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Inequality Kills the Golden Goose

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"This is a very dangerous drift in our American thinking. Kristallnacht was unthinkable in 1930; is its descendent 'progressive' radicalism unthinkable now?"

-Tom Perkins

There's been a lot of talk about inequality lately. Obama made it the main focus in his State of the Union address and the Canadian Liberals have made it a central plank of their electoral platform. Really, there just seems to be a lot of discussion around it since the report came out stating that 85 people have the same amount of wealth as the bottom half of the world's population.

Naturally, alongside this comes discussions regarding class warfare and rich-bashing. At least there are discussions about there being discussions about it. I haven't actually heard any more it than the norm but it's apparently been enough to make billionaire investor Tom Perkins make the badly thought-out statement above that tries to compare the treatment received by the wealthy today and the treatment of the Jews in Nazi Germany.

Kristallnacht, also known as The Night of Broken Glass, was an attack on Jewish property in 1938 by riled-up Germans and Austrians that the governments ignored. Over a thousand synagogues were burned and about 7000 Jewish businesses destroyed. At least 91 Jews were killed.

People have been piling in on Perkins for the poorly thought-out statement and he has since apologized, as he should, because, let's face it, Nazi comparisons are generally stupid unless people are getting systematically mass-executed. And they're not. At least not over wealth discrepancies. None of the main bankers, who are the focal point of the anger against the super wealthy, have even been sent to prison for their roles in the financial meltdown of 2008.

But is there anything to what Perkins suggests? Maybe. In the US, a Gallup poll showed that 67% of Americans are unsatisfied with the distribution of wealth, which is unsurprising considering they live in the most unequal of all the developed societies.

Forbes states that: "One report by Pulitzer Prize-winning journalist David Cay Johnston conducted for Tax Analysts found incomes of the bottom 90% of Americans grew only $59 (adjusted for inflation) from 1966 to 2011, while incomes for the top 10% rose by $116,071."

It's even worse than that considering that most Americans aren't even aware how unequal things really are. One study showed that Americans believed the richest 20% of their countrymen possessed about 59% of the wealth. The number is actually 84%, leaving just 16% of the nation's wealth for the other 80% of the population.

Canada is a bit better off in this regard although by no means totally safe since inequality is growing annually. Since 1976, only the top 20% of Canadians increased their share of the income pie. Between 1998 and 2007, the richest 1% of Canadians took home a third of income growth. Although basically all the developed countries have experienced a rise in inequality in the last 20 years, Canada has managed to be the sixth most unequal country out of the 17. This means that in 2010 and adjusted for redistributive programs, the top fifth of Canadians captured 39.1% of the gains, the second fifth captured 23.2%,  and the bottom fifth captured 7.3%.

All around, I think these numbers are not too shabby. If they stayed like this, it wouldn't be terrible. Equal enough to maintain consumer spending and decent lifestyles for everyone while allowing incentives to try and make it to the top.

America certainly has it worse, which is probably why Occupy Wall Street didn't start as Occupy Bay Street. Occupy Wall Street showed that many people are pretty annoyed with the 1%. However, I think it's safe to say that this annoyance is aimed at a pretty small group of people, a group many would refer to as the parasitic rich. I have yet to hear anyone suggesting Bill Gates or Warren Buffet or Brad Pitt or Beyoncé or doctors or entrepreneurs who create useful stuff or other rich people along those lines should be strung up from lampposts.

Fraudulent bankers - yes. People who use their wealth to try and buy elections for politicians who will distort the laws in their favor - yes. Useful and decent rich people? Nah, not seeing it.

Certainly, people like the Koch brothers get a lot of flak. They inherited their massive wealth and spend a lot of it trying to influence government and voters in ways that are rarely totally honest and are generally at odds with democracy. You may remember that they essentially hijacked the Tea Party movement soon after its creation while trying to keep it a secret that they were funding it. Many in the Tea Party thought that they were just an independent group, angry with a too-big government and its alliance with special interests. However, the Kochs simply considered them useful idiots because they liked their minimal government stance which would mean reduced taxes and regulations.

Either way, back to inequality. Is inequality an issue that needs to be resolved? Personally, I'd say it needs to be tempered because trying to stamp it out completely is a really bad idea. Communism and a lack of incentives results in something that has historically been shown to be pretty terrible. They say a rising tide lifts all boats and they are right. Capitalism and its incentive structure and decentralized planning is needed for resources to be allocated efficiently and for affluence for the masses.

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25 year-old Canadian student, currently attaining my masters in political science. Work with mentally disabled individuals for employment. Try to be politically involved. A card-carrying member of the provincial and federal green parties of Canada. (more...)

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I'm a young guy and hopefully just ignorant about ... by Adam Smith on Saturday, Feb 8, 2014 at 2:37:07 PM
From one (possibly) young and somewhat ignorant, t... by Ad Du on Saturday, Feb 8, 2014 at 5:32:27 PM
And what is the problem with "inequality" ? How m... by Ad Du on Saturday, Feb 8, 2014 at 5:36:47 PM
It is all pretty confusing. I've lost faith in any... by Adam Smith on Tuesday, Feb 11, 2014 at 6:03:22 PM
Mr. Smith, your namesake did not concern himself ... by Larry Butler on Tuesday, Feb 11, 2014 at 5:07:56 PM
Thanks for the kind words Mr. Butler. Honestly, I ... by Adam Smith on Tuesday, Feb 11, 2014 at 6:45:03 PM