In the first of my previous three posts, I outlined my argument: (a) The GOP claim that making the rich richer through tax savings will make everyone better off is a false “trickle-down” idea, always disproved by experience; (b) The huge rise in income inequality in the United States since the inauguration of “Reaganomics” is due to the tax reductions at the top. The income tax structure sufficiently progressive to halt the rise of inequality was eliminated; (c) the national debt, now at $19 trillion, was raised to replace the tax revenues from the top that had been used to finance government, and: (d) The huge interest on the debt is growing exponentially, and will soon exceed the entire DOD budget.
In the second post, I pointed out that, with their data base of over a century of U.S. income tax data, the French economists Emmanuel Saez and Thomas Piketty have demonstrated a very tight correlation between the top 1% income share and the top personal income tax rate. The situation is now dire: To finance a proposed $54 billion increase in military spending, the Trump team has turned to dismantling threadbare nondiscretionary programs – e.g., Medicare and Social Security – financed by lower-income people, while continuing to reduce the top income tax rate and the taxes on corporate earnings. All of this carnage reduces the trickle-down con to an outrageous absurdity. Unfortunately, this kind of thinking has been encouraged, indeed validated, by decades of academic economics, led by Paul Samuelson’s “neoclassical” ideology.
In the third post, I spelled out an ultimate truth: In the real world, real economies are finite, so the wealthy cannot endlessly increase their financial wealth more rapidly than real, material wealth is growing without harming everyone else. When income inequality grows a lot, over thirty or forty years, the rate of aggregate income (GDP) growth necessarily slows considerably. In the United States, this process has been gradually destroying our economy, our society, and our democracy, We are witnessing advanced stages of this destruction today.
This post features my own graph of the growth of top 1% net worth (wealth), the national debt, and U.S. GDP, in trillions of dollars, from 1952 to 2012. The national debt and net worth accounts are “stocks” – total amounts at specific points in time. GDP is a “flow” account, showing the total annual transaction values: Only the first two are strictly comparable, but debt is frequently compared with income this way.
Concentration of U.S. wealth over time is comprehensively reviewed in Ch. 12 of my book.* There are two main sources of U.S. net worth estimates, SCF (the Census Bureau’s Survey of Consumer Finances) and FRED (Federal Reserve Economic Data). The top 1% share in the FRED data runs a little higher. I used the FRED data, computing top 1% shares using Edward Wolff’s published wealth distribution computations. The data was converted into 2010 dollars to show “real” growth.
The degree of wealth concentration in the U.S. economy has been astronomical, and shocking: My computations reveal a growth of real top 1% wealth in the 1980-2007 period of $14.968 trillion (SCF data) and $15.919 trillion (FRED data). Out to 2014, the FRED data show top 1% growth of $21.241 trillion from 1980. The above graph displays the $15.9 trillion SCF data for top 1% growth through 2007. (That’s nearly $5 million per capita, accruing to just one percent of the population.)
This estimate of wealth gain is unduly conservative, however, for it accounts only for net worth reported in the U.S., excluding off-shore wealth. An imprecise, back-of-the envelope estimate of the U.S. share of total off-shore holdings in 2014 would be about $8.4 trillion, given the estimate in the Credit Suisse Bank’s 2014 annual wealth report that U.S. citizens hold 32% of the world’s total wealth. That would amount to about a $6 trillion increase in U.S. off-shore wealth since 1980, if off-shore wealth grew at the same rate as domestically reported wealth.
By 2014, therefore, we can estimate the top 1% total wealth gain since 1980 at about $27 trillion. That’s over $82,000 per capita, [computation corrected 5/12] and it accrues to just one percent of the population. Assuming that all the new money produced by the national debt, which was nearly $18 trillion in 2014, has ended up in the hands of the top 1% of wealth holders, that leaves about $9 trillion of wealth growth that transferred to the top 1% from elsewhere in the market economy.
Ignoring the effect of the balance of trade with other countries — that is, assuming the value of profits taken from foreigners by the U.S. top 1% roughly offsets profits taken from U.S. customers that end up as foreign income and wealth — it is reasonable to accept this $9 trillion as a rough estimate of the amount by which the wealth of the bottom 99% of U.S. wealth holders has been reduced in the 1980-2014 time frame.
No one, to my knowledge, is very far along in accurately quantifying the total damage to the bottom 99% in our declining-growth economy. However, we can compute from these data a per capita reduction of bottom 99% wealth of over $27,500 ($9 trillion /327 million) in the 1980-2014 period. This is an estimate of the money that was transferred from the bottom 99% to the top 1% in that period, in the course of normal market activity (profits and rents), and it amounts to over $100,000 for a family of four.
Capitalism is extremely profitable for the rich, but they are not satisfied. It is horrifying, frankly, to watch Congressional Republicans strive frantically to enact reduced health care benefits, mainly affecting the elderly and the poor, that the Congressional Budget Office has estimated will result in 24 million Americans losing health insurance benefits by 2026, while greatly increasing wealth transfers to the top 1%. Per the CBO report, the AHCA would reduce “direct spending” by $1,219 billion in the 2017-2026 period, reducing budget deficits by $336.5 billion, while allowing “total changes of revenues” of negative $882.8 billion. (CBO Cost Estimate, AHCA, March 9, 2017, Table 1, p. 29, here). In other words, the legislative intent is for ordinary Americans to lose over $1 trillion in health care via repeal of the Affordable Care Act, to finance a slight reduction in the federal deficit and create huge ($882.8 billion) tax breaks for the rich! That’s immoral, it’s blood money.
In the broader context of Reaganomics, unfortunately, this is just one of the terrifying plans the GOP holds in store for everyone but the very rich. The GOP still plans even more tax reductions for the wealthiest Americans, all based on the trickle-down fantasy that making the rich richer will promote growth. But, as I have shown, growing inequality greatly constricts growth. Before long, we face a repeat of the Crash of 2008. Bubbles of higher education debt, automobile loans, consumer debt, and a new round of mortgage debt, rapidly inflate. Meanwhile, state and local governments remained strapped, and the ordinary services of everyday life are rapidly diminishing.
The changes we must make to save the planet are impossible if we cannot summon the will to reject the economic fantasies that are driving us towards Great Depression II. We’re living in a dying economy, on a dying planet, yet we’ve turned over the country to a carnival barker, a game show host who is one of the most accomplished con men in the world. A team of proto-fascists has been assembled who just shrug and deny reality, preferring to live in a world of “alternative facts.”
This piracy of wealth is probably the biggest scam in world history. American priorities have shifted entirely away from improving the nation’s infrastructure and welfare to maximizing profits at any environmental and social cost. They think they can get away with it. They feel invulnerable, but they are not: We all live on the same planet, are equally constrained by the economy and by the environment, and we all face the same ultimate fate. We don’t really want to go out this way, do we?
*Reinventing Economics: The Failure of Capitalism and the Economics of Inequality, available as an ebook, at Amazon Kindle