The L-Curve (Part I)

By David Chandler

When you listen to the news and the discussion turns to statistics, do your eyes glaze over? For most people, numbers like millions, billions, and trillions recede into a fog. They are used interchangeably with "zillions" to convey unimaginable bigness. The problem is that the wealth of this country is measured in the trillions of dollars divided among a few hundred million people. Before you can deal intelligently with national economic issues you need to come to terms with the numbers involved.

Here's a picture to keep in mind. A stack of $100 bills one-inch high is $25,000. A lot of families in this country live on that much or less per year. A stack four inches high is $100,000, a pretty good salary for a professional or management position. A million dollars is a stack 40-inches high, a little over three feet tall. A million dollars isn't what it used to be, but if you have it and invest it with a 10% return, it would bring in $100,000 per year.

So how high is a billion-dollar stack of $100 bills? You would be amazed at how many highly educated people answer this question with "twice as high" or "ten times as high," or "as high as the ceiling." A billion is 1000 millions, which works out to be a pile of $100 bills 1 kilometer high (over six tenths of a mile)! Last year Bill Gates doubled his net worth in one year from $25 billion to $50 billion, so his income for that year is a pile of $100 bills over 15 miles high!

If we represent the national income distribution on a graph the size of a football field, with the vertical scale at any point representing the height of a pile of $100 bills, the graph would start out at zero on one end for the poorest people. It would rise to a little less than two inches high at the 50-yard line. It would rise to 4 inches high ($100,000) somewhere around the 95-yard line and several feet high at the 99 yard line. [Note: When I wrote this article I was in error about the height of this data point. The height of the curve at the 99 yard line is about 1 foot.] Between the 99-yard line and the 100-yard line it would rise in a spike over 15 miles high. (See the graph below.) [Note: With new data this figure should be revised upward to about 50 km, which is closer to 30 miles.] I call this the L-Curve.

Income is not the same as wealth. Most of us are consumers. We consume our income almost as fast as we earn it, with little reserve. The very rich don't spend very much of their money on consumable goods. If Bill Gates spent a $100 per second, day and night, for a year he would end up $2-billion richer at the end of the year, assuming a conservative 10% return on his investments. Wealth generates more wealth. A curve representing the distribution of wealth is far more lopsided than the distribution of income. The bottom half of the population controls almost nothing. According to 1989 census figures, 40% of the nation's wealth is controlled by the top 1/2% of the population, and it has become even more extreme since. [This number is frequently quoted as 40%-50% of the wealth in the top 1%. These quotes are not really inconsistent. IRS data indicates that the $1 million mark in income occurs at the 99.7th percentile in the population, so the vast majority of the money in the top 1% of the population is actually in the top 1/2%.]

Why should you care how much money someone else makes? You should care because extreme differences in wealth create extreme differences in power, and that distorts democracy. For example, if you want your voice heard in regard to a social or political issue you can write to your congressman or write a letter to the editor or take up a picket sign and pass out leaflets. If Rupert Murdoch or Ted Turner want their views heard, they can buy up the media and buy the politicians.

How does "democracy" function in an L-Curve society? The horizontal branch has the votes, but the vertical spike has the money and all the power that money can buy. The only way the top 1% can "outvote" the bottom 99% is to get us to vote for their interests instead of ours. For that we must be fed distractions and distortions. To get us to go along with the program we must be kept fragmented. It is in the interest of the very rich to keep us glued to our TV sets where we can get direct transfusions of sound bytes, spin control, meaningless pseudo-news (such as O.J., Princes Di, and Monica), and a mind-numbing diet of vicarious violence. If we turned off our TV sets we might actually discuss meaningful issues with our families and neighbors. Campaigning has become an orgy of pious posturing, mud slinging, bumper sticker slogans, sound bytes, and hyped up wedge issues. By the time those of us on the horizontal branch get to vote, the candidates have already been screened out by their ability to raise campaign funds from the very rich. This is not a Republican vs. Democrat issue. It's not a moral candidate vs. immoral candidate issue. It's the whole system. The major candidates in both parties are owned by the very rich. Many of the biggest contributors contribute heavily to both sides. By the time we go into the voting booth we are left to choose between Tweedledum and Tweedledummer! Is it any surprise that when candidates get into office they consistently represent the interests of those on the vertical spike and keep the rest of us at bay with lies and empty rhetoric?

The very rich would like those of us who have a little to focus our anger on those who have less: the homeless, immigrants, residents of inner city ghettos, and welfare recipients. It is not the poor who are undermining the middle class: it is the very rich. We have been going through a time of great prosperity in America, but you would never know it from looking at your paycheck (if you even have one any more!). The rules of the game have been rewritten to downsize the middle class and funnel the wealth directly into the portfolios of the very rich. (A must-see video on this subject, regardless of your politics, is Roger and Me.)

Consider the Reagan tax "reform" (which passed, by the way, with the collusion of a Democratic Congress). Under Eisenhower the top tax bracket was 90%. Under Kennedy it dropped to 70%. It was hard to become a billionaire under those rules. The Reagan tax "reform" dropped the top tax bracket to less than 30%. What picture does that paint for you? If you think that's a 60% reduction for the richest Americans the big boys would be pleased with your logic, but you would be dead wrong. Note that instead of the very rich keeping 10% (of any earnings over a few million) they would be keeping 70%. For the very rich that's a 700% increase in after-tax income! When is the last time your income went up by 700%?

The cost of government has been shifted from the very wealthy to the middle class with the difference made up by round after round of cuts in government services that affect us all. The legacy is that all you hear these days is griping about the oppressiveness of taxes. Every time a program is proposed that would make this a better place to live the cry is "Who's going to pay for it?" We can't afford to properly support education. We can't afford libraries. We can't afford to support the arts. We can't afford universal medical care. We can't afford a social safety net...

Give me a break! We are the richest country on earth. We have all contributed to the production of America's wealth, but most of the working population lives two or three paychecks away from homelessness. We have allowed our democracy to become an oligarchy whose primary goal is to create new billionaires.

So what is the next step in this progression? A flat tax, of course! The same people who gave you the Reagan tax reform now want to convince you that a flat tax is "fair." That's hogwash! The very rich have benefited disproportionately from this nation's economic success. They deserve to bear a disproportionate share of the costs.

Is there hope? I believe there is.

...To be continued. Part II