The Great Inequality, Part 1

This essay is based upon the “Review of the Month” from Monthly Review, March 2012, as is published here as a part of the Howard Zinn Memorial Lecture Series.

The Occupy Wall Street uprising has put inequality squarely on the political agenda, with the brilliant slogan, “We are the 99%.”

While the “99%” includes many rich persons, the focus on the “1%” at the top of the economic pyramid serves to shine a light on those who rule both the economy and the politics of the United States. The 1 percent is a diverse group, but among them, especially at the top, are the men and (a few) women who own controlling interests in our largest businesses, including the financial corporations whose actions precipitated the Great Recession, which officially began in December 2007 and ended in June 2009, and has since morphed into what looks like a long period of slow growth best termed stagnation. They are also the people whose campaign contributions and prominent positions in Congress, as advisors to the president, and on the Supreme Court have placed the government firmly on the side of the rich.

Given the prominence that OWS has given to inequality,[i] it is useful to know what causes it. We cannot just look at the facts, dramatic as they might be, and say that something is wrong or that all we need is to take money from the rich and transfer it to the poor. What is needed is a theory of distribution, because this can give us guidance on what political strategy might best confront the underlying forces that generate inequality.

The outline of such a theory goes like this: Those who are rich have advantages that keep them rich, while the poor suffer disadvantages that keep them poor. However, there is a relationship between the two groups, one in which the rich have power over the poor, and this relationship is built into the nature of a capitalist economy and continuously reproduced by it. The power of the dominant group reinforces capitalist social relationships, which, in turn, reinforces the power of this group and the weakness of the other. In a nutshell, the rich are the capitalists, and the poor are the workers.

Therefore, attacking inequality will require nothing less than attacking capitalism itself. There are a host of pragmatic measures that can reduce inequality, but only those that address the system-generated power of the capitalists can strike down the structures that give rise to it in the first place.

First, a few facts about inequality. An article on The Atlantic website titled “Map: U.S. Ranks Near bottom on Income Inequality” uses CIA data to give the gist of these:

“Income inequality is more severe in the U.S. than it is in nearly all of West Africa, North Africa, Europe, and Asia. We’re on par with some of the world’s most troubled countries, and not far from the perpetual conflict zones of Latin American and Sub-Saharan Africa.”[ii]

Recently, economic historians Walter Schiedel and Steven Friesen estimated that the Gini coefficient (a measure if inequality that rises as inequality rises) in the Roman Empire at its peak population around 150 C.E. was slightly lower than that of the contemporary United States.[iii]

Today, the income share of the richest 1 percent of individuals is now at its highest level since just before the Great Depression, standing at 23.5 percent in 2007, up from about 10 percent in 1980. If we take the total gain in household income between 1979 and 2007, 60 percent of it went to the richest 1 percent of individuals, while just 8.6 percent accrued to the poorest 90 percent. An incredible 36 percent found its way into the pockets of the richest 0.1 percent.[iv]

If incomes are unequal and becoming more so, the same can be said for a more important, though related, statistic—wealth, the money value of what we own at a given point in time.

In 2009, the top 1 percent of households owned 35.6 percent of net wealth (net worth) and a whopping 42.4 percent of net financial assets (all financial instruments such as stocks, bonds, bank accounts, and all the exotic instruments that helped trigger the Great Recession, minus non-mortgage debt). The bottom 90 percent owned 25 percent of net wealth and 17.3 percent of net financial wealth. The wealth of the “1 percent” is now 225 times larger than the median wealth of all households, the highest ratio on record. It was 131 in 1983. At the bottom, however, the share of households with zero or negative net worth increased by 60 percent between 1983 and 2009; we now have about a quarter of all household in this wealth-less state.

There is also tremendous disparity in wealth by race. The fraction of black households with no or negative net worth was nearly 40 percent in 2009, almost double the fraction for white households. The median net worth of black households in 2009 was a paltry $2,200, a mere 2 percent of white net worth, which was $97,900. This ratio was 3 ½ times higher in 1983. The median net financial wealth of black households was $200, remarkably low but an improvement over 1983 when it was zero.[v]

Perhaps a story and some striking facts will serve to sum up the grotesque nature of our skyrocketing economic inequality. When I was a boy, I was amazed to learn in my encyclopedia how large a sum was one billion dollars. If a person spent $10,000 a day (my encyclopedia used $1,000 a day, but that was a long time ago), it would take 100,000 days to spend a billion dollars, just under 274 years. In 2009, Pittsburgh hedge fund manager, David Tepper, made four billion dollars.[vi] This income, spent at a rate of $10,000 a day and exclusive of any interest, would last him and his heirs 1,096 years!

If we were to suppose that Mr. Tepper worked 2,000 hours in 2009 (fifty weeks at forty hours per week), he took in $2,000,000 per hour and $30,000 a minute. To see what this means in terms all workers will immediately grasp, Mr. Tepper would have paid his social security tax for the entire year in about four minutes of his first workday. Of course, Tepper is an extreme example of enormous wealth, and we use him just to make a point. However, today there are many individuals who, while not as rich as Tepper, make millions of dollars in a single year, enough money to secure them against any calamity, even if it would take them longer to pay a year’s worth of social security taxes.

Others are not so fortunate. In 2010, more than 7,000,000 people had incomes less than 50 percent of the official poverty level of income, an amount equal to $11,245, which in hourly terms (2,000 hours of work per year) is $5.62. At this rate, it would take someone nearly three years to earn what Tepper got each minute. About one-quarter of all jobs in the United States pay an hourly wage rate that would not support a family of four at the official poverty level of income.

What causes such enormous disparities in income and wealth? Why have they increased so much? Why do they matter?

Stay tuned for Part 2.