Welcome to Income Inequality Kos.
Join us Thursdays, at 9:00 p.m. eastern. We discuss income inequality, concentration of wealth, and related issues.
Previous diaries in the series can be found by the tag Income Inequality Kos, or by a series history.
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Inequality ? So What ?
You hear this all the time. As long as you've got enough to eat and a roof over your head, why should you care if some guy has a yacht the size of a Nimitz class carrier or lives in a house bigger than Versailles ? Life ain't fair, get over it.
Well, the more you read the more you discover that almost everyone suffers in an unequal society. In The Spirit Level, (reviewed for this series here), you can see that Income Inequality can be viewed as a public health problem. Many, Hell, all of our social problems correlate with inequality and the correlation is too strong to be coincidence.
There's more evidence in another book I recently read called Falling Behind: How Rising Inequality Hurts the Middle Class by economist Robert Franks. This book came out in '07, before the financial collapse, so it's a little dated. But still, he has many valid points. One, for example is the "Aspen effect". When the wealthy have more and more to spend, they can bid up the price of housing in desirable areas. The result is that the people who work in those areas have to drive farther and farther to get to work. It could as easily have been called the Bay Area effect.
Most of the book consists of an argument about positional spending. Once you get past basic needs, wealth and poverty are relative. They are social norms and they have to do with the people you know, the people you see around you and how you stand relative to them, your position. Franks sums his argument up as follows: Positional arms races divert resources from non-positional goods causing large welfare losses. That is, we'd all be better off if we spent less trying to keep up with, or stay ahead of, others. We might trade some of our positional spending for leisure time, for example. This would improve our health.
We've seen that there are lots of reasons for thinking that income inequality is a bad thing for everyone. I want to mention one more: the economy is a zero-sum game. Zero-sum game is a term from Game Theory that describes games like Poker, where, at the end of the night, the sum of all the losses around the table will equal the sum of all the winnings. It means that the winners in the economy are doing so well because the rest of us are losing ground.
That our economy is a zero-sum game should be obvious. Adam Smith put it this way in his Wealth of Nations:
For every one rich man, there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.
However, since the beginning of the Class War apologists for pro-corporate economics in academia and the media have successfully convinced people that the economy is not a zero-sum game. It's easy to see why. If we ever figure out that the rich are getting richer at our expense it might not be so easy defend the corporate agenda. The usual argument is that corporations create wealth when what they really do is concentrate wealth. Or they'll say that they're "growing" the whole economy so that, even if your slice is microscopic, it's OK because the whole pie is getting bigger. Balderdash. Rising GDP ceased to be a measure of increasing well-being for all when the finance got bigger than manufacturing. They've found a way to make sure a rising tide lifts only the biggest boats.
It's easy to see. They increase their bottom lines by offshoring production and holding wages down. Every item a retail corporation sells is an item that wasn't bought from a family business. Or look at the tax cut deal. The folks at the top get their tax holiday extended while people at the very bottom will actually see their taxes go up. It's the same for all the "austerity" that we're going to be forced to endure so that the high-stakes gamblers won't have to take losses from gambling on the housing bubble. Gains for some mean losses for others. The economy is a zero-sum game and don't let 'em tell you otherwise. The rich are rich because you're not.