Income Equality

Recently, a lot has been written about income equality, or the lack of it, in the United States and around the world.  Although a topic of discussion for sometime, the debate was renewed in late January with the release of a report by the charitable organization Oxfam.  The report  states that the 85 richest people in the world own the same amount of wealth as the 3.5 billion (with a “B”) poorest people in the world.  It got a lot of people’s attention.

There was also a lot of push back from those that argue that one cannot help the poor by making the rich poorer.  True enough.  Despite the political rhetoric in this country that government, in particular Democrats and President Obama, are trying to take away from the rich and give to the poor (or in some circles, to give to the lazy bums that don’t want to work for their own benefit), I do not see it that way.  To me, to use the over-used cliché, they are really looking at ways to level the playing field, or more accurately, to provide the opportunity for people to provide for themselves and for their families.

I recognize that although we are all equal in the eyes of the Creator, we are not all equal in our abilities and talents.  The market place, like it or not, is going to favor some individuals and occupations more than others.  Intelligence, athletic ability, entrepreneurial spirit, willingness to take risks, and on and on are rewarded when success occurs.  As it should be.  There is a possible moral argument that a football player making millions for playing a game should not be rewarded more generously than a brilliant teacher that impacts the lives of countless children, but that ignores the marketplace and the fact that the business of football is worth billions of dollars and the “workers” (players) should get a big payday for providing the product.  This is a totally different discussion — whether football should be  such a lucrative undertaking — and that is not why I am writing today.  It merely shows that effort or impact are not the only quantifiers for compensation.

What caught my eye in the report, and has been widely reported in other forums and in other contexts, is that the income gap is growing at a rapid rate.  The super rich are getting richer at a rate not seen since before World War I (think “Downton Abbey”) and the gap continues to grow.  One can argue that certain risk takers and specialists deserve to have much higher incomes due to their rare talents, but to me, that does not explain why those individuals are increasing their wealth at a rate well above anything that would explain why it is so.  The difference in disparity grew by nearly 100 billion dollars from 2012 to 2013.  Doing a rough back of the envelope math, I cannot be convinced that those 85 people were so much better in 2013 that they earned over a billion dollars more per person because of their talent.

The percentage of income held by the richest 1% in the U.S. has grown nearly 150% from 1980 through 2012. That small elite has received 95% of wealth created since 2009, after the financial crisis, while the bottom 90% of Americans have become poorer, according to the Oxfam report.  The report covers the world, not just the United States, but once again the US is “number one.”   In other words, as the report explains, following the Great Recession, the top 1% regained 95% of the post-crisis growth in the United States.

There are groups that dispute the Oxfam report, such as the American Enterprise Institute, a conservative Washington think tank.  They argue that the Oxfam report is focused on the wrong issues and that in fact, a case can be made that poverty has decreased over time.  To me that misses the real point of the Oxfam report and of those in other sources and in political discussions.

The real point, with political ramifications, is that there are a large number of people in the United States (and around the world) that believe that the deck is stacked against them — they feel they just can’t “catch a break”.   I have posted pieces before that convey my belief that there is some portion of our society, of every society, that no matter what you do for them, they just are not going to be productive members of that society.  They just are not.  In my view those are the people that much of the conservative political rhetoric is aimed at, but I believe that they are a small percentage of those that find themselves suffering hard times.  The rest just need to “catch a break” and they willingly and proudly get themselves up and going.  I am not arguing that we leave the non-productive members of society to fend for themselves, we need to try to help them, I’m just saying that if they never get the big picture, taking care of them is just the cost of doing business in order to get the large majority of people moving again.

So nobody, at least nobody that I take credibly, is arguing that there should be no rich, that in this country we should take from the rich and give to the poor “just because”.  What I am asking is why is the disparity covered in the report growing?  I am asking that if American productivity is at an all time high why is the working wage stagnant, or by some accounts falling relative to the historical norm, while the compensation for the CEOs of those companies is growing at an accelerated rate?  I am asking that if these trends continue, what does it mean for the future of our country?  What does it mean in terms of political influence, education, quality of life and the things that we hold dear in our country?  Ask yourself this question as debate over whether to raise the minimum wage continues (the current minimum wage already lost value since it was last raised as it is not pegged to inflation), why has the average CEO compensation versus average worker compensation gone from 20-1 in 1965 to 273-1 in 2013?

