Income Inequality: the Imaginary Powderkeg

February 25, 2011

Mother Jones recently published a set of infographics on income equality in America, which is understandably kicking up some dust around various corners of the internet. The numbers are shocking: the top .01% make an average of $27 million per household. The bottom 90%? Only $31,000.

Looking at this chart, it’s easy to believe that some sort of unfairness exists. That somehow the richest 10% (who control over 70% of the wealth in this country) are undeserving of their income. The knee-jerk response is to start thinking of the nation’s wealth as zero-sum, and for every dollar going into Bill Gates’ pocket, a corresponding dollar is being taken away from the lower 90%.

Obviously, nobody believes this is done directly. But many do believe that this is being done indirectly through layoffs, wage suppression or actions along those lines.

But it’s an illusion.

It’s an illusion created by those who believe there is some sort of caste system, aided by political action, that serves to make the poor poorer and the rich richer.

But don’t fall for it. There’s nothing there.

The supposed “problem” of income disparity only exists if you believe it exists. I’m not saying that these charts aren’t accurate or that there is not a large gap between the top 10% and the bottom 90% of earners. I’m saying that this gap is only a problem if you choose to believe it’s a problem.

The thought process as to why you should believe it’s a problem is false. The theory is that the more the top 10% makes, the less you make. Unless the CEO of Goldman Sachs is siphoning money out of your bank account, this simply isn’t true.

“But I don’t work for Goldman Sachs, I work for X company.” Exactly. And every chart like this is intended to make you feel as though the CEO of X company is getting richer by suppressing your wages. People look at infographics such as these, compare that with their paycheck and subjectively apply it to their situation, forgetting that there are several people in the top 10% who don’t (directly or indirectly) have any effect on their paycheck.

Ask yourself this question: what do the super-rich have that I don’t? Multiple houses, luxury vehicles, housekeepers, etc. are not the sort of thing any reasonable person expects out of life. Even in the lower income levels, we still have access to services and consumer goods that used to be the domain of only the rich: decent medical care, a house, multiple vehicles, high-end electronics, computers, appliances, schools, and so on. These all used to be available only to the very well-off. In the past, only the rich could afford qualified doctors and education for their children. Computers used to cost thousands of dollars. The same with high-end electronics. Washers and dryers were luxury items.

As life has gone in the US, the cost of these goods has fallen dramatically. Everyone has a free option for their children’s education. Life expectancy has gone up. As the wages spread further and further apart, life has not gotten collectively worse for everyone outside of the top 10%. Life continues to get better for a majority of the other 90%. There are some outliers in the lowest percentiles but generally speaking, life is better for a majority of Americans despite this perceived inequality.

In fact, as wage disparity has increased, happiness levels in America have risen as well. Income disparity increased over 50% between 1972-2004 and yet a GSS (General Social Service) poll shows happiness levels increasing from 30 to 31 percent.

“If the egalitarians are right, then average happiness levels should be falling. But they aren’t. The GSS shows that in 1972, 30 percent of the population said that they were “very happy” with their lives; in 1982, 31 percent; in 1993, 32 percent; in 2004, 31 percent. In other words, no significant change in reported happiness occurred—even as income inequality increased by nearly half. Happiness levels have certainly shown some fluctuations over the last three decades, but income inequality explains none of them.”

There are a lot of reasons for people to be unhappy now. We’re in the middle of a recession. The housing market has collapsed, dragging down net worth for the bottom 90%. A jobless recovery is slowing progressing. People need a villain to take the blame and the top 10% is better than nothing. The perception that America is run by robber barons is taking hold again.

A lot of this perception stems from the financial industry’s top level compensation. There’s a huge disconnect between what CEOs in this field make and the perceived value of their actions. Resentment has built from the bank bailouts and other special treatment these institutions have received over the years, which when coupled with the current recession tends to bring most people to the conclusion that these same CEOs are extremely overpaid. I’d agree with this conclusion. They are overpaid. But then again, so is most of their rank-and-file. It’s a feeling that those who push imaginary money around shouldn’t be compensated this well, especially when their money-pushing results in hardship for the bottom 90%.

But this isn’t totally the fault of the financial institutions. If you want to blame somebody, blame the government. And keep blaming them because they’re never going to fix it. Goldman Sachs, in particular, is a revolving door that circulates its executives in and out of government positions and vice versa. Even if the government decided to step in and raise taxes appreciably on big business and the incomes of the top 10%, it would have no effect on the bottom 90%.

The ugly truth is that if you tax something more, you get less of it. Just ask New York City, whose latest tax increase (to $6.86 a pack!) resulted in an influx of tax-free bootleg cigarettes and the relocation of tax money to neighboring states with lower prices. Sales dropped 27% between July and November, far exceeding the 8-10% the politicians predicted.

A higher income tax would simply mean that more of the top 10% would relocate to countries with lower tax rates. The same goes for the businesses. They would incorporate in tax havens and dodge the bullet that way. The bottom 90% would pay more for goods and services as any applied tax meant to “punish” the high end would simply be passed along to the low end. It’s always this way and those who yearn for the golden era of 90% marginal tax rates on millionaires are kidding themselves if they think a tax hike will actually result in some sort of windfall for the bottom 90%.

Contrary to the images painted by those with class warfare on their minds, a majority of the rich did not simply “luck” into this money or exploit the hell out of others to get it. Many of them were innovators (Bill Gates, Lawrence Ellison, Sergey Brin) who developed new products and services. Others were savvy investors (Warren Buffet, Carl Icahn, Sheldon Adelson). With the exception of the Wal-Mart inheritance and the Mars family, no one on the Top 20 list of richest Americans simply had money given to them.

