The inequality is so outrageous they had to change the scale to show it!

The Economic Policy Institute report titled, “Income Inequality in the United States”, dubbed the U.S. the “Unequal States of America” due to the size of the wealth gap. America’s wealth inequality is even more gaping than its income inequality. (Income is the amount earned each year. Wealth is the accumulated assets over many years.) According to The New York Times, the richest one percent in the United States now own more wealth than the bottom 90 percent. According to Common Dreams and the Institute for Policy Studies, the three wealthiest Americans have more wealth than the bottom 50% of the country combined. Every year, the current income inequality rate compounds the wealth distribution inequality, making it exponentially worse. Just reading the numbers is not very impactful. I urge you to watch the Youtube video “Wealth Inequality in America” to get a better comprehension of the situation.[1]

A reasonable level of inequality will exist as long as we have an innovation system that rewards excellence and entrepreneurship. There are a couple of problems with that statement, and the way our present system works. We have gone far beyond the reasonable level of inequality, and the people reaping the greatest rewards are not necessarily the innovators and entrepreneurs.

At today’s levels, the concentration of wealth is inhibiting the overall economy. The disproportionate concentration limits the overall amount of growth, and at the same time means that growth fails to benefit the majority of the people. Consolidation of so much wealth and capital in so few hands is inefficient because it depresses demand, a point made famous by Henry Ford[2] and more recently billionaire Nick Hanauer in his much-discussed TED talk[3] and magazine articles.[4] As Hanauer puts it, “There quite simply is a limit to how many luxury yachts a person could want or own.” Even billionaire Education Secretary Betsy DeVos only has ten.

I am not an economist, but even the economists cannot agree about the possible harm the concentration of wealth may cause — or not. I am not advocating eliminating some concentration of wealth. We can take some of the 1% wealth to eliminate poverty. We have to. That’s where the money is. If Congress created regulations to distribute the wealth across the population then it would give more people more spending power, which in turn would drive up growth and drive down inequality. The top 100 billionaires added $240 billion to their wealth in 2012 — enough to end world poverty four times over.[5] Growth in more equal countries is much more effective at reducing poverty. Oxfam research shows that because wealth is so unequal in South Africa, even with sustained economic growth, a million more people will be pushed into poverty by 2020 unless action is taken.

Poor people are envious of wealthy people, but that is not the issue. If the government could magically transform poor people into comfortable, prosperous middle class citizens, they would not care how much money the wealthy have. However, when they are working hard at two or three low-paying jobs and still just scraping by, it is hard not to be resentful of that lady with all the yachts.

Paul Graham is a wealthy and successful entrepreneur, a programmer, writer, and investor. In 1995, he and Robert Morris started Viaweb, the first software as a service company. On his blog site, he says:

“Since economic inequality per se is not bad, we should not attack it. Instead, we should attack the bad things that cause it. For example, instead of attacking economic inequality, we should attack poverty.[6]

I disagree with his statement on three counts. First, I do not agree that economic inequality is not bad. Second, asking the uber-wealthy to pay for programs to reduce poverty is not an attack. Third, poverty is not the cause of income inequality; it’s the effect. It is a logical outcome of a thorough analysis of needs and means. Society has a serious need to alleviate poverty. The hoarded wealth of the uber-wealthy can provide the means to address the need.

It is not just the have-nots who think wealth inequality is a problem for the country. Many billionaires also feel that way. Fortune Magazine[7] quoted seven of them. Here is a sample.

Paul Tudor Jones II — Estimated net worth: $4.7 billion — Occupation: Tudor Investment Corporation Founder, Co-Chairman, and Chief Investment Officer. What he said:

“This chart is corporate profit margins going back 40 years as a percentage of revenues, and you can see that we’re at a 40-year high of 12.5 percent. Now, hooray if you’re a shareholder, but if you’re the other side of that, and you’re the average American worker, then you can see it’s not such a good thing,” Jones said in a TED talk. “Now, higher profit margins do not increase societal wealth. What they actually do is they exacerbate income inequality, and that is not a good thing. However, intuitively, that makes sense, right? Because if the top 10 percent of American families own 90 percent of the stocks, as they take a greater share of corporate profits, then there’s less wealth left for the rest of society.”

They are concerned on economic and ethical grounds.

I want to take issue with the commonly stated argument that the rich deserve their wealth because they earned it. In the vast majority if not all of the cases, the uber-wealthy earned and deserve a lot of money. The question for me is, “Did they earn all of the money they have, or did they take a disproportionate share of the profits that were earned by many people?” I do not know if it is greed, or ego, or what motivates them to amass such obscene amounts of money while paying the people who helped them earn the money as little as they can get away with. How does a person with billions of dollars justify the situation where less than 100 miles from wherever they are there is a person suffering from many of the painful effects of poverty, without taking deliberate and sustained actions to fix the problem? If the uber-wealthy either will not or cannot figure out how to use their largess for the benefit of society as a whole, then it is time for the government (whose responsibility is to provide security for all citizens) to assist the richest among us in making an impact with their money. America is facing a form of tyranny by the rich. Thomas Jefferson feared this possibility and even forecast it in 1779.

“. . . experience has shown that even under the best forms (of government), those entrusted with power have, in time, and by slow operations, perverted it into tyranny.”

Unless you are one of the top 1%, you probably agree that wealth inequity is a problem. Whenever you hear anyone seriously try to have a conversation about the issue, you hear labels like Income Redistribution, Economic Controls, Class Warfare, etc. Class warfare is not just something the poor may decide to wage on the rich. It is something that has been going on for decades and the poor have already lost the war. Our government spends all its time arguing about political differences concerning peripheral issues instead of putting a laser focus on the single most important issues — eliminating poverty, rebuilding America’s middle class, and restoring the American Dream.

In addition to infrastructure jobs, the country needs to reinvest in its public-service jobs like education, police and firefighters, universal healthcare, etc. All of these are real jobs that improve the quality of life for everybody. They also are subject to the multiplier effect. The result of this type of program after a few years will be the rebuilding of the middle class and the restoring of the American Dream.

Congress has been grossly ineffective at doing anything because the people with money control Congress. The super-rich wrote the bills and regulations through lobbyists and think tanks and paid the elected representatives to pass them. Now that the rules favor the fat cats and allow them to amass huge wealth, it is in their interest for Congress to do nothing — so it does. The system is broken. There are many well-meaning people in Congress, but the structure and policies they must follow allow the minority to prevent the majority from doing anything. I do not believe it is the fault of just the Republicans or the Democrats. Both sides have some legitimate concerns and ideas. The problem is that the rich and powerful control enough votes to prevent anything from happening. Who wins when Congress does nothing? Those who created and like the present rules!

This is an excerpt from my book on Poverty — part 13 (Written but not published. If you want a MS Word free copy, let me know.)

[1] https://www.youtube.com/watch?v=QPKKQnijnsM

[2] https://www.npr.org/2014/01/27/267145552/the-middle-class-took-off-100-years-ago-thanks-to-henry-ford

[3] https://www.ted.com/talks/nick_hanauer_beware_fellow_plutocrats_the_pitchforks_are_coming

[4] https://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014

[5] http://www.preda.org/world/top-100-billionaires-could-end-world-poverty-four-times-over/

[6] http://paulgraham.com/sim.html

[7] http://fortune.com/2015/11/28/billionaires-income-inequality/