Accelerating Concentration of Income and Wealth: Another Positive Feedback Loop

That which seems to be wealth may in verity be only the gilded index of far-reaching ruin.
~ John Ruskin [1]p.187

Everybody seems to know that the concentration of income and wealth among “the one percent” has accelerated in recent years. Actually, the most extreme concentration is in the top one percent of the top one percent of the population. We all agree that beyond some undefined point that is not a good thing. Conservatives don’t want to talk about it. Liberals will decry the situation but don’t want to talk about the conservative’s bugaboo: “re-distribution of wealth.” That’s a bit of a contradiction, of course, since the recent extreme concentration of income and wealth is exactly that: a massive redistribution of income and wealth from the whole economy to the top 0.1% of the population – the wealthiest of the wealthy.

Democracy Derailed
A funny thing happened on the way to democracy. The “American Experiment” got de-railed by the formation of power elites and their reinforcement since before C. Wright Mills first wrote about them in 1959.[2] Mills was a true maverick sociologist. American sociology had been busy finding its place as an academic profession among the more established fields of economics, political science, and psychology. In the 1940s and ‘50s, sociologists were trying to distance themselves from the European sociologists and their socialist leanings. That was the era of the “Red Scare,” Joe McCarthy, and the height of American anti-communist witch-hunts after the Korean War. Mills was an accomplished researcher with all the right academic credentials, but his iconoclasm forced him out of Columbia University. His work exposing the workings of class, status, and especially power under industrial capitalism is as relevant today as is President Eisenhower’s warning of the “military-industrial complex” in his farewell address to the nation. The power of financial, corporate, and military elites has grown much greater since Mills’ work.

The political ideology of the power elite is simple: the corporate and financial elites are presented as the source of innovation, technology, jobs, and economic growth – they are “the job creators.” Therefore, its members should be left to do their good works for society with no regulation and no taxation on their wealth creation. For, the riches they create will certainly “trickle down” to the masses and everyone will live happily ever after. Somehow, the distorted invocation of Adam Smith’s metaphor of the “invisible hand” – whereby the self-interested behavior of all the economic actors will mysteriously result in the public interest being optimized – is supposed to fit into that image of elite noblesse oblige.

Fortunately, that mythological form of elite ideology is beginning to conflict with the understandings of the public. That is one of the main reasons for the initial popularity of maverick outsider candidate for the Democratic Party nomination for President for 2016. Bernie Sanders unashamedly speaks directly to the failure of the ideology of the economic elite and the blatant injustices that now dominate the economy. He proposes programs to compensate for the failures of the endless-growth economy to include the general population in the economy. He would even break up the “too big to fail” banks that caused the financial crisis of 2008, directly challenging the financial elite on Wall Street.

But why does this concentration of wealth and income seem to be inevitable if unconstrained by populist politics? Will it be enough to just develop programs such as those of Roosevelt’s “New Deal” during the Great Depression, to rebalance the economy?

Positive Feedback
One thing is generally missed when extreme income inequality and concentration of wealth are topics of conversation. Quite simply, the concentration of income and wealth is a positive feedback loop. In other words, they feed upon each other; each reinforces the growth of the other. I would even go so far as to say that this is a universal principle of power accumulation in any money economy that has no counter-force. Money is power and that power is usually exercised politically. High income and extreme wealth make the accumulation of more wealth easier because of the access it gives to economic and political resources. Great wealth provides great opportunities to influence politics; the exercise of that undue political influence results in decisions by politicians – legislation – that affords the wealthy more income and thus more wealth. It’s a positive feedback loop.

Most Americans do not make enough income to accumulate even a modest amount of savings, no less anything that could be called wealth. The very few, on the other hand, through very large incomes – including salaries in the millions, obscene self-gifted bonuses, stock options, dividends, and capital gains – are able to accumulate large fortunes. That can happen only by the creation of growing poverty.

Phantom Wealth Causes Poverty
John Ruskin, the nineteenth century British art historian, articulated this problem very well when he wrote on political economy. Ruskin argued that the creation of wealth inevitably produces poverty whenever wages are unjust.[1] Ruskin’s analysis of just and unjust wages was the basis for his critique of the political economy of his day for its obtuse claim to be simply “the science of getting rich.” I cannot imagine a more relevant consideration in examining the wildly distorted wage disparities created and accepted in today’s corporate state under the same crass ideology. Elites accumulate ever more millions in salary and bonuses, as well as capital gains through stock market manipulation, etc. The real wages of workers are ever lower as better-paying jobs are outsourced to destitute workers in poor nations. The greater the concentration of wealth, the broader is the spread of poverty.

The accumulation of vast wealth provides many political opportunities to influence the economy through the political system of lobbying, graft, and corruption. Tax laws have been significantly changed since the 1950s more and more to favor the rich and powerful. Yet the clamor of the political elite for “lower taxes” and deregulation of corporate activities – including the direct economic influence over elections – continues unabated. Political elites reinforce extreme income and wealth concentration by legislative pandering to economic elites. The two tend to merge.

