[Originally posted on Facebook, September 6, 2010]
Robert Reich’s Labor Day blog referred to the following fact: ”In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.” He used this data point along with statistics about the underperforming economy to propose “solutions” that mostly involved increased taxes and fees that would essentially transfer wealth around. Most of the other issues he referred to were genuine problems – persistently high unemployment, people underwater on their mortgages and underemployment. But is it really a problem that the richest 1 percent of Americans now earn 23.5 percent of total income compared with 9 percent in the ’70s? How do we know what the “right” percentage should be? Frankly, I don’t care. Here are some of the reasons why.
First, the richest 1 percent of Americans today is not the same richest 1 percent of the late 1970s. Unlike countries where the elite ruling class is typically the same generation after generation and the wealth concentrates amongst this elite, wealth in the US is very mobile. A moment’s consideration bears this out. Bill Gates, Larry Page, Sergey Brin, Steve Jobs, Jeff Bezos, Larry Ellison, Steve Jobs… all of these gentlemen were around in the 1970s, but to the best of my knowledge none was amongst the richest 1 percent and their families weren’t either. Many of the rich from the ‘70s got beaten by competitors, made bad investments or left their wealth to children who squandered it. Nowhere is it more possible for people to go from “rags to riches”, and vice versa, than in the US.
Second, the US is vastly wealthier today than in the 1970s. Even though the rich may be earning 23.5 percent of total income, the total size of the pie is much larger than in the ‘70s. To use a Seattle analogy, if the rich take 23.5 percent of a venti, there’s a lot more left for the rest of us than if they take 9 percent of a tall. What’s more, the rich entrepreneurs who’ve come along in the past few decades are most responsible for creating all this additional wealth. Their businesses are the ones that have generated jobs, increased our productivity, created new business opportunities and generally increased our standard of living.
Third, the vast majority of the poor in the US today were not the poor of the 1970s. Take any 20 year period in the US over the past hundred years, and most people in the lower income decile at the start have moved out of it by the end. In other words, while being in the top 1% means you’re doing well, very few people in the US linger persistently at the bottom.
Fourth, while the people who have moved into the top 1% since the 1970s have done well for themselves, even those who have since found themselves classified as poor in the US have seen their lot improve. As Walter Williams has noted
“[i]n 1971, only about 32 percent of all Americans enjoyed air conditioning in their homes. By 2001, 76 percent of poor people had air conditioning. In 1971, only 43 percent of [all] Americans owned a color television; in 2001, 97 percent of poor people owned at least one. In 1971, 1 percent of American homes had a microwave oven; in 2001, 73 percent of poor people had one. Forty-six percent of poor households own their homes…The average poor American has more living space than the average non-poor individual living in Paris, London, Vienna, Athens and other European cities.
“Nearly three-quarters of poor households own a car; 30 percent own two or more cars. Seventy-eight percent of the poor have a VCR or DVD player; 62 percent have cable or satellite TV reception; and one-third have an automatic dishwasher.”
Reich’s fact about how the rich have done since the 1970s doesn’t really help us figure out where to go from here. There’s no way of knowing the “perfect” percentage of income for the top 1% to earn. What we should really be concerned about is ensuring that we continue to increase overall wealth and that we all have opportunities to improve our lots in life, if we so choose. Transferring wealth around hasn’t proven a recipe for success in other countries. There’s no reason to think it will work here.
Ahh. There it is. The old ‘growing pie’ argument. Of course it has grown but the complications of wealth concentration have grown right along with it. They cause red ink, instability, societal frey, actual hardship and death. The bottom line is that there is ALWAYS a RELATIVE LIMIT to the wealth within ANY economy of ANY size. Therefore, the issue of distribution is legitimate at any given time.
Distribution matters.