propaganda war against modern science’s consensus findings and warnings on anthropogenic climate change.
As the current, ever-deepening ecological catastrophe should tell us, humanity is running out of time when it comes to carrying the rich and failing to seriously confront its dominant institutions and ideologies. The rich themselves do not need to be liquidated and distributed across society, but their wealth and power do if humanity is going to enjoy a decent, democratic, and desirable future on this glorious but far from endlessly forgiving planet we all inhabit. Z
Paul Street is the author of numerous books, including Empire and Inequality: America and the World Since 9/11 (Paradigm, 2004), The Empire’s New Clothes: Barack Obama in the Real World of Power (Paradigm, 2010), and (co-authored with Anthony DiMaggio) Crashing the Tea Party: Mass Media and the Campaign to Remake American Politics (Paradigm, 2011).