As should be abundantly clear to anyone who took time over the weekend to read “Quarantinis”, something’s gotta give, so to speak.
My own view on inequality in America is informed less by normative concerns about what’s “right” or “just” or “moral”, and more by practical questions about what is (or, in this case, isn’t) sustainable. It is not, I have repeatedly argued, sustainable for five people to control so much wealth that their combined fortunes dwarf entire sectors of advanced economies.
Again, it isn’t a matter of morality and it’s not a question of whether someone “deserves” the benefits that accrue from founding (and then building out) a company like Amazon or Google. It is simply a matter of feasibility.
Read more: Quarantinis (And A Glimpse Into Our Not-So-Distant Future)
Forget for a moment whether the poor and the middle-class will “rise up” — never mind, for our purposes here, whether the proletariat is on the verge of a revolt. Rather, the point is that no social stratum will tolerate a scenario like that which will be our reality within a decade if something doesn’t alter the current trajectory. There is no chance that the “traditional” business class (e.g., “regular” CEOs, America’s ultra-rich “super-managers”, hedge fund titans, etc.) will tolerate a situation where they are rendered wholly irrelevant by a handful of people whose personal fortunes wax and wane by tens of billions of dollars every hour the stock market is open.
One way or another, the future will be characterized by redistribution of some kind, whether that’s a tax on fortunes deemed so large they admit of no social utility under any plausible definition, government regulation of the entities that are creating those fortunes (i.e., tech companies), the forced breakup of those same entities, or some combination of those steps.
But beyond that, the pandemic has accelerated a number of trends and necessitated the adoption of policies previously seen as “extreme”. Overt, explicit monetization of government deficits by central banks is one example. At this point, very little effort is being put into maintaining the charade that central bank buying in the secondary market (as opposed to purchasing government bonds directly from the sovereign) means debt monetization isn’t actually debt monetization. Everyone knows what’s going on, and nobody seems particularly interested in obscuring it anymore. In the same vein, the idea that central banks’ holdings of government debt will ever be unwound completely is also seen as far-fetched, and if those holdings aren’t ever unwound, well, then, that’s monetization.
That circular funding scheme is what’s bankrolling the pandemic response in advanced economies, including billions in direct payments (i.e., stimulus checks) to everyday people. Republicans and Democrats didn’t agree on much when negotiations around the next virus relief package began last week, but they did agree on the desirability of another round of direct checks. It’s not a large leap from that to a universal basic income system, although the GOP would cringe at the suggestion and point to their plan to reduce generous unemployment benefits as “proof” they would never countenance UBI.
The problem in the US isn’t just massive wealth gains and cartoonish fortunes for a handful of tech founders and CEOs. It’s much more endemic than that. Increasingly, the US is an embarrassing outlier when it comes to wealth concentration. The figure (below) shows the share of national income going to the 1% over time.
Whatever you want to say about the relative merits of unrestrained capitalism, the wider that gap gets, the more likely it is that lower- and middle-income Americans will simply take to the streets to demand a more equitable system.
One silver lining has long been the promise of small business opportunity, but America’s bungled response to the pandemic (and I don’t care who you blame), has crushed that dream for many small business owners, who now find themselves facing little choice but to close their doors permanently in the wake of the virus’s unchecked spread in a number of large states (see here and here).
For the bottom 50% of Americans, the situation has been deteriorating for decades. The figure (below) will increasingly be viewed as intolerable by the masses. And do note when the trend began (with the Reagan-Thatcher revolution).
Going forward, market participants should prepare themselves to adapt to a new reality.
Some strategists are attempting to get ahead of things by anticipating big-picture trends. “In our view, the bigger story is the coming era of bigger government, smaller world, and unconventional fiscal policy accelerated by [the] pandemic”, BofA’s Michael Hartnett wrote late last week, adding that,
[this is] heralded by higher gold & weaker US dollar, best positioned for via commodities, HY bonds, and long RoW stocks vs US stocks; 2010s were decade of liquidity, globalization, profits; 2020s to be decade of deficits, localization, redistribution; War on Inequality means unconventional monetary policy of 2010s to be replaced by unconventional fiscal policies of 2020s…MMT, UBI, debt forgiveness, unionization.
There will be significant pushback to income redistribution, that’s for certain. “Although the attitude towards all kinds of inequality… had been revised in the past, the same cannot be said for wealth inequality”, Deutsche Bank’s Aleksandar Kocic wrote last year, in a piece linking persistent curve flattening to the lack of support for pro-growth fiscal policy.
