Income Inequality is a Racket
Income inequality is a racket. It is a product of the society we have structured. It is not foreordained; it’s baked into the structure of our political and economic system. The world is a product of our creation, and if we believe income inequality is a significant issue, we have the power to change it. The question is - do we have the will?
Economist Gabriel Zucman, with writer Gus Wezerek, in a recent NYTimes opinion piece (This is Tax Evasion Plain and Simple. The Race to the Bottom on Corporate Taxes Has Gone On For Too Long) describes the effect of countries competing for corporate tax by lowering corporate tax rates, incentivizing companies to shift their profits from their home operating country to low-tax jurisdictions. This allows companies to reduce their worldwide tax liability while also reducing corporate tax liability in those jurisdictions that are the primary operating locations of these same companies, i.e., the jurisdictions where a company’s employees operate and where its capital resides. The result: massive reduction in capital available to jurisdictions for education, infrastructure, health services, food and nutrition, parks and recreation, and safety and security. The middle class was asked to foot the bill for the necessary replacement capital, as best they could, and the overall dynamic has been to further enrich the wealthy, reduce the economic viability of most of us, and generate massive inequality in income between classes of people. This is an existential problem, one that we should all be able to agree upon. But we don’t.
Humans are always inclined to preserve our bounty, with hoarding being just an extreme version of our natural tendencies: to keep what we have and acquire more. We are just another species of animals, with certain unique abilities, but animals nonetheless. Our cognitive abilities do not generally supersede our natural tendencies, and so it is in the minds of those advantaged with wealth, and their helpers, that the wealthy are wealthy because of their personal qualities and achievements.
Those with wealth become apoplectic at the mere suggestion that the system is somehow skewered unfairly towards their interests. Wealth doesn’t equal virtue. The existence of wealth doesn’t equate to “deserved” wealth. Dick Cheney once said, “And I earned every penny of it.” Don’t we all?
In another NYTimes opinion piece (Only the Rich Could Love this Economy), Karen Petrou, MP of Federal Financial Analytics, evaluated the relationship between low interest rates and wealth inequality. She concludes that we have wealth but not prosperity. To combat the financial crisis in 2008, the Fed began purchasing massive amounts of debt, while lowering interest rates to historical lows, resulting in cheap money to financial institutions and other big players. This in turn resulted in significant increases in stock market value and rising home prices (with of course the most significant home price increases favoring the wealthy on a proportionate basis). This formula has continued ever since, and is according to Petrou a key driver of wealth inequality. You couple that with massive reduction in capital gain tax rates – hint, the rich generally have no income relying instead primarily on long term capital gains transactions. A couple of key statistics: by 2021 the richest 1% held 32% of our nation’s wealth while the bottom half of our nation, economically – half! – held just 2% of our wealth. That is why it’s a racket.
Income inequality is systemic. It exists not because of the (mythic) virtue of the wealthy, but instead simply because they are on the right side of a coin tilting magnificently in their favor. The coin is unbalanced. Time to balance that coin.
- JM
