Blessed are the poor in spirit: for theirs is the kingdom of heaven.
Blessed are they that mourn: for they shall be comforted.
Blessed are the meek: for they shall inherit the earth.
Blessed are they which do hunger and thirst after righteousness: for they shall be filled.

—the Sermon on the Mount, Matthew 5:9

Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes
Everybody knows

—Leonard Cohen, Everybody Knows

My subject today is the grotesque wealth & income inequality that exists in the United States. I have dubbed our times the new Gilded Age, which was Mark Twain’s name for the post-Civil War period when “the rich wore diamonds and many others wore rags.” I could also have called it the “last” Gilded Age because our slowly disappearing Middle Class will never exist again as it once did. Never before in human history have so many people shared in a society’s wealth as Americans did in the decades just after World War II.

In the 1960s, Lyndon Johnson put forward his Great Society program to eliminate poverty in the United States. That laudable goal seemed doable back then—everything seemed doable back then, before Vietnam and the oil shocks of the 1970s got in the way. Now, some forty-five years later, the natural order of things has reasserted itself, where a relative few have most of the wealth as the rest struggle to eke out some kind of living.

Before I unleash a flood of graphs and charts which demonstrates the income & wealth inequality problem beyond any reasonable doubt, I would like to relate a revealing story I heard on NPR Sunday as I was preparing to write this piece.

Liane Hansen brought in Roben Farzad of Business Week to talk about how rich Americans hide their money in Swiss bank accounts to avoid taxation, and to talk about “the markets” in general. Here’s how the last part of their conversation went—

HANSEN: Let’s talk a little bit about the markets this week. Did you see dark clouds or a silver lining?

Mr. FARZAD: Well, the market, however monolithic we want to look at this thing, is at a year high. I mean, this has been a spectacular run if you think about it. I saw a stat somewhere that over the span of time where the economy hemorrhaged two million jobs, the market’s gained 50 percent. That’s unprecedented. And this is the best, I think, six- or seven-month run since 1938. So, it shows you how far we’ve come from a perception standpoint. Back in March, people really thought that we were on the brink of absolute abysmal calamity. And what’s noteworthy is that riskier asset classes have outperformed the safe and stable security. So, that flies in the face of this whole reckoning argument, that we’ve been so chastened, that people are going to be husbanding cash under their mattresses for the foreseeable future. So, at least that’s promising but maybe we’ve gotten a tad ahead of ourselves.

HANSEN: There were new numbers from the Mortgage Bankers Association this week. More than 13 percent of American homeowners with a mortgage have either fallen behind on payments or are already in foreclosure. What effect is this having on the U.S. economy as a whole?

Mr. FARZAD: It’s a significant overhang going forward. We as an economy really binged on housing, really had this – almost this real estate new paradigm fetish, and I don’t think that kind of excess inventory is going to be worked off in a year or two. We have several other shoes to drop in terms of delinquencies. There is a certain level of amnesty right now between the banks and delinquent borrowers, for them not to foreclose, for them to maybe seek out remediation. And you’re going to see a lot of these things fail over the next year or two. The question is how much has the market already priced that in.

The market was pricing in, once again, calamity just a few months ago, and now it seems that things aren’t going to be as horrific as expected. So, it remains to be seen.

[My note: What is really happening is that there has been a “dramatic” decrease in cure rates for delinquent mortgage loans.

Delinquency cure rates refer to the percentage of delinquent loans returning to a current payment status each month. Cure rates have declined from an average of 45% during 2000-2006 to the currently level of 6.6%.

Also see Barry Ritholtz’s Bad Bears or Road to Recovery? to see a graph comparing the current Splenda market “rally” to previous bear market upswings.]

A spectacular run. The best six- or seven-month run since 1938. And so forth. To be sure, a few poor schmucks (over 13% of American homeowners in this case) are very likely to lose the roofs over their heads, but not to worry—the market already priced in an abysmal calamity back in March. To be sure, some things remain to be seen, but it seems like things aren’t going to be as horrific as expected. Except if you’re in foreclosure, of course, and about to lose your house.

Do you ever get the sense that you’re drowning in a toxic sea of lies and distortions, and there’s nothing you can do about it?

