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1% now owns 40%

By       Message Julian Edney     Permalink
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America has been growing more unequal since the1790s [1]. The growth has been uneven: at some times in history the middle class grew and incomes became more similar, but then the trend resumed and the highs and lows became more extreme. Now 1% of the population owns about 40% of the wealth [2].

On the face of it, wealth has been trickling up into a few hands. Observers have made some comments, but nobody knows if radical inequality is bad for us.

In fact modern economics welcomes inequality. Inequality is said to keep wealth growing, so it must be good for the whole society.

There are a couple of reasons for this. First, a big society has a complex economy with many different kinds of interconnected jobs. It requires citizens to fill a large number of different roles involving many divisions of labor. Cheap jobs and expensive jobs, and a variety in between, comprise the necessary parts of a highly technical, highly powered, many-faceted machine. In fact, economists have graphs called indifference curves which show that the greater the inequality, the greater the growth of wealth [3].

The second reason has to do with the amount of freedom in a society. Democracy is a balance of two things, freedom and social equality. Democracies are a good place to live because citizens can choose what they want to do with their lives, and can expect to be treated fairly equally.

And hopefully, there's a match between the society and the economy.

But it turns out that these two, freedom and equality, are also opposed to each other. Like water in a U-shaped tube, as one side rises, the other goes down: the more freedom there is, the more the people become unequal. And you can artificially make the unequal people more equal, but in the process you take away some freedoms.

So the second reason modern economics welcomes inequality is that it predicts more liberty, the kinds of liberty in which free markets make a lot of wealth.

Roughly, that is the story handed down by economists who follow Adam Smith from 1776, who said that if you just let people tend to their own interests and do what they want to do, everything will turn out alright, because in their freedom, they will become industrious and invent ways of doing things that are more efficient. So business gets better. The businesses add up; and if everybody freely does this, eventually the whole community becomes more wealthy. In short, selfish interest leads to the common good.

There are hidden corners in this. If all that liberty means inequality, that sounds like a threat to the other part of democracy. So Smith used another principle, the greatest good for the greatest number. Adam Smith was not concerned with inequality, nor with justice: inequality is in the nature of things, and the whole thing works best if everybody acts indifferent.

Today, Adam Smith's theory is almost unopposed. It doesn't matter that some people suffer in the free market system so long as there is a majority which does better.

We have lots of theories like that: they are unopposed because they suggest it's always been that way. They sound like part of the handed-down wisdom of our society and self-evident truth. If you debate them, people think you are deranged. A few people see something is wrong, but they self-censor, because they don't want to be ridiculed. When Galileo publicly questioned an obvious truth that the sun revolved around the earth, they wanted to kill him.

Some ugliness is gathering around Adam Smith's ideas. They contain self-contradictions [4,5]. Second, while the Smithian system creates multimillionaires living on baronial estates, it also creates poverty. We have bag ladies sleeping on sidewalks and lunatics living in the subways. It has created corporations that are wealthier than some nations' economies, and child poverty rates are over 20% in big cities [6]. It has created a nation that is the biggest exporter of food although some of its citizens go hungry [7].

With those inequalities, the big wealth is obviously not all for the common good.

Third, there is new scientific evidence that the inequality by itself is doing damage [8].

But questioning the free market way it is not going to be taken lightly because that system also props up our whole understanding of what is right and wrong. Some people are desperate, but we choose indifference, and we decide to tolerate what the market tolerates. Poverty is enervating, depressing, and dispiriting. On the other hand you can't question the status quo without some people getting furious.

1% owning 40% of the wealth is roughly like an airplane on which one passenger has 40% of the seats to himself. The other 99 passengers are also unequal, so that as you walk to the end of the plane the overcrowding worsens. Having most of the passengers painfully squashed and jammed into a few rows in the back, while one passenger has overflowing abundance, is a fair graphic for the shape of this society [9].

And we act like everything is jake.

It is the status quo, but whichever way you hold this situation to the light, or shake it, it doesn't look good.

The extremes of this society do not look upon each other kindly. This kind of inequality breeds tension and the opposites pull further away from each other. In the aftermath of Katrina, invectives flew across the internet when the nation discovered it had a seething underclass. Many people, especially conservatives, are disgusted, and see the poor not just as poor, but as a parasitic foe, and a real threat to the government's resources.

The poor may be poor, but they also have access to public information. It is open information that national income, which the government taxes, is more than $8 trillion a year [10]. Why can't more be spared for food? And it is public information that most American corporations don't pay taxes - meaning the average American is picking up the tab for all those corporate profits [11].