“The resistance against radical redistribution of wealth has been remarkably robust and resilient across a variety of political systems, from dictatorships, monarchies, peasant societies, to post-industrial formations and democracies”, he added, noting that “the wealth protection instinct has proven to be one of the strongest sociopolitical forces in human history”.
Still, I would contend that even as the top 1% will never identify with the 90-99%, let alone with the bottom 50%, the absurd fortunes built by those who top the list of the world’s wealthiest people have thrown the inequality debate into such stark relief that even those sitting on what, to the poor, are unfathomable fortunes, have come around to the fact that America’s perpetual motion machine of inequality creation is simply spinning too fast.
H…….you speak social conscience here that I heard from my parents for 60 years at a time when the situation you describe was nowhere near as exaggerated as it has become currently…. They were displaced immigrants during WW2 from Social Aristocracy in an Eastern European Country..I was 5….and remember all too well…..
As I see it the changes that contributed to these excesses are part sociological attitudes that have been altered by events in our lifetime as well as a Political system that manipulates all to the ever concentrated ranks of the super-advantaged.. The underclasses have done their share to fuel these inequalities by buying into the narrative that has been ever so skillfully presented to alter their perceptions and corrupt their leaders. It is not a conspiracy it is just smart people maneuvering unceasingly to their own advantage … IT IS THE WAY OF THE SPECIES….
‘The answer lies within ourselves not in our stars ‘ This is a great post by the way…….
“Rather, the point is that no social stratum will tolerate a scenario like that which will be our reality within a decade if something doesn’t alter the current trajectory.”
the degree that the masses vote and potentially vote against their own interests is and will likely remain astounding. …see 2016
“There is no chance that the “traditional” business class (e.g., “regular” CEOs, America’s ultra-rich “super-managers”, hedge fund titans, etc.) will tolerate a situation where they are rendered wholly irrelevant by a handful of people whose personal fortunes wax and wane by tens of billions of dollars every hour the stock market is open.” … you’re getting warmer…
my prediction is the employment “recovery” will flatten if not reverse, and the market eventually breaches and blows through the 3/23/20 low, … then change will be mobilized.
Great expose. Appreciated your comment, George, as well.
“the degree that the masses vote and potentially vote against their own interests is and will likely remain astounding”
Do they? Some people’s interest is just hating other people due to the color of their skin. I think that number is larger than most of us care to admit.
The other possibility is that working class white people voting for Trump is actually very much in their economic interest. If you have limited skills, one way to maximize them is to mitigate the competition for jobs needing those skills. Eliminating illegal immigration and marginalizing people of color with similar skills sets is one way to do that. It’s not like the white working class flourished under the Clinton and Obama presidencies.
To understand the decisioning to embrace leaders who clearly are not advocating the best interests of the society as a whole requires rejecting logic and understanding about what is driving thought and behavior patterns. The commodization of “news” has enabled people in the US to find their preffered echo chambers and develop an inherent trust in the talking head presenting the information they desire to hear. This loyalty to one or more TV personalities disables logic and enables subjugation for millions of viewers daily.
The end result? Corprocrats are largely the chosen candidates, not by accident, but by design. When Sanders and Warren propose society changing policies to invoke wealth redistribution and medicare/education for all, the echo chambers call them too expensive and then ignore/suppress coverage of those candidates. The masses blindly believing their loyal daily talking head would never mislead them, follow that lead at the polls.
This despite several multi-Trillion dollar bailout packages for the very corporations where the wealth concentration is occurring. When the fallout of this nation is over, I’d love to read a psycho-analysis of the mental exploitation of the richest society in US history, I’m sure it’ll be quite fascinating.
Knowing of my background on Wall Street, I have, for months now, been hit with questions by friends as to the “disconnect” between the financial pain they are feeling versus the “stellar” returns on Wall Street. These are not poor people. Many are quite wealthy (although they consider themselves middle class) . They are not “angry”, not yet. But they are vocal. And unhappy. If this class of Americans are upset, then what of the masses of Americans not quite as financially secure? And what would happen if the Fed moves to directly support the equities market? I doubt it would go over well in middle America…
Aristotle, in his work Politics, argued for a general welfare system as necessary for any functioning society. From what I recall, his argument wasn’t one of morality either. Instead, he proposed it to maintain social order so that the masses wouldn’t revolt and kill the landowners.
Along the same line of thought, Mark Blythe, in his characteristically sarcastic manner, issued a direct warning to the elites of America: “The Hamptons are not a defensible position.”