Who is profiting from the stock market run-up Roben Farzad describes as a spectacular run? Let me quote from A Detailed Look at the Stratified Consumer, an excellent guide to reality from the essential blog Zero Hedge that I will be referencing later on.

The main reason for this disproportionate loss of wealth [in the Lower and Middle Classes] has to do with the asset portfolio of the various consumer strata. A sobering observation is that while 90% of the population holds 50% or more of its assets in residential real estate, the Upper Class only has 25% of its assets in housing, holding the bulk of its assets in financial instruments and other business equity [stocks]. This leads to two conclusions: while average house prices are still dropping countrywide, with some regions like the northeast, and the NY metro area in particular, still looking at roughly 40% in home net worth losses, 90% of the population will be feeling the impact of an economy still gripped in a recession for a long time due to the bulk of its assets deflating. The other observation is that only 10% of the population has truly benefited from the 50% market rise from the market’s lows: those better known as the Upper Class.

The ongoing “absolute abysmal calamity” Farzad refers to has now been mostly confined to the Lower and Middle classes—90% of the population—whose main source of wealth used to be the appreciating value of their house. Crisis contained!

So who are these “people” that Farzad tells us are flocking toward risky assets, the ones who are not going to be husbanding cash under their mattresses? The consumer price index (CPI-U) shows a decrease of 2.1% over the last 12 months, mostly due to lower energy costs. Energy prices decrease because there is less demand for it. There is less demand for energy because economic activity of all sorts has diminished.

Many fewer consumers are spending money. Retailers are in serious trouble. Sears sales are down 8.6%. Dillards is down 13%. Macy’s is down 9.5%. J.C. Penney is down 9.5%. The Gap is down 8%. And so on. The retail numbers, along with the CPI-U and many other economic indicators, seem to show that people are indeed stashing cash under their mattresses—if they’ve got any cash left, that is. See 34% of workers have one week or less of savings.

When Farzad talks about what “people” are doing in this NPR interview, he is not referring to the hoi polloi, the 90% of us in the Lower and Middle Classes. He’s talking about Business Week’s constituency, the Super Rich or the Merely Rich. Although the New York Times seems very concerned that the Rise of The Super Rich Has Hit A Sobering Wall, things are starting to look up for them just as Farzad says—

The possibility that the stock market will quickly recover from its collapse, as it did earlier this decade, is perhaps the biggest uncertainty about the financial condition of the wealthy. Since March, the Standard & Poor’s 500-stock index has risen 49 percent.

Yet Wall Street still has a long way to go before reaching its previous peaks. The S.& P. 500 remains 35 percent below its 2007 high. Aggregate compensation for the financial sector fell 14 percent from 2007 to 2008, according to the Securities Industry and Financial Markets Association — far less than profits or revenue fell, but a decline nonetheless…

Without a financial bubble, there will simply be less money available for Wall Street to pay itself or for corporate chief executives to pay themselves. Some companies — like Goldman Sachs and JP Morgan Chase, which face less competition now and have been helped by the government’s attempts to prop up credit marketswill still hand out enormous paychecks. Over all, though, there will be fewer such checks, analysts say. Roger Freeman, an analyst at Barclays Capital, said he thought that overall Wall Street compensation would, at most, increase moderately over the next couple of years.

Praise the Lord, the very-well-off are being made whole again as the S & P rises 49% during a time when the economy lost 2 million jobs. Better still, Goldman Sachs (aka. the giant vampire squid) roams the putrid seas again free of any possible risk or regulation. The sea monster’s particular specialty is ripping off ordinary investors—what schlubs they are!—via high-frequency computer trading. Low stock prices? A slump in bonus compensation in the finance industry? Problems getting solved!

Why does typical economics reporting confuse our collective fortunes with those of the wealthy? Figure 1 shows the history of income concentration in the United States.


Figure 1 — This graph is taken from the New York Times (cited above). Since 1983, the share of the income in the United States of the richest 1% rose from 10% of the total to 24% of the total. The share of income for the bottom 90%—bottom 90%? when did 90% of the population become the bottom?—fell to 50% from ~67% during this same period.

