What are the implications of this picture?
I am not an economist, but then again, most likely you aren't either. On the other hand, the economy affects you and me, so we need to come to grips with these issues to participate intelligently in the political process. There needs to be a genuine national dialog on these issues at all levels.
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The L-Curve graph represents income, not wealth. The
distribution of wealth is even more skewed.
Quoting from a
recently-published book by political philosopher David Schweickart,
If we divided the income of the US into thirds, we find that the top ten percent of the population gets a third, the next thirty percent gets another third, and the bottom sixty percent get the last third. If we divide the wealth of the US into thirds, we find that the top one percent own a third, the next nine percent own another third, and the bottom ninety percent claim the rest. (Actually, these percentages, true a decade ago, are now out of date. The top one percent are now estimated to own between forty and fifty percent of the nation's wealth, more than the combined wealth of the bottom 95%.)
- Think of the L-Curve when you read your daily news [I hope you do READ your daily news rather than rely on the TV infotainment that masquerades as news]. What are its implications for tax structures, campaign finance reform, the policies of the IMF, the WTO, and the World Bank, abandonment of inner cities, factory closings, sweatshop labor, "guest worker" programs, US foreign policy, why we go to war, etc. How does welfare for the poor stack up against corporate welfare?
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Should
the goal be to get motivated and get yourself onto the vertical
spike? [Some people who have responded to this site see it
this way, but I think that misses the point.] I saw a bumper
sticker recently that says it best for me:
Our economy produces tremendous wealth but it also produces tremendous poverty. Sure, some people can be lazy, but when large numbers of hard working people live in poverty and the middle class is shrinking, it is a systemic, not an individual problem. There is plenty to go around, but it doesn't adequately go around. It goes to the top, and leaves the masses to fight over the crumbs. (If you are mathematically inclined, check out a recent study of the income distribution that identifies two distinct income classes in the US with different mathematical bahavior.) True, it has been this way through the ages, but that doesn't mean we should be satisfied with such a system. I believe we can do better.
- Some doctors and lawyers and professional people, with incomes over a hundred thousand dollars may feel "rich". They may have nicer homes and cars, and they may have attitudes that separate them from the masses. But they still must work for a living and are primarily consumers of their earnings. Whether they recognize it or not, they actually have more in common with the people at the bottom than they do with the people in the top 1/2%.
- The horizontal spike has the votes. The vertical spike has the money. Who wins, when it comes to electoral politics? Who has influence? Whose interests are being represented in Washington? Can democracy meaningfully exist where the distribution of wealth, and thus the distribution of power, is this concentrated?
- Even in the economic boom times since Ronald Reagan's presidency, people on the horizontal spike have showed little if any improvement in their condition while huge gains went to the people on the vertical spike. Can this be considered "prosperity"? Do we really want to gear up our national policies to repeat this performance?
- Those in the vertical spike would like to have you resent the poor who are portrayed as welfare leeches. Which group actually has a bigger negative impact on your lifestyle: the people in the bottom half of the graph, or the people in the vertical spike? The people at the bottom are politically virtually powerless. Those in the vertical spike hire lobbyist's to craft public policy even more to their advantage.
- People on the vertical spike can use their influence single-mindedly and very effectively. A single billionaire can get the undivided attention of any politician he wants, any time he wants. If he doesn't get what he wants he can, in fact, "fight city hall," the statehouse, and even the federal government. People on the horizontal spike must pool their limited individual power and organize to have any effect at all. This is a very difficult thing to manage, in practice.
- All of mainstream media has been bought up by people in the "vertical spike." The primary channels for information and expressed opinion are controlled and filtered by a small, powerful group on the vertical spike whose interests are not representative of the majority of Americans. Even when there is no direct political message the programming is tailored to the perspectives and sensitivities of large corporations. The business of media is to sell advertising. Television programming is simply the hook to hold an audience until the next commercial. Serious examination of ideas of any kind is seen as counterproductive to the corporate sponsors because it may alienate or bore part of the potential audience. The result is nonstop sensationalistic binges (O.J., Princess Di, Monica Lewinsky, etc.) instead of real news. The growing media monopoly dilutes and distorts the national dialog, and thereby destroys the basis for democracy. We must find ways to rebuild community and learn to talk to each other directly.