So where there are children in poverty, whole homeless families, and Americans who are hungry, there is reason for puzzlement. And if the government will not help, there is reason for despair.

And I predict nothing much is going to change. There are plenty of people articulate enough to start a noise. But we self-censor because simply stating that there is problem is a kind of heresy. It contradicts the culture of celebrity, in which we passively idolize the rich. It contradicts the ideology that anyone can freely move up. And it contradicts trickle-down theory. And we avoid talk of social classes.

A popular image is of a family which has an elephant which lives in the middle of the family room. As huge as it is, its existence is denied. Everyone carefully steps around it, and nobody is allowed to mention it. That is how denial works. Anybody outside can see our legions of homeless and our skid rows, but inside the family there is a maintained silence. This is not camouflage; it is a collective agreement that the problem does not even exist.

Among the underclass, the mood is turning darker. There grows a real fear [12].

So how can we change that? How can we transform this inequality and loss of hope among the lowest into a smoothly pulling society in which everyone is snugly bonded?

Should we enlist celebrity figures like Bill Gates or charismatics like Bill Clinton to soothe, and explain everything to the homeless? Tiger Woods? Should we get a trusted public figure like Oprah to give perspective to the people in the crammed back rows of the plane? Oops but these figures are part of the problem. And in government, who represents the very poor, who articulates their fears? half of our senators are millionaires.

Any problem of this magnitude requires change of a magnitude that requires large numbers of people to work collectively. Actually the more unequal we are, the less we identify with each other, so the less we trust each other. So the less likely are we to form any collective.

The common good is simply unlikely.

And the interior language of economists and intellectuals will not advance us. A cacophony of special jargon, intellectuals wishing to be nonjudgmental, and professors who answer questions with, well what do you think. None of that advances us, so we fall passive and perplexed again.

Nothing is going to happen. The problem will get incrementally worse. Poverty will spread and wealth will spread and society will become ever more lopsided. Turning this problem around would take a tectonic shift in public values. We would, for instance, have to become a lot less devoted to celebrities and a lot more devoted to justice. That will take endless debate.

But I believe the superrich smell trouble. They are not waiting.

The rich are well educated. They may have studied the classics, and possibly Aristotle, who outlined a lot of durable truths. One was that poverty is the parent of revolution and crime.

The very rich are building walls around themselves.

The wealthy are moving into walled, gated communities. These are luxury properties, often surrounded by concrete walls and iron fences, and they are guarded. Privacy and security are top priorities [13].

Walled communities are, on the face of it, incompatible with civic life. And on the face of it, rather than share their 40%, the superrich are going behind these cement barriers.

Historically, the building of walls always means danger is expected. The Berlin Wall, the Great Wall of China. In mediaeval Europe, the countryside was pocked with concrete defenses. Towns still show their battlements and gates which were closed at dusk in an era before police forces, when marauders and mendicants roamed and robbed. A local castle in the middle of a village would draw the villagers and peasants safely inside the walls when attacks were expected from neighbors.

Here, these new walled communities may just be a fashion. They may be a visual of deep new divisions in society.

Or perhaps we should see in them, like a canary in a coal mine, a predictor of what's coming.

But in case of social unrest here, I doubt the superrich will invite us in.


1. In 1774 the top 1% owned 14.6% of the national wealth. By 1989 it owned 36.3%.
In Gordon J. "Numbers game," 1992, Forbes, October 9 p 48.
2. Sapolsky, R.( 2005) "Sick of poverty." Scientific American, 293, 92-99.
3. Rawls, J. (1999) A theory of justice. Cambridge: Harvard University Press,. Pp. 32-
4. Lux, K. (1990) Adam Smith's mistake. Boston, MA: Shambala Books.
5. Edney , J J. (2003) Greed at
6. Housing and poverty in Los Angeles: A report from the Institute for the Study of
Homelessness at the Weingart Center:
7. Nord, M., Andrews, M., Carlson, S. (2005) Household Food Security in the United
States, 2004. United States Department of Agriculture report ERS-ERR-11, October
8. Sapolsky, R. Ibid
9. See also Rose, S.J. (1992) .Social stratification in the United States. New
York: The New Press,
10. Frank, R.H. (1999) Luxury fever. NY: The Free Press.
11. McKinnon, J.D. (2004) "Many companies avoided taxes even as profits
soared in boom." The Wall Street Journal 6 April 2004. P. 1.
12. Andrews, M. (1999).. The political economy of hope and fear. NY: New York
University Press.
13. Reich, Robert B, (1991) "Secession of the successful." New York Times
Magazine, January 20, p. 16.
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