As John Kenneth Galbraith was fond of pointing out, human memory is short. Business Week’s Roben Farzad was born in 1976. He graduated from Princeton in 1998. This talented young man has never been a working adult in a world in which great wealth inequality did not exist. Liane Hansen has no such excuse. But this disparity was not normal in past, as Figure 1 makes obvious. The novelist Upton Sinclair pointed out another difficulty that all mainstream media reporters face in this regard: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” I shall give the last word to Marshall McLuhan regarding how standard economic reporting upholds the status quo

  • “We don’t know who discovered water,” Marshall McLuhan would say, “but we know it wasn’t a fish.”

I do not mean to single out Farzad or NPR for special treatment—stories like the one I deconstructed above are everywhere1. It is just unfortunate for Farzad that I happened to be listening to NPR Sunday as I was preparing this report. Now that we’ve got a proper perspective on the wealth & income disparity in the United States, let’s look at some disturbing graphs and charts.

The “Myth” of the Over-leveraged Consumer

One of the sources for Zero Hedge’s report on the stratified consumer was Bank of America’s The Myth of the Overlevered Consumer (L.A. Times’ Money & Company blog, August 14, 2009).

The well-heeled might be able to save the U.S. economy from a long period of dismally weak consumer spending—if only we don’t jack up their taxes.

That’s one conclusion to draw from a new Bank of America Merrill Lynch report this week, “The Myth of the Overlevered Consumer.”

The report hammers home what you might already suspect: The consumer debt problem in the economy really is a debt problem for the middle class. The need to work off a chunk of that debt will sap middle-class families’ spending power for perhaps years to come.

By contrast, the upper 10% of income earners face a much smaller debt burden relative to income and net worth.

Bank of America has reached—one hopes without great difficulty—an incisive conclusion: relatively speaking, the wealthiest Americans have little debt compared to the rest of us! Surely it is upon such startling insights that great empires have been built.

The captions to Figures 2 through 6 tell the story of wealth inequality in the United States. All the graphs & charts are from Zero Hedge’s Stratified Consumer report except for Figure 6. Figure 3 explains why Bank of American/Merrill Lynch believes they have exposed the “myth” of the over-leveraged consumer.


Figure 2 — As of 2001, the wealthiest 10% of Americans accounted for 42% of total consumption in the United States. Taken together, the top 20% of American wage-earners accounted for an astonishing  55% of total consumption. The graph and others below are based partly on the Survey of Consumer Finances and the Bank of America Merrill Lynch report.


Figure 3 — The Middle Class financed their spending with debt, especially after 2001 during the Housing Bubble.The “myth” of the over-leveraged consumer is that it is only the Middle Class (50% of the population) that is mired in debt. The Lower Class normally don’t have access to credit or don’t own homes or both. The Upper Class don’t need to borrow to finance their spending because they hold most of the wealth (see Figure 5). Because the Upper Class, which accounts for 42% of spending, is not over-leveraged, Bank of American Merrill Lynch concludes that the Upper Class alone can fuel an economic recovery.


Figure 4 — The desperate Middle Class used their homes as ATM machines by either 1) taking out home equity loans or 2) refinancing and extracting equity as cash. Activity peaked in 2005-2006 (left panel). People assumed house prices would never go down. A Ponzi Scheme in real estate requiring a constant infusion of new home buyers supported soaring house prices which led to equity extraction and speculation in real estate. A bubble in real estate should not be mistaken for a real economy, a lesson we hope newly appointed Fed Chairman Ben Bernanke has now finally learned.


Figure 5 — Comparing the disposable income (left) and net worth (right) of the rich versus everybody else. In 2001, the top 10 received 40% of the disposable income and held an amazing 57% of aggregate net worth. Zero Hedge says: “This is an impressive conclusion: on a lowest common denominator, the Net Worth variance between the 10% of the population that make up the wealthy and the 50% that comprise the middle class is over 8x! No wonder the aspirational consumer was the most vibrant retail category at the peak of the bubble: if the middle class can not accumulate 8x the net worth it needs to migrate into the top decile, it can at least dress like it. Unfortunately, it did these purchases on credit and is now paying for it (or not).” See my article The Incredible Shrinking Boomer Economy to learn why the Middle Class Boomer Consumer’s spendthrift days are over.


