For a while, on and off, I have been promising more on inequality. (I make a fair number of promises and I need to work on that, for I’m not living up to too many of them.) It’s here, it’s about 3-4 times as long as a usual MarkRubinWrites post, it’s depressing, and I think it’s important.
One more thing, and this is really for those who worry about me. Yes, those people do exist, and they know who they are! This post goes somewhere, along with future posts, but none of this is about “soaking the rich” or higher taxes, or a redistribution of income. More taxes may be part of something, but moving money around, alone, goes nowhere. So relax, please, and, everyone, please read on!
A couple of years ago I found myself sitting at a dinner, across from a successful computer-business guy I had not met before. (If I knew what he did for a living I don’t remember, and if I remembered I know I couldn’t explain it.) We were chatting pleasantly and somehow it became apparent that he thought highly of Congressman Ron Paul. Well, I had a martini and a glass or two of wine in me … and you can imagine about how well it went. (Actually, the conversation remained pleasant throughout the meal! He’s a nice guy, and neither one of us had anything invested in the conversation or the relationship.)
Anyway, the Paul-ite said the only problem our country really had was paper money, and that if we just went back to the gold standard, all would be well. My retort came fast, and left him pretty much speechless. “Sure,” I said, “the gold standard is fine, so long as you’ve got yours.” To his credit he smiled, and I think one of us changed the subject fast.
I thought about this conversation a few days ago. Something came up about the Wizard of Oz, the allegorical nature of the book (and series of books), William Jennings Bryan, and the Cross of Gold speech.
William Jennings Bryan was an “only in America” character. He lived from 1860 through 1925. He was a three-time nominee—1896, 1900, and 1908—for President of the United States (as a Democrat), a two-term member of the U.S. House of Representatives, and Secretary of State for the first two years of the Woodrow Wilson administration. (He also participated in Tennessee v. Scopes, the famous evolution case from 1925, made more famous by Arthur Miller’s great play, Inherit the Wind. He was the anti-evolution guy, and he died days after the trial.)
In the last quarter of the 19th century, when Mr. Jennings Bryan was coming of age, the United States was in a recessionary state during roughly 11 years. During this time there was also much controversy about monetary policy, albeit focusing on gold v. gold and silver. And what else was happening? The Gilded Age. Recessions half of the time, and the greatest accumulation of wealth our country had ever seen, by far! Imagine that!
So, more than a century later, along comes Frenchman Thomas Piketty and his new book, Capital in the Twenty-First Century. (Mr. Piketty is seen here noting the fact that many critics have not read his book, proving with certainty that he’s a foreigner. What a quaint notion that someone should know what he or she is talking about before mouthing off! Or be humble about what he does not know!) Everybody’s talking about the book, and lots and lots of people are focusing on income inequality. (More on this formulation in a moment.) There is the pro-inequality crowd—yes, really—and the “we’re against it” people, and everyone has something to say! Me too!!! And here are my thoughts:
First, economic inequality has deep, deep roots. Roots dating back many, many centuries. Mr. Piketty’s book offers a very comprehensive study based on data others have never studied in the same way, and he presents his data in a comprehensible way. He did not, however, discover the Holy Grail; many people, scholars even, have been writing on this subject for a long, long time! (Note: I have actually read a big chunk of the book. Not sure I’ll finish it, but with what I have read and what knowledgeable people have written about it, I am comfortable with the comments I’m offering.)
Second, some may see income inequality as the issue, but the real issue is capital, plain and simple. I don’t suffer from income inequality, truly. People pay me well to avoid problems, and even better when a mess does arise. Ms. J works, and we do very well! But wealthy? In possession of capital in meaningful quantities? That’s so funny, and I’m confident that with a limited number of exceptions among my readers and friends, there is a vast gap between them and the 1% to whom those who understand the problem refer.
Measuring the Top 1% by Wealth, Not Income, written by Robert Gebeloff and Shaila Dewan for the New York Times and published on January 17, 2012, reports that being in the top 1% by income required about $380,000 for a household in 2008-2010. And to be in the same category by net worth? $8,400,000. Here’s the real kicker: The 1% by income earn about 7.5X everyone else, while the 1% by wealth are richer by 69X. (Read the piece. It’s short and has some interesting information.)
Third, we suffer from lots of illiteracy, both the core kind that keeps people out of the work force and society, and the political-journalistic sort, which keeps people from understanding the state of our world. The link in the preceding paragraph grew out of “a lot of questions from readers about the top 1 percent by wealth, rather than the measure we used, the top 1 percent by income” from an article published three days earlier. Hmmm! The writers did a fine job, but why would they run a piece titled Among the Wealthiest 1 Percent, Many Variations—the earlier article—and only focus on income? Do average Americans have any clear understanding about the difference between the debt and the deficit? Other basic economic concepts? Or is someone rich because she drives a nice care, end of story? And are our politicians and journalists making important information any more accessible and comprehensible? (Uh, that is what’s called a rhetorical question!)
