[Marxism] The one percenters

Louis Proyect lnp3 at panix.com
Mon Jul 4 07:03:57 MDT 2011


Of the 1%, by the 1%, for the 1%

Americans have been watching protests against oppressive regimes that 
concentrate massive wealth in the hands of an elite few. Yet in our own 
democracy, 1 percent of the people take nearly a quarter of the nation’s 
income—an inequality even the wealthy will come to regret.
By Joseph E. Stiglitz•

THE FAT AND THE FURIOUS The top 1 percent may have the best houses, 
educations, and lifestyles, says the author, but “their fate is bound up 
with how the other 99 percent live.”

It’s no use pretending that what has obviously happened has not in fact 
happened. The upper 1 percent of Americans are now taking in nearly a 
quarter of the nation’s income every year. In terms of wealth rather 
than income, the top 1 percent control 40 percent. Their lot in life has 
improved considerably. Twenty-five years ago, the corresponding figures 
were 12 percent and 33 percent. One response might be to celebrate the 
ingenuity and drive that brought good fortune to these people, and to 
contend that a rising tide lifts all boats. That response would be 
misguided. While the top 1 percent have seen their incomes rise 18 
percent over the past decade, those in the middle have actually seen 
their incomes fall. For men with only high-school degrees, the decline 
has been precipitous—12 percent in the last quarter-century alone. All 
the growth in recent decades—and more—has gone to those at the top. In 
terms of income equality, America lags behind any country in the old, 
ossified Europe that President George W. Bush used to deride. Among our 
closest counterparts are Russia with its oligarchs and Iran. While many 
of the old centers of inequality in Latin America, such as Brazil, have 
been striving in recent years, rather successfully, to improve the 
plight of the poor and reduce gaps in income, America has allowed 
inequality to grow.

Economists long ago tried to justify the vast inequalities that seemed 
so troubling in the mid-19th century—inequalities that are but a pale 
shadow of what we are seeing in America today. The justification they 
came up with was called “marginal-productivity theory.” In a nutshell, 
this theory associated higher incomes with higher productivity and a 
greater contribution to society. It is a theory that has always been 
cherished by the rich. Evidence for its validity, however, remains thin. 
The corporate executives who helped bring on the recession of the past 
three years—whose contribution to our society, and to their own 
companies, has been massively negative—went on to receive large bonuses. 
In some cases, companies were so embarrassed about calling such rewards 
“performance bonuses” that they felt compelled to change the name to 
“retention bonuses” (even if the only thing being retained was bad 
performance). Those who have contributed great positive innovations to 
our society, from the pioneers of genetic understanding to the pioneers 
of the Information Age, have received a pittance compared with those 
responsible for the financial innovations that brought our global 
economy to the brink of ruin.

Some people look at income inequality and shrug their shoulders. So what 
if this person gains and that person loses? What matters, they argue, is 
not how the pie is divided but the size of the pie. That argument is 
fundamentally wrong. An economy in which most citizens are doing worse 
year after year—an economy like America’s—is not likely to do well over 
the long haul. There are several reasons for this.

First, growing inequality is the flip side of something else: shrinking 
opportunity. Whenever we diminish equality of opportunity, it means that 
we are not using some of our most valuable assets—our people—in the most 
productive way possible. Second, many of the distortions that lead to 
inequality—such as those associated with monopoly power and preferential 
tax treatment for special interests—undermine the efficiency of the 
economy. This new inequality goes on to create new distortions, 
undermining efficiency even further. To give just one example, far too 
many of our most talented young people, seeing the astronomical rewards, 
have gone into finance rather than into fields that would lead to a more 
productive and healthy economy.

Third, and perhaps most important, a modern economy requires “collective 
action”—it needs government to invest in infrastructure, education, and 
technology. The United States and the world have benefited greatly from 
government-sponsored research that led to the Internet, to advances in 
public health, and so on. But America has long suffered from an 
under-investment in infrastructure (look at the condition of our 
highways and bridges, our railroads and airports), in basic research, 
and in education at all levels. Further cutbacks in these areas lie ahead.