Figure 6 — This is an updated graph from U.C. Berkeley professor Emmanuel Saez, who has been tracking income inequality for many years.The top 10% wage earners now receive 50% of income in the United States. This percentage is slightly higher than the previous 20th century high in 1928 just before the stock market crash of 1929 and the Great Depression.

The great “insight” of the Bank of America report is that the wealthy “should have ample spending power to help fuel an economic recovery.”  From the banks’ point of view, this take on things has the twin virtues of being self-serving while also preserving the status quo in which the rich have most of the wealth while the rest of us have relatively little. There is little hope that the status quo will change. Professor Saez talks about the future of income concentration in the United States—

The economic landscape has obviously changed dramatically since 2007 which marks the peak of Bush expansion. We know from National Account statistics that real incomes per family will fall in 2008 and 2009. Evidence from past recessions suggests that, in general, the top percentile income share falls during recessions, as business profits, realized capital gains, and stock option exercises fall faster than average income. Therefore, the most likely outcome is that income concentration will fall in 2008 and 2009. Based on the US historical record, falls in income concentration due to recessions are temporary unless drastic policy changes, such as financial regulation or significantly more progressive taxation, are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration till the 1970s. In contrast, recent downturns, such as the 2001 recession, lead to only very temporary drops in income concentration.

I’ve argued on several occasions that large policy shifts, such as those Saez mentions that might redistribute income and wealth in the United States, are very unlikely (see my The Decline of the American Empire, for example). Barack Obama has been compared to Herbert Hoover. The likeness between the two is apt. Obama’s go-slow, ineffectual approach to pressing problems in Finance accommodates the current oligarchs.

The President’s current inaction stands in stark contrast with the progressive policies of Franklin Roosevelt during the Great Depression (see Figure 1 or Figure 6). It is fair to say that wealth inequality in the United States will get worse before it gets better, if it ever does get better. I think this very unlikely.

Grotesque income and wealth disparity also has potentially strong effects on future energy consumption in the United States. The income elasticity of oil demand is usually measured as just below unity (e.g. 0.92), which means that oil demand rises almost as rapidly as income. Although income is falling for everyone during the Great Recession, the income share of the top 10% wage earners will only increase in the future if Saez is correct, which he surely is. In 2007, that share stood at 50%. But if total income does not grow at at least the rate at which income expands for the wealthy, the real income of the “bottom 90%” will shrink.

Thus we might expect energy (oil) demand to fall if income declines in the “bottom 90%” (all other things being equal). I further assume that the richest 10% of the population will not use much more energy than they already do. Falling incomes would thus imply “peak demand” for oil in the United States.This conclusion is bolstered when we consider that the days of easy credit are over (e.g. people will not be paying for gasoline with credit cards).

The status of the housing market, which gave a phantom boost to Middle Class net worth during the bubble, remains uncertain. Calculated Risk, whose knowledge about the residential real estate markets is second to none, doesn’t believe the housing bottom is in yet. If he is right, the Middle Class stands to lose even more of their net worth in the next year or two.

Simon Johnson had this to say about wealth & income equality in The Two-Track Economy

The traditional U.S. recession remedy is: move to another, more prosperous part of the country.  But nowhere is exactly booming at present. And how do you move if you can’t sell your house?

The overall numbers on outcomes by groups can get complicated (here’s a partial guide), but the simple version is: the top 10% of people are going to do fine, the middle of the income distribution have been hard hit by over-borrowing, and poorer people will continue to struggle with unstable jobs and low wages.

Can the richest people spend enough to power a recovery in overall GDP? Perhaps, but is that really the kind of economy you want to live in?

No, Simon, that’s not the kind of economy I want to live in. I assume many of you feel the same way. Do we really have any choice about it? The Powers That Be take the self-serving position that astonishing wealth inequality is normal, and even somehow desirable. Mainstream media reports that say the “economy” is doing better because of a bear market bubble in the S & P 500 are little more than updates on the status of the rich. The elites—the “haves”— say things are getting better, but to the average man on the street—the “have nots”—it feels more like a depression.