So what does all of this wealth inequality have to do with where this post started? When people talk about the gold standard and fret about inflation, experience tells me they are misinformed or, in some instances, they’ve got theirs. And in many cases, if the gold standard had been in place when they were starting out, they’d be living a very different economic life.
We need a large money supply to allow people to reach, stretch, and achieve their dreams. We also need some inflation in our system. I can’t explain why, for my economics knowledge is really limited, but we do need it. Not too much, and not uncontrolled, but we do need some.
(By the way, with all of the deficits over the past several years, and all of the “crying wolf” about runaway inflation, where is it? For 2009—wonder why I picked that year?—through 2013 the annual core inflation rate in the United States has ranged between 1 and 2.1%. Probably not high enough. See, Not Enough Inflation by Paul Krugman.)
I get the fact that government does not always often spend our money wisely, although I think we tend to focus on the problems, ignoring the value we do receive. I know a bit about these issues for I have clients who interface with the government. It’s rarely pretty, and I leave the situations, often, wondering why an even distribution of common sense has not found its way into this department or that commission. And, aside from dumb decisions and the actions that flow from them, I see plenty of waste because I’m a sentient being.
Frankly, we need to get over this! Ronald Reagan ran in 1980 on “waste, fraud, and abuse” and ran substantial budget deficits during every one of his eight years in office. Why didn’t his people find the waste, fraud, and abuse and excise it from our midst? Not because, I think, they didn’t find any, for lots of it hides in plain sight. Instead, and for reasons that I’m happy to debate with anyone over a fine martini, they did not make it go away despite being seemingly highly motivated. In 1981, at his inaugural, President Reagan told us “government is the problem” and he did not rid us of the problem, so I don’t think it’ll likely happen soon.
The “government” issue matters because taxation represents the traditional method for dealing with capital variances. Mr. Piketty argues for a worldwide tax on capital, both because you go to the course of the problem, and because in a global economy if countries opt out those who opt in are disadvantaged. His proposal goes nowhere because we’ll never get every nation to agree, but it also goes nowhere because we in the United States of America have a class of people who don’t believe government adds value in their lives, and they control the Congress.
A return to the gold standard is also not happening, but Paul fils may be the Republican Party nominee for president in 2016, and that makes such an outcome “closer to possible” than it ought to be. Planned inflation will not likely return, either, and uncontrolled inflation brings with it lots of problems.
Two quick thoughts and a comment as I wrap this up. First, in the long run to maintain capital in a developed economy requires consumers. When Henry Ford raised wages to $5.00 per day he helped build a consumer class. (Friends on the Right, please calm down. Here’s the Ford Motor Company press release which notes that the primary motivator for the wage increase was improving employee retention, and here’s the Forbes story, The Story of Henry Ford’s $5 a Day Wages: It’s Not What You Think.) If we don’t have a class of consumers who can buy products, wealthy people will be selling us food, clothing, and shelter, and little else. That’s the economy I learned about in English History.
Second, the accretion of capital to a smaller and smaller sector of our population breaks down communal relationships between the haves and have-nots. And if we’re not communicating, we’ve got “trouble ahead, trouble behind, and you know that notion just crossed my mind.”
And the comment? I’m not into “wealth bashing” at all!!! I do count among my friends and clients plenty of people who are 1%-ers by wealth. Those who trust me with their matters pay me, so I certainly don’t want to upset them. (Most are pretty familiar with my politics, and they still call.)
My wealthy friends are uniformly decent, generous, committed people. Many have been successful despite starting out without much capital. And those whose fortunes were promising from birth all, and I mean all, subscribe to “from those whom much has been given, much is expected.”
Most, like me and most Americans, got educated in our public schools, all the way through. Many attended public universities. When I last checked, they all drive on our roads, and those who are clients depend on our property regimen and our legal system. (Having a system that tracks ownership of real property matters greatly if a country wants its people to become wealthy and successful! Check out Haiti if you doubt that fact.) They also use our health care system, which means we have collectively financed physician education, hospital and emergency services, the basic science that allows us to develop pharmaceutical products, etc. Et cetera, and you all get my point (which, by the way, Senator Elizabeth Warren makes much more eloquently!)
In closing, I know my audience, and that means I’m mostly preaching to a small choir that sings from the same hymnal. I also know I have no—I repeat, no—economic chops when it comes to debating these points. All I’ve got is this bit of virtual real estate, a basic sense about supply and demand and markets, and a strong belief that we can all get lost in the woods for a long time, focusing on the nuances of economic thought. We’re Rome, and I fear the fire will be starting soon—if it’s not burning already—if we don’t all get together and start solving these problems!
That all said, I do have some ideas. Look for them, truly, in the coming days. “Days” as opposed to a week, a month, or longer!