- When taxes are cut, whose taxes are cut and whose programs are cut? What kinds of taxes are being cut and what kinds of taxes (whether they are called taxes or not) are being imposed? Sales tax and use fees tax primarily the horizontal spike. The pre-Reagan progressive income tax drew more from the vertical spike.
- The flat tax would shift the burden downscale even more. The sales pitch for this shift usually focuses on "simplification." Simplification is unrelated to the issue of who the money is coming from. You could have a simple progressive tax just as easily as a simple flat tax. The proposal to eliminate the income tax entirely would be disastrous. Those on the vertical spike would escape virtually all of their obligations and the burden of government would be born almost entirely by those of us on the horizontal spike, both through increases in other forms of taxation and reduction of services. The income tax originally taxed ONLY the vertical spike. This is the direction tax reform needs to take if it is to be truly considered "reform."
- Can the people on the horizontal spike take control of their own destinies and truly make this a nation governed in the best interests of the people? If so, how?
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Is
the L-Curve "good" or "natural" or "inevitable"?
What are the alternatives? The economy is a complex system,
but it is essentially a human invention. It can be "managed"
(or influenced) in many ways. If it is not managed intentionally,
then it is managed (or manipulated) by those who hold political
and economic power, typically to their own advantage. It is
not enough to create a strong economy. It is
just as important to ask how the benefits of the economy
are distributed through the population. We all participate in generating our nation's wealth. Why do so few benefit so disproportionately? A truly democratic
society needs to find ways to manage the economy to benefit the
population as a whole. This is not being done.
(Data sources: Census Bureau / Internal Revenue Service / Economic Policy Institute)
Note: these data sources are notably lacking in data within the top
1%. Census data goes up to $250,000 and IRS data goes up to $1 million.
Information to plot the vertical spike had to be obtained from news
articles and other sources of commentary. If information on the top
1% is not known or easily obtained, statements about the socioeconomics
of income and wealth are suspect. Michael Parenti
has written an illuminating article on this topic.
* Since I first posted this site, several people have quibbled over various technical points. Here are a few of the issues raised:
- "Increase in net worth" is not the same thing as "income," according to one reader. However, I recently received a comment from economist John Maher who wrote, "I believe the first reader's comment is incorrect. Increase in net worth IS income according to the renowned economist, John R. Hicks in Value and Capital. Hicks is right."
- The income of very wealthy people typically varies radically from one year to the next. Sometimes years of huge earnings are followed by years with similarly huge losses. I agree. I have added a comment to this effect in the main body of the text above. Those of us on the horizontal spike, however, find radical jumps in income much harder to achieve. The overall L-Curve pattern persists through it all.
- The published wealth of billionaires is typically estimated by their holdings in their own companies. These estimates do not include their typically vast diversified investments.
- Income on paper, from growth of investments, needs to be distinguished from "taxable income." It's true that there are differences among different kinds of income, so they aren't strictly comparable, but political and economic power derives from wealth, whether it is taxable or not.
My response to all of these kinds of questions, in short, is that the truth of my central thesis is not dependent on the exact height of the graph or shadings of definitions. As one correspondent put it, there is a "money spike" and there is a "population spike". There are two classes in this country. One class derives concentrated power from its concentrated wealth. The other class has power only in numbers. That power is effective only to the extent that it can be mobilized through organization.
Until we come to terms with these issues, phrases such as, "We the people...," and, "of the people, by the people, and for the people," are hollow clichés.
Please inform your friends and associates about this site. I can't carry on lengthy dialogues with everyone who visits the site, but if you have something to say, please feel free to communicate by email. Please don't be offended if you don't get a personal reply. I read all responses and will consider your comments.