Bank of America is bullish on the economy because, wonder of wonders, the rich are still rich. Thus they conclude that the wealthy will provide the spending impetus that will pull us out of recession. Conveniently, the Bank of America view does not require any change to the way wealth & income are distributed in the United States.

I feel like A Man Without A Country. It’s sad, really, to watch this once great country go to pot so a relative few can prosper.

Contact the author at dave.aspo@gmail.com

Notes

1. If you want to know how the other 90% of the people are doing in this country, you need to read various websites, including (in no particular order, not comprehensive)—

15 thoughts on “The New Gilded Age”

  1. Obama was not elected because of his experience or his pretty wife or his cute children. Obama was a cry for help, pure and simple, from the very middle (and lower) classes you mentioned above, who have no idea what is happening but they know how it is affecting THEM. I voted for Obama. I gave him money. But he turning out to be the best REPUBLICAN president we’ve ever had. Bailout everyone — the rich take no real stock losses — and charge it to the kids. If the gulf between the rich and poor is growing wider, the rich have a lot more to worry about than another Great Depression — not just their wealth. If the food stores start escalating their prices, the Huns are going to start coming after the “rich” with torches and pitchforks.

  2. One of the best economic blogs, in the spirit of Calculated Risk, is Mish Shedlock’s “Global Economic Trend Anaylsis.” Search Google under “Mish.”

  3. 1800s financier Jay Gould’s approx. quote: “I will simply pay for half the working class to wage war against the other half of the working class, and vice versa.”

    Recall the rich going out to watch the early Civil War battles. Many topdogs earned profits by selling supplies to both sides so they could continue the shooting and bayoneting of each other.

    In our modern day system, where the rich are getting much richer, much quicker than ever, plus the perfection of Bernays’ thought control: one must assume that TPTB confidently believe that this can be induced to happen again, and they expect to have a great time watching from a safe distance.

    Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

  4. While I am appalled by the high pay of many on Wall Street, in executive suites, and in sports I don’t think these are of primary concern. What worries me more is the statistical low quality of us, the American people.

    Our crime rate is an absolute disgrace. Our students test closer to third world countries than to the leaders. Our infant mortality rate is worse than Cuba’s. The number of children without known fathers is about on a par with alley cats. Our life expectancy, significantly decreased by homicide! is not among the leaders.

    Our minorities, significantly the Blacks, statistically reduce our standing by every measure. Statistically the academic accomplishments of Blacks remain abysmal. Yet the quite recently arrived Koreans and Vietnamese do better, far better.

    We offer free prenatal care, but few of those who need it most bother to use it. We offer free inoculations but few of the most vulnerable use it.