I do agree with H that some change will come when extremely wealthy people find themselves completely marginalized by the money of the Big Tech CEOs. One of these guys will overreach and find himself in a heap of trouble with regulators, Congress and the American people.
I don’t buy that there’s going to be some revolution of the American “peasantry.” I’m happy to be wrong on this, but the working class in the this country rarely go after the wealthy–not when more convenient scapegoats are available like immigrants and African-Americans. In response to an earlier comment I don’t see a bunch of folks from Queens rolling out to the Hamptons with guns ablazing.
You may not be familiar with Blythe, and if that’s the case I can see how it would be tough to understand that his statement wasn’t to be read literally. It was a figure of speech. Blythe was making the point that the rich would be better off giving up a little wealth now rather than a lot of wealth later.
Blythe’s simply indicating that the greater this wealth gap grows, the more likely it is we see more drastic policies to close these gaps, which will significantly reduce the wealth of the elites.
His remark about the Hamptons is typical of his Scottish sense of humor, something I find refreshing in a Brown University economics professor.
Good to hear your perspective, one that I more or less agree with.
Before going to UBI, the US needs to try Universal Health Care not linked to employment, and a higher minimum wage- supplemented by government credits. In the next decade the minimum wage in the US should be $20 per hour with some sort of government subsidiy in addition. If you increased public educational funding – including increased subsidy for post-secondary education and more public spending on public health and infrastructure that would go a long way to leveling the playing field for the bottom 50%. I would also suggest some sort of subsidy for social security so that wage taxes could be reduced. That requires higher income tax rates (should eliminate income taxes on incomes below a low threshold), higher corporate tax rates and probably a mildly progressive VAT.
After doing that- which I consider a low hanging fruit and you want to go to UBI, well ok. But a UBI is not going to fix many of the problems out there which are caused by underinvestment in public goods- the right to a good robustly funded education, the right to health care access and a society with robust physical infrastructure and public health.
A person aged 20 or 30 may not agree. Why confiscate income and spend it on universal Healthcare?
The last time universal healthcare was attempted most large corporations were able to dodge their obligation to current and retiring employees. Employees ended up spending far more for healthcare and corporations reaped a windfall.
I think you’ve offered a bunch of sensible reforms and supported them with pretty sound logic. 1+
Wow, good comments. Thanks all.
Thank you for pointing correctly that the income started with Reagan. That is correct, I saw a special in the 80’s with Tip ONiel in it, he admitted that the Democrats created the middle class with the progressive tax brackets. Once Reagan flattened the tax structure the disparity started and will continue getting worse.
In our capitalist system there should be winners and losers, but you are correct there is no utility in someone being worth 100 billion or more. I know no one is talking about tax reform, Maybe we will talk about it if Bezo’s becomes a trillionaire.
I know some billionaires say if we enacted a billionaire tax they would move out of the country, so if this was going to happen it would have to be done by the G7 at the same time, so Billionaires would have nowhere else to go,
Or we could do what Saudia Arabia does and put the rich under house arrest until they agree to some type of payment for the masses.
If we’re gonna be honest about the predicament in which we find ourselves, we should start by holding the people who brought us here accountable — i.e., Barry Goldwater and Ronald Reagan, the original pitchmen for Make America White Again; Howard Jarvis, of Prop 13 infamy, and Grover (“drown it in a bathtub”) Norquist; aided and abetted by the morally and ethically bankrupt Gingrich, DeLay, and McConnell; and amplified, at every step, by Rupert Murdoch and Roger Ailes’ Faux News propaganda machine, with a big assist from Limbaugh. Bill Clinton and third way triangulation didn’t help any.
They always have Monaco….
Tip was also famous for his remark that” All politics is local.” Look at what is happening to the COVID mess, local fragmentation, squabbling over masks, etc. People are dying from local politics. That’s part of the revolution. It’s also going to make solutions difficult and make “divide and conquer” the new politics. Tip was right.
I’m relatively well off, but I’ve had just about enough of this. Tax the bejesus out of wealth of all kinds and
Do whatever it takes to level the incomes of this country.
We are about to see millions of formerly working people losing homes, health care and any hope of educating their
Children……in what formerly was the wealthiest country in world history.
There is simply no excuse for homelessness and lack of health care.
I live in Seattle and see these disparities daily…..we are ground zero for this…….and our billionaires feel guilty enough about their wealth, that they beg for higher taxes and give most of it away.
H, very good post. Keep these in the rotation once in a while.
Two things are striking–a post on inequality triggers 10x reader comment/responses. Secondly, why does this not end in violent insurrection. Too Soviet of me?