None of this should come as a surprise—it is simply what happens when a 
society’s wealth distribution becomes lopsided. The more divided a 
society becomes in terms of wealth, the more reluctant the wealthy 
become to spend money on common needs. The rich don’t need to rely on 
government for parks or education or medical care or personal 
security—they can buy all these things for themselves. In the process, 
they become more distant from ordinary people, losing whatever empathy 
they may once have had. They also worry about strong government—one that 
could use its powers to adjust the balance, take some of their wealth, 
and invest it for the common good. The top 1 percent may complain about 
the kind of government we have in America, but in truth they like it 
just fine: too gridlocked to re-distribute, too divided to do anything 
but lower taxes.

Economists are not sure how to fully explain the growing inequality in 
America. The ordinary dynamics of supply and demand have certainly 
played a role: laborsaving technologies have reduced the demand for many 
“good” middle-class, blue-collar jobs. Globalization has created a 
worldwide marketplace, pitting expensive unskilled workers in America 
against cheap unskilled workers overseas. Social changes have also 
played a role—for instance, the decline of unions, which once 
represented a third of American workers and now represent about 12 percent.

But one big part of the reason we have so much inequality is that the 
top 1 percent want it that way. The most obvious example involves tax 
policy. Lowering tax rates on capital gains, which is how the rich 
receive a large portion of their income, has given the wealthiest 
Americans close to a free ride. Monopolies and near monopolies have 
always been a source of economic power—from John D. Rockefeller at the 
beginning of the last century to Bill Gates at the end. Lax enforcement 
of anti-trust laws, especially during Republican administrations, has 
been a godsend to the top 1 percent. Much of today’s inequality is due 
to manipulation of the financial system, enabled by changes in the rules 
that have been bought and paid for by the financial industry itself—one 
of its best investments ever. The government lent money to financial 
institutions at close to 0 percent interest and provided generous 
bailouts on favorable terms when all else failed. Regulators turned a 
blind eye to a lack of transparency and to conflicts of interest.

When you look at the sheer volume of wealth controlled by the top 1 
percent in this country, it’s tempting to see our growing inequality as 
a quintessentially American achievement—we started way behind the pack, 
but now we’re doing inequality on a world-class level. And it looks as 
if we’ll be building on this achievement for years to come, because what 
made it possible is self-reinforcing. Wealth begets power, which begets 
more wealth. During the savings-and-loan scandal of the 1980s—a scandal 
whose dimensions, by today’s standards, seem almost quaint—the banker 
Charles Keating was asked by a congressional committee whether the $1.5 
million he had spread among a few key elected officials could actually 
buy influence. “I certainly hope so,” he replied. The Supreme Court, in 
its recent Citizens United case, has enshrined the right of corporations 
to buy government, by removing limitations on campaign spending. The 
personal and the political are today in perfect alignment. Virtually all 
U.S. senators, and most of the representatives in the House, are members 
of the top 1 percent when they arrive, are kept in office by money from 
the top 1 percent, and know that if they serve the top 1 percent well 
they will be rewarded by the top 1 percent when they leave office. By 
and large, the key executive-branch policymakers on trade and economic 
policy also come from the top 1 percent. When pharmaceutical companies 
receive a trillion-dollar gift—through legislation prohibiting the 
government, the largest buyer of drugs, from bargaining over price—it 
should not come as cause for wonder. It should not make jaws drop that a 
tax bill cannot emerge from Congress unless big tax cuts are put in 
place for the wealthy. Given the power of the top 1 percent, this is the 
way you would expect the system to work.