  5. On national holiday weekends, CNBC runs specials that they have made about financial issues. Before the current crisis, David Faber did one about the untold wealth of the new super-rich. I think that it is called, “Untold Wealth, the Rise of the New Super-Rich.” Every American should see the guy discussing how he spent $20,000 for one (1) tire for his car, a car that cost him several million dollars. Obviously, being rich is not bad, and most rich people are not evil. Many do society a lot of good and help the less fortunate, but the concentration of more and more wealth among a relatively small percentage of the population can eventually become dangerous.
    Dumb me, didn’t realize what was going on in America, or how America was really run, until I found out, decades later, that virtually no children of the wealthy got drafted during the Vietnam War. The children of privilege weren’t killed (55,000) or maimed defending the capitalist system that the rich feared might be threatened with destruction by the spread of communism. Those with the most to lose, did the least to defend it. Their Washington puppets just kept sending the less fortunate to die, until it became clear that revolution at home was becoming a greater threat to their wealth, than trying to send the Russians and Chinese communists the message that the US might resist them with force in someplace that really counted. Henry Kissinger actually called the Vietnam War, “…a side show.”
    Look at the Katrina response. If Long Island had been hit and babies and the elderly were dying of dehydration, as happened inside the New Orleans Convention Center, do you really believe that 150 helicopters would have sat on a base (Fort Bliss or Hood, I can’t remember which) in Texas for three long, hot days? Or do you think that they would have found some way to drop water to the dying? Is bottled water so rare in America? I heard the commanding general of the base later say in an interview that, “I couldn’t move those helicopters without an order to do so.” Just today, an independent panel of experts revealed that the pumps installed by the Army Corps of Engineers to protect New Orleans during hurricane storm surges, are junk that will probably fail after a few hours of use. I would bet that they were bought through some kind of a sweetheart deal from a firm that made big political contributions or from a firm that is owned by the right relative. For those who don’t know how that is done, you write the specifications for the public bid, so that only your friends’ equipment can qualify. Or you declare an unneeded emergency to get away from the need to go to public bid at all. That is one of the ways the rich discourage competition for government contracts. Right after Katrina hit, the Feds gave out multi-billion dollar clean-up contracts to politically connected firms that subcontracted out nearly all the actual work, while skimming off hundreds of millions for doing a little paperwork. Levees.org might have the pump story on their website, if you think that I’m making this stuff up. (I’m not smart enough to make this kind of stuff up, and I don’t do drugs.)
    Look at the mass media. If you can control what people see on television, and what they hear on the radio while they drive to work, you can control any country. Wealthy investors control all the major news outlets. How often do you hear how the rich pay a disproportionate share of all income tax? A lot, but you don’t hear how they have a disproportionate share of all income. That’s no accident. Recently, a lot of that income has come from financial transactions that have brought the financial system to the brink of collapse. No doubt, the rich are thankful that their puppets in Washington have transferred the majority of the loss, from themselves, to the taxpayers at large. That is the real reason for the bailouts. How often do you hear how we can’t tax the rich more, because they create all the jobs. Yes, some do, because that is how the economic system that we were all born into has evolved. And because without the labor of the many, the rich can’t get even richer, or in many cases, even stay rich. How often do you hear that Frank Sanatra was paying an 80% marginal income tax rate right after WW II? He lived OK. Could Oprah survive if the government took 90% of the $245,000,000 that she made. How could anyone exist on only $24 million! Now that would be a cruel political system. Not a system that denies all its’ citizens adequate health care. We can’t possibly afford that! And all those radio talk show hosts that sign $80,000,000 contracts to inform you how tough the rich have it. I can think of one that could easily consume $8,000,000 worth of food and oxycodone. With the possible exception of the Presidency, enough TV advertising can get any candidate with half a brain elected to public office. And they can be defeated if they try to raise the income tax on the rich who can buy unlimited local TV time. Few Americans know that many very wealthy people still cheat on their income tax. They hide billions in offshore tax havens, or hire special expert tax lawyers to develop very complex tax cheating schemes that only the most intelligent person can even begin to understand. If the IRS questions the tax return, they threaten to take the case to tax court. Knowing that such cases would take years and tie up the courts, the IRS often settles for substantially less tax than is actually owed. Do you get that kind of deal? I remember a PBS documentary where the rich were leasing the sewer system of Munich, Germany to claim some sort of phony tax loss. You won’t see that type of story on Fox. How about the rich that own sports teams and get the public to build them multi-million dollar stadiums to make more money. Some researcher calculated that the guys who own the Washington baseball team were given $300,000,000 of public money. I am sure they needed every penny of it, for what some would consider an illegal monopoly too! But baseball has a special exemption from that law.
    The immoral behavior of the rich wouldn’t be so despicable, if it hadn’t been one of the chief contributing factors to the coming financial collapse. The Federal deficit will eventually become unmanageable due to insufficient tax revenue. Peak oil will certainly hasten the collapse. It will be fascinating to see what strategies that the experts hired by the wealthy come up with in an effort to manage the peak oil crisis. How little will the gasoline ration become before people start marching on Federal buildings to demand some impossible solution? My guess is that we will see in between 5 to 10 years. But I don’t know how much oil is in all those “stan” countries in central Asia, or under the Russian Arctic Ocean.
    Oh, and Dave, you keep writing like that and you’ll never get to play golf with the President, the Post Peak Dictator maby, but not the President.

  6. Dave, I’ve greatly enjoyed your recent columns. They’ve been finely crafted and stimulating. This time you’ve picked a huge topic and it may need more space for development.

