Let’s look at Robert Samuelson’s argument in the Washington Post:
For starters, the poor are not poor because the rich are rich. The two conditions are generally unrelated. Mostly, the rich got rich by running profitable small businesses (car dealerships, builders), creating big enterprises (Google, Microsoft), being at the top of lucrative occupations (bankers, lawyers, doctors, actors, athletes), managing major companies or inheriting fortunes. By contrast, the very poor often face circumstances that make their lives desperate.
Of all the careers or circumstances that Mr. Samuelson lists, it’s only really the latter two that have much to do with keeping the poor, poor. Running a profitable car dealership or creating a major tech start-up has the effect of creating decent-paying jobs, including for people at the lower end of the employment scale. But managing major companies or inheriting a fortune can contribute both to income inequality and in the loss of resources that the poor need to keep their jobs or gain access to the skills they need to find them in the first place.
CEO pay has become exorbitant, and it isn’t tied to performance in any rational way. Moreover, even when it is tied to performance, that performance is measured in profits, not in jobs created. A CEO could cut the labor force in half through mechanization and outsourcing, and still be considered to be doing a great job if the result is a greater return to the stockholders. When top corporate management is sucking up an unhealthy percentage of the company’s profits, it means that lay-offs are more likely and investments to expand the business are more difficult to make. Add in an historically low-level of income tax, and the treasury of the United States is depleted.
The same is true for low levels of taxation on large estates. There aren’t that many large estates changing hands, but when we don’t tax those transfers (or we tax them at a very low rate) then the lost revenue adds up quickly.
Lower revenue means more debt service, and it means less money for investment in jobs- and skills-creating endeavors. So, both within corporate America and in the financial health of the treasury, allowing some people to become incredibly wealthy without taxing them sufficiently, results in more poor people, and more misery for the poor.
Now check out this next bit of sophistry:
Finally, widening economic inequality is sometimes mistakenly blamed for causing the Great Recession and the weak recovery. The argument, as outlined by two economists at Washington University in St. Louis, goes like this: In the 1980s, income growth for the bottom 95 percent of Americans slowed. People compensated by borrowing more. All the extra debt led to a consumption boom that was unsustainable. The housing bubble and crash followed. Now, weak income growth of the bottom 95 percent “helps explain the slow recovery.”
This theory is half right. An unsustainable debt boom did fuel an unsustainable consumption boom. From 1980 to 2007, household debt rose from 72 percent to 137 percent of disposable income. Consumption spending jumped from 61 percent of gross domestic product (the economy) to 67 percent for the same years, a huge shift. These increases could not continue indefinitely. But growing inequality didn’t cause these twin booms. Just because households wanted to borrow didn’t mean lenders had to lend.
Income growth for the bottom 95% slowed so they compensated by borrowing more, but income inequality didn’t cause them to borrow more because the lenders didn’t have to lend to them.
Think about that argument for a minute.
In this logical scheme, a person’s desire to borrow money is a result of them being poor, not a cause, which is fair enough initially. And the lenders coming in an giving them credit and siphoning off more of their wealth didn’t cause them to borrow, nor did it make them poorer. It was just the lenders decision to let it happen.
What really happened is that 95% of the people stopped getting raises the way they used to because the productivity gains were going to top management. To sustain the lost consumer demand, the people were allowed to spend at the previous level, but with borrowed money. Their raises were transformed into interest payments. Look at the rise in the cost of college tuition, for the most glaring example of this. The labor force went into a kind of sharecropper system, where we are allowed to work but an increasing amount of the fruits of our labor are spent on car payments and college loans and credit cards.
Meanwhile, the top 5% just kept getting wealthier and wealthier, their taxes lower, their pay higher.
That’s what the Reagan Revolution was all about. It’s time for it to end for good.
