Timothy Noah: Why the Rich Are Getting Richer and the Middle Class Is Disappearing
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TN: That statistic about the percentage of the GDP that goes to wages versus capital , that was from JP Morgan Chase. That’s from the horse's mouth.
But you know, that is exactly what you would expect to happen during a period when the power of labor unions was diminishing and the power of stockholders, at least collectively, is increasing. Individual stockholders may not have much say over how companies are run, but in general companies are much more oriented towards boosting their stock price than they are towards paying their workers.
SJ: I just read this wonderful book by a rank and file activist from the UAW, and his catch phase throughout the book is, “money isn’t lost, it changes hands.”
But talking about the stock market, you talk about Americans’ overconfidence in their own upward mobility. The overconfidence that gave us stock bubbles and the housing bubble was this inflated idea that things were just going to keep getting better for everybody because the stock market went up and they were going to get better for everybody because we could sell complicated derivatives based on mortgages that people were probably never going to be able to pay off. I think you make very good points about how central it is to our economy and our idea of ourselves.
TN: A number of people have asked me why are you interested in income, why aren’t you talking about wealth disparity which is actually worse than income disparity? And it’s true, I’m not very interested in wealth disparity and there are several reasons why I’m not. One is that there is no distribution of wealth in America. (Laughter) There’s no meaningful amount of wealth that’s held by anyone but a tiny percentage of Americans.
With income, you could say everybody has income, it’s just a question of redistributing it. But the question of wealth is a question of actually giving wealth to people who don’t have it which is extremely difficult to do. I think the wealth disparities are created by income disparities. When you compare how people got their money in 1913 to how people get their money today, most of them today get it by working, one way or another. They may or may not deserve the level of compensation they receive, but there aren’t very many people in American society who are extremely wealthy and are doing absolutely nothing. That kind of Bertie Wooster syndrome is not a central feature of our economy.
The other thing is that an emphasis on wealth versus income is really something that speaks to an earlier era in the country’s economic development. The liberals and the left were very slow to wean themselves off the idea of the distribution of wealth and towards the distribution of income, because income was a notion that only really became relevant after the Industrial Revolution. Wealth is all that matters in an agrarian economy because wealth means property and you need property in order to grow crops and feed your family. But in an industrial economy you don’t grow your own food, you buy your food with money that your boss pays you. And it was the Progressives that first recognized that, in effect, being the first to make their peace with the idea of an industrial economy.
I think it remains true in our post-industrial economy that income is the real indicator of economic well-being. It’s also just true that there aren’t very many policies that can be used to redistribute wealth. There’s the property tax, which is a clumsy instrument for the distribution of wealth and there’s the inheritance tax which I guess is a wealth tax, but I really think of it as an income tax. It’s a tax on the people who are inheriting windfalls and windfall is income.