    Social equity and the distribution of wealth seem to be a lot more out of whack in the USA than in other OECD countries. Living in Australia as I do I have only visited the USA half a dozen times over 20 years but every day we in Australia are immersed in news about US events and issues, which have been rather tumultuous this last 12 months. One of the striking features of US society to a distant spectator and occasional visitor is the way that large differences in wealth, income and access seem to be taken for granted as “the way things are”.

    Australia is hardly perfect and we have a terrible record with our aboriginals but our institutions manage to pay a living wage to the lowest level of workers – often $15 to $20 an hour compared with much less in the USA. The consequences are twofold – the low-paid feel they have a stake in society and society is given levers it can pull to manage equity issues. These levers include minimum wage rates, taxes (because the poor do pay some tax), and social security payments of which Australia has quite a variety. None of this has much effect on the wealth of the top 1% but it sure is sustaining and civilising for the bottom 20 – 30%.

    The European countries and particularly Scandinavia have even stronger redistributive arrangements than Australia so perhaps the model here is worth a look as some sort of middle ground. We even have a national taxation enquiry going on at the moment which includes examining how well the tax system supports social equity goals so the mechanisms are out in the open for discussion. And yes, the wealthy and powerful do keep arguing for a bigger slice of the cake, opposed by well-supported groups arguing the other way. Australia is no golden ideal but like Scandinavia we seem to have found a method to minimise the extent of abject poverty and misery at the bottom of society.

    What does it take for a nation to do this? Two big things I think – a community that expects everyone to get a fair go, and legal structures that actively support the weaker members of society to everyone’s benefit. For example most of us in other countries find the passionate opposition to universal healthcare in the US to be quite extraordinary. It is obvious to the onlooker how certain groups of Americans benefit from the enormous sums of money swilling through your current health arrangements, and we find it amazing that the interests of the insiders seem to outweigh the lives of millions who lack access to basic care or can be made bankrupt by illness or accident. On this equity issue and so many others, what on earth is going on in your great nation?

    Finally, forgive me for butting in to the concerns of others. I just can’t let this topic pass.

    Mark

  7. Bill Simpson, your comments are long on indignation but short on facts. I can’t take the time to do all the research necessary to do a line by line critique but I can make some comments off the top of my head.

    I didn’t fight in Viet Nam but I did fight in Korea. The highest casualty rates were among company grade officers, i.e. lieutenants and captains. They were the platoon leaders, the helicopter pilots, the forward observers, and patrol leaders. To apply for Army officer training required a college degree, a clean record, and no less than a category II on the mental tests among other qualifications. Very few from poor ghettos qualified. There were only two blacks in my OCS class (Company). One became a good friend, a farmer from Virginia. (It is very costly to train a soldier and even more costly to then send him on to OCS. The Army is very good at predicting what kind of candidate will succeed.)

    Before I get jumped on, there are exceptions, as: A holder of the Congressional Medal of Honor can select his duty in the Army. So if he chooses OCS he can go to OCS. An OCS classmate in his 30’s had the DSC which I presume got him a waiver. It is interesting to note that the Army would not grant a physical waiver for John Kennedy in WWII – imagine the pressure resisted! He did get a wavier from the Navy.

    As for the poor being cannon fodder, that’s nonsense. Those testing the best went to the combat services: infantry, artillery and armor. A large percentage of the ghetto poor went to truck driving school, cook and baker school, and served in the Quartermasters, a low casualty service. I have read that a black soldier in Viet Nam was less likely to be shot than if he had stayed home. (Joe Kennedy Jr. got killed, George Bush I got shot down, Bob Dole got horribly wounded, John McCain got shot down, John Kerrey got wounded and on and on – examples of poor cannon fodder?)

    Alas, war selectively kills the best DNA. This is demonstrated by Selective Service records of many millions in WWII. At that time the migration from the south to the north had not been completed. The mental scores (IQ’s) were in descending order: Northern whites, northern blacks, southern whites, southern blacks. The effect of this selectivity from the Civil War was still clear in 1940.