America’s inequality distorts our society in every conceivable way. 
There is, for one thing, a well-documented lifestyle effect—people 
outside the top 1 percent increasingly live beyond their means. 
Trickle-down economics may be a chimera, but trickle-down behaviorism is 
very real. Inequality massively distorts our foreign policy. The top 1 
percent rarely serve in the military—the reality is that the 
“all-volunteer” army does not pay enough to attract their sons and 
daughters, and patriotism goes only so far. Plus, the wealthiest class 
feels no pinch from higher taxes when the nation goes to war: borrowed 
money will pay for all that. Foreign policy, by definition, is about the 
balancing of national interests and national resources. With the top 1 
percent in charge, and paying no price, the notion of balance and 
restraint goes out the window. There is no limit to the adventures we 
can undertake; corporations and contractors stand only to gain. The 
rules of economic globalization are likewise designed to benefit the 
rich: they encourage competition among countries for business, which 
drives down taxes on corporations, weakens health and environmental 
protections, and undermines what used to be viewed as the “core” labor 
rights, which include the right to collective bargaining. Imagine what 
the world might look like if the rules were designed instead to 
encourage competition among countries for workers. Governments would 
compete in providing economic security, low taxes on ordinary wage 
earners, good education, and a clean environment—things workers care 
about. But the top 1 percent don’t need to care.

Or, more accurately, they think they don’t. Of all the costs imposed on 
our society by the top 1 percent, perhaps the greatest is this: the 
erosion of our sense of identity, in which fair play, equality of 
opportunity, and a sense of community are so important. America has long 
prided itself on being a fair society, where everyone has an equal 
chance of getting ahead, but the statistics suggest otherwise: the 
chances of a poor citizen, or even a middle-class citizen, making it to 
the top in America are smaller than in many countries of Europe. The 
cards are stacked against them. It is this sense of an unjust system 
without opportunity that has given rise to the conflagrations in the 
Middle East: rising food prices and growing and persistent youth 
unemployment simply served as kindling. With youth unemployment in 
America at around 20 percent (and in some locations, and among some 
socio-demographic groups, at twice that); with one out of six Americans 
desiring a full-time job not able to get one; with one out of seven 
Americans on food stamps (and about the same number suffering from “food 
insecurity”)—given all this, there is ample evidence that something has 
blocked the vaunted “trickling down” from the top 1 percent to everyone 
else. All of this is having the predictable effect of creating 
alienation—voter turnout among those in their 20s in the last election 
stood at 21 percent, comparable to the unemployment rate.

In recent weeks we have watched people taking to the streets by the 
millions to protest political, economic, and social conditions in the 
oppressive societies they inhabit. Governments have been toppled in 
Egypt and Tunisia. Protests have erupted in Libya, Yemen, and Bahrain. 
The ruling families elsewhere in the region look on nervously from their 
air-conditioned penthouses—will they be next? They are right to worry. 
These are societies where a minuscule fraction of the population—less 
than 1 percent—controls the lion’s share of the wealth; where wealth is 
a main determinant of power; where entrenched corruption of one sort or 
another is a way of life; and where the wealthiest often stand actively 
in the way of policies that would improve life for people in general.

As we gaze out at the popular fervor in the streets, one question to ask 
ourselves is this: When will it come to America? In important ways, our 
own country has become like one of these distant, troubled places.

Alexis de Tocqueville once described what he saw as a chief part of the 
peculiar genius of American society—something he called “self-interest 
properly understood.” The last two words were the key. Everyone 
possesses self-interest in a narrow sense: I want what’s good for me 
right now! Self-interest “properly understood” is different. It means 
appreciating that paying attention to everyone else’s self-interest—in 
other words, the common welfare—is in fact a precondition for one’s own 
ultimate well-being. Tocqueville was not suggesting that there was 
anything noble or idealistic about this outlook—in fact, he was 
suggesting the opposite. It was a mark of American pragmatism. Those 
canny Americans understood a basic fact: looking out for the other guy 
isn’t just good for the soul—it’s good for business.

The top 1 percent have the best houses, the best educations, the best 
doctors, and the best lifestyles, but there is one thing that money 
doesn’t seem to have bought: an understanding that their fate is bound 
up with how the other 99 percent live. Throughout history, this is 
something that the top 1 percent eventually do learn. Too late.

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