I ran into a man, Eli, several years ago on the streets of Chicago. He's a lawyer and he told me how he knew a vice president at Montgomery Ward: "'Eli,' he said to me, 'Why do you think we rich people hated FDR? Because he raised taxes...? Pfftz! No, because after FDR you couldn't get any help! Before FDR, you gave your maid like a dress, but after FDR there was the minimum wage! And before FDR, if you wanted your kid to go to Harvard, go, but after FDR, there was a middle class and they had to take all these tests!'"
1. If you make a six-figure income, you are not allowed to argue on the Internets that you are poor.
2. You are not allowed to argue that you feel poor, which as we all know is just like being poor.
3. You are not allowed to posit the argument that if you hang around with people who make more than you, then you are allowed to have your wee little heart sing the Poverty Song because, after all, you make less than all of them and your life is sad...
Two-thirds of the members of the Forbes 400 have fortunes that are entirely self-made, while 19% of the group inherited their entire fortunes.
"Premise Five: The property of those higher on the hierarchy is more valuable than the lives of those below. It is acceptable for those above to increase the amount of property they control—in everyday language, to make money—by destroying or taking the lives of those below. This is called production. If those below damage the property of those above, those above may kill or otherwise destroy the lives of those below. This is called justice."
While the median American male's top income stayed flat from 1973 to 2005, the gain went to the topmost reaches of the top 10 percent. The ratio of the top 1 percent to the middle fifth went from 10 to 26 times. What caused the change? A set of forces that include:
An unprecedented rise in asset values: The Dow Jones Industrial Average rose at about 1.3 percent per year between 1960 and 1980 (and that is not adjusted for inflation). Over the next twenty years, 1980 to 2000, it rose tenfold—1,000 percent. Whatever we may hear about America being a nation of shareholders, shareholdings are radically skewed toward the top: The top 10 percent owns 77 percent of all stocks. And the holdings are steeply skewed within the top 10 percent: The top 1 percent of American households owns one-third of all stocks, the next 9 percent owns 43 percent, and the remaining 90 percent of Americans owns 23 percent (including 401[k]s). Housing prices also rose, and the wealthiest families own the biggest houses and benefit disproportionately from the advantageous tax treatment lavished on home ownership.
Government policy: Under Eisenhower, whom no one ever called a radical, top tax brackets extended up to 90 percent (snaring marginal bracket dollars from no more than about three hundred very rich people); in the 1960s, they were about 70 percent; in 1986, they were lowered to 28 percent and have moved around since, but were never pushed back up to the ranges that prevailed during the faster-growth, more equitable America of the first postwar period. They are now about 35 percent. Under George W. Bush, the government cut away at inheritance taxes (and even eliminated them entirely as of 2010, but only until January 1, 2011, when pre-Bush rates are scheduled to return unless the law is changed: The elderly rich are likely to be especially fearful around Christmas 2010). Inheritance taxes affect only the top 1.5 percent.
Immigration: Huge, recent waves of unskilled immigrants, legal and illegal, compete for low-wage jobs, pulling down the bottom of the income scale.
Imports and offshoring: The influx of imported goods pushed down employment and pricing power at American manufacturers, which typically paid higher wages than did the big-battalion service employers, retail and fast-food restaurants, squeezing wages. Moving industrial production offshore—even the threat to do so—holds down demands for higher wages. Offshoring, until recently confined to industrial production, is rapidly extending into white-collar jobs in such diverse industries as finance, insurance, accounting, law, and engineering—the product flows instantly through the Internet, enabling employment to relocate to places such as India and the Philippines, where comparable skills can cost as little as one-fifth of American rates.
Decline of unions: Unions more or less disappeared as a major force in most of the private sector. The Reagan administration was far more successful in its war on unions than in its war on drugs, beginning with the air-traffic controller strike. And of course, increased foreign competition and the weakening of the giant, mass-production, oligopoly industries such as steel (the core of union power) combined to radically reduce unions' ability to sustain wages.
Technology: It is not the production of high-tech goods, but their use in business that is often cited as an important factor that has increased inequality. Whatever the findings of econometric analyses, it is difficult to argue that the U.S. economy uses more technology than, for example, Scandinavia or Germany, where significant increases in income inequality have not been recorded.
Culture: It seems to us that there has been a cumulating and massive cultural change regarding income inequality: CEO pay is a good indicator. In the 1960s, CEOs of large companies were on the top of the income pile, paid as much as thirty times the average worker; by 2000, the ratio had gone up tenfold, to three hundred times the income of the average worker. It would be difficult to argue that CEOs, or their companies, performed better in the twenty-first century—when Congress voted to repeal the inheritance tax—than they did in the postwar period. Furthermore, this increase has been exceptionally high in the United States relative to other OECD countries.
We don't weigh these seven factors for their relative importance.
Is there a connection between rapidly rising inequality, stagnant middle-class earnings, and the collapse of savings in the United States? It is very likely that these trends are all closely linked. Faced with stagnant incomes, seeing themselves falling behind those above them on the income scale, and spending their evenings watching Lifestyles of the Rich and Famous, what did the average American family do?
Over the past ten to fifteen years, finance—always an important force in the American economy and in policy making—became a dominant force, perhaps the dominant force. It dominated in several reinforcing ways: as the leading growth sector generating swelling incomes and profits; as a substantial contributor to increasing income inequality; as a shaper of business behavior, government policy, and American ideology; and, of course, as the major precipitator of the current financial and economic crisis...
Have America's financial-industry professionals generated such wealth in the broader economy that the growth in their share of income is justified? Have executives at American companies greatly outperformed executives at companies in countries where the income share of the top 1% did not rise, such as Germany and Japan? Are American executives being paid more because shareholders are getting their money's worth, or is something else going on?
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