  8. I now have a new vocabulary for what I hear on NPR and other media.Like the Black Swan idea,– they are never talking about the economy as in a normal curve, bell curve.When they say on CNBC the Dow is up, it really only means it is up for the extream top end, more of a skewed curve.If i keep that in mind every time i hear stuff like that on NPR interviews, I can keep in perspective , that the numbers are only for the top 10%.This must continue to agitate all of us into action to overthrow the ruling elite.Do you think? Why anyone would listen to a kid born during the 1970s oil shocks is simply moronic.

  9. I suspect the numbers would look different for 2008/2009, when stock prices crashed.

  10. Don, a lot of wealthy people volunteered to serve in the military, especially in WW II, Korea, and even in Vietnam. I salute and admire all who served and continue to volunteer today. But there is a great difference between volunteering, and being drafted to serve against your will. Somehow, I think that by the time Vietnam really got going in 1965, the socioeconomic (income, not racial) makeup of the Army ground troops was somewhat different than during WW II or Korea. I suspect that, by then, with the Vietnam War on TV every night, the word got out among the rich to stay in your private college and buy a degree or two, or to locate the right doctors to find something wrong with you in order to avoid going to Vietnam. Maby, if all else fails, get daddy to set you up in some foreign country until it is all over. That plan sure worked out with the Carter pardon, didn’t it. I’ll bet that it was a little harder for anyone wealthy to avoid service in WW II and Korea, than in Vietnam, but I’m too lazy to research it. I would love to see actual statistics on the family incomes of those who were drafted and were killed or wounded in ground combat in the US Army during the Vietnam War. But I doubt that such data was gathered. Were there a lot of rich draftees in combat over there? I seriously doubt it. I know Cheney got deferments, yet didn’t hesitate to attack Iraq. Sadly, most civilians today don’t really care much about those who served in past wars. I was a poor white guy who was too skinny and unhealthy to even draft. Foods stamps didn’t exist when I was a child. They actually gave me a cardiograph at my draft physical exam! Just so you know, I contribute to several veterans organizations and have always been amazed at the dedication and determination of all who serve in the US military. I’ve got a 2009 DAV flag on the back window of my old 2000 Expedition, and I don’t even speed. I know that it is a gas guzzler, but I don’t drive much, and got it very cheaply. You did a great job in Korea. Anyone who doubts that needs only to look at the difference between N.& S. Korea today. My cousin volunteered for the Marines and did his service in Okinawa during the Vietnam War. Now that was luck.
    If I hated rich people, I sure wouldn’t be talking about peak oil, since they could become the first victims of a revolution caused by a peak oil economic collapse. The rich are still in charge of Washington. Witness the Wall Street bailouts of billionaires with your tax money. We will see how they handle the coming peak oil crisis. I can get by on two gallons a week. But I saw peak oil coming from the vacant 46th floor of the Plaza Tower office building in New Orleans, way back in 1975. From up there you can see all the ships and tugs on the Mississippi River, all the freeways with all those cars, constantly burning all that fuel. Then you realize how many more, far larger, cities exist, and it hits you. One day it will start to run out, then what? Then what?

  11. Looks like you really hit a nerve with this post!

    What I’d like to see next would be the graphs, particularly those in Figs. 1 and 6, for a mix of other countries. Mark Reynolds mentions some, and I’d definitely like to see them included. I’d particularly like to see the graphs for a representative mix of 3rd world countries as well, because I have a feeling that in many ways, the U.S. is more like a 3rd world country today than like other OECD countries.

    Finally, another relevant quote: “We can have concentrated wealth in the hands of a few or we can have democracy. But we cannot have both.” — Justice Louis D. Brandeis.

  12. Here’s one data point for the studies of other countries that I asked for in the previous comment: “The Evolution of Income Concentration in Japan, 1886-2002” (http://ideas.repec.org/p/nbr/nberwo/12558.html). One sentence from the abstract: “In contrast to the sharp increase in wage income inequality observed in the United States since 1970, the top wage income shares in Japan have remained remarkably stable over the recent decades.”

    A bit more data: the GINI index of countries from the CIA World Factbook: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html. The US is about a third of the way down (with earlier entries having a higher GINI index, implying greater inequality).

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