Why Income Inequality Is Going to Get Catastrophically Worse
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There’s been a lot of discussion about the historically high levels of income and wealth inequality lately — mostly from people on the shorter end of that stick — with good reason: There’s no end in sight.
In his new book, “Capital in the Twenty-First Century,” economist Thomas Piketty argues that worsening inequality is inevitable in a mature capitalist system, based on his analysis of 200 years of data. But inequality isn’t just an evolving condition like a crippling allergy that comes and goes, or just grows, enumerated by horrifying statistics. Nor is it just the result of a capitalist-utopian idea of free markets in which everyone gets a fair shot armed with equal information (which simply don’t exist in the real world, where markets are routinely gamed by the biggest players). Inequality is endemic to the core structure of an America that operates more as a plutocracy than a democracy. It is an inherent result of the consolidation of a substantial amount of both financial power and political influence in the hands of a few families.
In my upcoming book, “All the Presidents’ Bankers,” I trace the lineage of the banking and political families and their associates who have had the most combined influence on American policy. Inequality of income or wealth is a byproduct of the predisposition and genealogy of this coterie of America’s power elite. True, being born into wealth means having a greater chance of accumulating more of it — but take it a step further. Expanding on the adage of “it takes money to make money,” we get a much better idea of why inequality is so rampant: Because aside from income and wealth issues, it takes power to keep power.
By nature of the construct and self-reinforcing behavior of a small circle of American families and their enterprises — particularly over the past century since financial capitalism replaced productive capitalism as the means to expand power, wealth and influence — a comparative handful of families and their connections run Wall Street and Washington collectively. They run America as two sides of one political-financial coin, not as divided factions but as co-influencers of policy through public and private office.
There have been times during the past century when the specific individuals commanding this joint effort paid credence to the public interest, or were imbued with more humility. During those times, levels of inequality happened to decrease. At other times, the power elite solely promoted private gain, as from WWI through the crash of 1929, and since the 1970s, particularly since the 2008 crisis. At those times, inequality happened to grow. This is not to imply that the moods of the elite were the sole arbiters of the direction of inequality, but that whatever the direction of these levels, general economic health is more dependent on the actions of this long-term, tightknit and concentrated few than on the ideal of a democracy. In this environment of such power inequality, economic inequality is unavoidable — and unsolvable.
Today, the focus of this power structure is so skewed that any notion of “public good” is mere campaign fodder for presidents or presidential hopefuls, and nonexistent for the banking elite. That’s why inequality for the rest of the population has leapt back up to 1928 levels and will continue to rise from there. That’s why Jeb Bush or Hillary Clinton or both may run for president, while JPMorgan Chase, J.P. Morgan’s legacy, remains the most powerful bank in the world, as it was designed to be more than a century ago.
In the Economic Policy Institute’s February 2014 report “The Increasingly Unequal States of America,” authors Estelle Sommeiller and Mark Price chronicle income inequality on a state-by-state basis from 1917 to 2011. Starting in 1979 until 2011, as the average income of the bottom 99 percent of U.S. taxpayers rose by 18.9 percent, the average income of the top 1 percent rose by 10 times more, or 200.5 percent. Conversely, between 1928 and 1979, the share of income held by the top 1 percent fell in every state but one.