In the end, my bottom line continues to be why is it, given the amount of wealth in this country, that citizens of the greatest country in the world have children that go to bed hungry?  Why is it that in the country with the greatest medical capabilities in the world, in the greatest country in the world, that access to health care and its affordability remain an issue?  Whatever one’s political persuasion it seems to me that we should be able to agree that no one in this great nation should go to bed hungry or die of a curable disease just because they can’t afford it.

2 Comments on “Income Equality”

  1. Mike West says:

    Tom- more later, but just wanted to report that daughter Tiffany had dinner (one-on-one) with the CEO of Oxfam during the recent Davos Conference that her organization hosts/puts on. I’m still waiting for the full report. Oxfam seems a little too far left for me, but Tiff said it was an interesting exchange. Now, if only I could pry the details of the conversation out of her…

  2. Mike West says:

    Now that I have more time…

    This is a very interesting topic and is, I suspect, one of the most important socio-economic issues facing our country today. Several thoughts come to mind regarding it:

    One- I firmly believe that if you were ask the average American “would you like to make $500 million dollars a year doing honest work?” the answer would overwhelmingly be “YES!” So there you have it…Americans don’t object to people making obscene amounts of money…what they object to is that THEY aren’t the ones making it!! I see it as pretty much that simple.

    We all recall the McDonalds employee who challenged the CEO at a recent board meeting, calling him out about low salaries and non-existent raises. As I recall, she’d worked there 8 years or so and had gotten few or no raises while there. Unfortunate, for sure, and I certainly don’t envy her. But I’m afraid that all goes back to what I believe is absolutely the most basic, most fundamental law of nature: “Life Isn’t Fair.” That’s why lions eat cute little fuzzy baby animals, people kill baby seals and babies continue to die of various dreaded diseases daily all over the world. Nothing in Nature says or implies that “Life is Fair.” Nothing. Sometimes (often) we just have to live with/deal with the hand we’re dealt. And if a person lacks the skills that society is willing to pay for, then I’m sorry, there are consequences to that. It may be your fault for not studying harder in school, or it may be a lesser IQ dealt you by Nature; whatever the reason we are, in fact, NOT “all created equal.” We are under the law, but not in the arena of innate intelligence or personal capabiities. News flash: it’s no secret that smart, innovative workaholics tend to make more than the rest of us. And I have no problem with that whatsoever.

    As for income inequality…I haven’t done the math in detail, but I suspect that the disparity between your salary and Bill Gates’ salary is greater than the gap between a fast food clerk and yours. Given that, why aren’t you raising cain about how much Bill G. makes? My guess is that you have an innate understanding of what I’m saying and that you understand that “captains of industry” make more than the rest of, often by a LOT.

    This also leads me to ask/wonder why people at the low end of scale accpet it. For example: if the NRA is such a hideous outfit (I’m no fan of the NRA, btw…), why don’t those who oppose it join it in great numbers, gain a membership majority, then “throw out the bums” at the next annual meeting? Likewise, I’ll bet you dimes to donuts that if every hamburger joint employee in the country didnt’ come to work for two weeks, their lot would improve, and fast. Being a military guy, I have not, by and large, been a big fan of unions, but I can sure see how in cases like this that a union makes good sense. I’m not unsympathetic to organizing to create leverage with the guy writing the checks.

    Third side of the coin: COSTCO. What a great company, a company whose minimim wage is something like $21/hour, and the employees love the company and the managers. So I’ve just countered my own statements, right? Well, yes, in some ways…

    All a long way of saying this is an interesting conundrum, one that certainly merits more attention than it’s getting (and it’s getting a lot.) But the bottom line, in my opinion, remains, per the MIT economist who recently espoused it, “You don’t make poor people rich by making the rich people poor,” which I think is the way the current administration is headed.

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