Pushed to the Breaking Point
The American people have been victims of the ideology of the economic elites for decades. But just as with mass incarceration, unrestrained police shootings, and other political aberrations, the middle class did not lose its values over the last few decades, become lazy and thereby fall into poverty. The power of the wealthy has gotten so great that the inevitable distortions to what might have been a just or a moral economy, have intensified. People have been forced out of the middle class and have become poor because the rich have increasingly become super-rich. We are reaching a breaking point. All money economies rely on the circulation of money to sustain their operations in support of human life. The extreme disparities in income and wealth are pushing our economy to collapse as the super-rich abandon life for money.

Fortunately, more and more people are recognizing the absurd extent of income and wealth concentration and are looking for a new model for the political economy. But we need clarity to change our vision of a new life-sustaining economy.[3] We would all do well to read John Ruskin and C. Wright Mills today. They are more relevant than ever.
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[1] John Ruskin, “The Roots of Honor,” and “The Veins of Wealth,” pp. 167-203 in Unto This Last and Other Essays.(1862) London and New York: Penguin Classics, 1985, 1997.
[2] C. Wright Mills, The Power Elite. New York: Grove Press, 1959.
[3] David C. Korten, Change the Story, Change the Future: A Living Economy for a Living Earth (Oakland, CA: Berrett-Koehler, 2015) goes a long way in seeking that clarity.

Why a Return to Progressive Taxation is necessary…and Right

The accelerating concentration of income and wealth in the upper 1% of the upper 1% of the population and the failure of the “growth” economy to serve the population that supports it, are not only moral questions of fairness. The distribution of income and wealth are also important elements of the health of the economy itself. Between 30% and 75% of aggregate income in the past 30 years has gone to the top 10% and most of that has gone to the top 1%. After the “great recession” of 2008, almost all of new income went to the top of the top 1%. If this trend continues, the circulation of money and therefore the health of the economy will stagnate even further.

It is fortunate that French economist Thomas Piketty’s new book, Capital in the 21st Century, is making such an international splash. Piketty raises fundamental questions about the economy that most economists, in their pandering to the power elites, have avoided ever since crowning Adam Smith patron saint of mainstream economics.

What classical economics, as practiced throughout the industrial era, has ignored is the inherent tendency of capital to concentrate among the wealthiest individuals and corporations, unless mitigated by social policies that assure the broader circulation of money throughout the economy.  It’s really quite simple. The economic power of those who control the most wealth and income gives them advantages that enable them to accumulate wealth at increasing rates, to the disadvantage of everyone else in the economy.  Without economic regulations that dampen the special advantages of wealth, such as the progressive income tax that once benefited the economy, extreme disparities in income and wealth cause all sorts of problems.

The evidence of that destructive process is grossly obvious in the current economies of the industrial nations, especially in the United States. That is exactly what happened before the Great Depression of the 1930s, causing economic collapse due to excessive concentration of wealth among the richest class in America. Yes, class, that concept so long banned from discussion in the U.S. Forget the fancy academic analyses of socioeconomic class and status in social relations. It’s simply a matter of an inevitable distortion of the distribution of wealth and circulation of money when the tendency for concentration is not tempered by some kind of social policy designed to limit concentration by re-balancing the circulation of money in the economy. Such policies were enacted in the 1930s, but, under pressure from the most privileged, have been abandoned, allowing further distortion of income and wealth.

The concentration of wealth and income was moderated when we had a progressive income tax system. The simplest and most practical approach to staving off plutocracy (rule by the wealthiest members of society) and reducing damage to the economy that results from unfettered accumulation of wealth, is to return to a progressive system of taxation of income and the return of the tax on inheritance. There is simply no economic reason, let alone moral justification, for allowing the economy to spin out of control and fail to serve the public interest in order to allow the wealthiest members of society to become that much wealthier, simply because they already have excessive economic power.

At the same time, the obsession with reducing the federal debt by further cutting expenditures that support the general population, such as social security, medical insurance coverage, and public education, serves no earthly purpose other than to make the rich richer. The biggest con of all these days is the one that characterizes the ‘rentier’ class – those who merely make money on the value of the wealth they have already accumulated – is that their income and wealth ought to be protected from taxation because they are the “job creators.” They are no such thing, and their excessive income is of benefit to nobody, not even themselves – you can only spend so much before reaching absurd redundancy.  But the quest for power knows no bounds.

Restoring the progressive income tax would be fit medicine to help restore the health of an economy suffering from the cancerous growth of the ‘cells’ of the richest class of Americans and the corporations they control. The federal revenue gained thereby could be applied not only to the national debt, but to investing the desperately needed transformation of the fossil-fuel driven economy to a carbon neutral economy in order to minimize the damage of climate disruption. After all, it is the 1% and their fossil fuel related investments that have driven us to the brink of climate catastrophe.

Bottom line: an economy is not an economy of the whole society without consistently adequate circulation of money throughout the population.  It is both immoral and foolish to continue on the path of accelerating concentration of wealth to the detriment of the entire society. Privilege and wealth will not disappear with progressive taxation. Look at the post WW-II 1940s and 1950s, when the marginal tax rate on income above $200,000 — the tax rate on the part of income above the first $200,000 earned, and there were 23 brackets below that with progressively lower rates — was 91%; adjusted for inflation, that would be the rate for income above $2.41 million today. We should have such a healthy economy today!