It’s at this point that merit comes into play. Do people who hate the income gap really want all people to be rewarded equally? Do they want the top end skewed down or do they want the bottom end to rise? Should this be handled via “redistribution” (in other words, taxes – an impossibility but we’ll let it slide for rhetorical reasons) or wage caps? Do they really want a world where hard work and foresight is punished?

Take Mother Jones, for example. Their ad income is most likely several times that of smaller online commentary sites. Should they be forced to toss their “excess” in a pool for the smaller sites to benefit from and close the “gap” that way? I would imagine they’d disagree with this, stating that they’ve built up their brand and hired talented writers and thus, deserve this additional income.

Is that any different than deciding that Bill Gates should be forced via taxation or salary cap to cough up his “excess” income so that those in the bottom 90% can have more? And how exactly does anyone expect this to happen?

All the ideas I’ve read revolve around raising the tax rate on the top 10%. This is the ever-popular “soaking the rich” tax plan. It plays well with voters but will never be instituted, thanks to the fact that many of our nation’s representatives are wholly beholden to the ultra-rich, if not actually part of the ultra-rich themselves. (Interesting note: Democrats are more prone to painting the Republican party as champions of the ultra-rich, but 7 out 0f 10 of the richest representatives listed below are, in fact, Democrats. And not just any Democrats, but Democrats who crossed party lines to vote FOR Bush’s tax cuts on higher incomes.)

Beyond the fact that there is nobody in Washington willing to do this, a further issue is the fact that the government is quite possibly the worst Robin Hood analogue imaginable. They cannot, despite constant assurances otherwise, redistribute wealth. They cannot take Bill Gates’ money and spread it among a random sampling of the bottom 90%. They can’t even do it indirectly through taxes, as much of that money is already promised to a variety of earmarks, subsidies and entitlements already.

Not only that, but a higher taxation rate wouldn’t close the gap. Gross income is still gross income, no matter what the tax rate. Someone making $20 million will still make $20 million, even if 60% of it is siphoned off in taxes. And the person making $30,000 will still be making $30,000, even if $12 million just rolled into the IRS offices.

They also have no business setting wages. Despite governmental creep into the private sector, there is no way these self-interested players should be allowed to cap wages or set minimums. They already have screwed up with the minimum wage and granting them the power to cap maximums is asking for a quasi-socialist system where even fewer people have a chance to get rich but many, many more will have the chance to be poor.

Beyond that, no one seems to have any idea how to close the income gap. If this were a real problem, rather than just a shoddy platform plank, ideas would flow freely. As it is, it’s just a political haymaker and another reason to get pointlessly angry.

My suggestion? Let it go. It won’t change. It can’t change. And anyone who thinks it can be changed wants to enlist the worse people possible to handle/redistribute other people’s money: the government. That’s not a solution. That’s a farce.



  1. Brilliant.

    Way to step out of you normal erudite fiskings and deliver an, well, erudite fisking.

    • Damn. Your not you.

    • Thanks, Ulysses. As you can see, I am sorely in need of an editor. And this is after re-reading it for about the fourth time and making some cuts.

      I’ve left your rare “you/your” error to bump up my comment count.

  2. These are my favorite kinds of posts from you. I generally always agree with you ‘on the issues’ (with the exception of immigration)…nice, incisive analysis, CLT. That’s all I got for now (fachadick sleep schedule…exhausted), but that’s okay because Sedate Me is going to make up for it. I’m pretty sure he will incorporate some sort of Cossackian fucktard in charge of a Canadian ‘council’ fiscally run amok into his comment. Looking forward to reading it (and your response).

    • Thanks, elizabeth. I’m glad we’re in agreement on a lot of these issues as I’ll have my hands full with SM’s response, whenever that rolls in. I’m pretty sure he’ll disagree with me, just as I do with you on immigration. That’s ok. You’re both just wrong. 😉

      I really tried to keep it incisive (which I suppose it was) but it sure as hell isn’t concise. I like it when writing feels effortless but it asks a lot from the reader. Thanks for sticking it out despite your [made up word] sleep schedule.

    • While it’s nice to see a serious topic not buried under twinky music for a change, I recognize this for exactly what it is. This is a very clever blogger’s sly attempt to draw yours truly into WW1 style trench (flame) warfare on his own land-mined battlefield, and in front of a home crowd (that’s probably armed), in the hopes of causing a debilitating stroke in yours truly. This so that said clever blogger can retake his own blog from invading forces.

      Could it be that he is not happy with his share of his own pie? Or maybe he’s just one of these Abu Grabass guys who gets off on the idea of being manhandled and forcibly taken “against their will” by me. If so, get in line and keep praying with the rest of them.

      I will respond to his fertilizer bomb ambush, but I plan on keeping my response contained to a measured, strategic and largely token one that I’ll invest as little of myself in as possible. I know doing that will produce an inadequate response by my insanely high standards and may disappoint others as well. However, life is just one big disappointment after another (culminating in the final big disappointment), so why make it more miserable than it already is by trying to bitch slap sense into everyone without any. I will craft my response to this on my own timetable and under the care of a highly skilled medical physician. (I’ve already had 7 strokes this year. Down 9% from this time last year.)

      The overarching topic here is actually one of several core topics I plan to build my (perennially pending) website around, a website that will hog over 90% of the Internet’s bandwidth, not that the ability of the vast majority of people to use the Internet’s precious resources matters. But I’m not about to scoop my main concern (a concern far more important than the concerns of others) by shooting my load on this penny-ante, bottom 10%, place that’s run by “bottoms” and powers itself with such foolish, deluded, notions as “happiness”, whatever the fuck that is.

      Besides, I have super-fine bitches to lick and a salary to “earn”, so I just don’t have the time (or desire) to generate a proper debunking of this steaming can of highly condensed bullshit with the line-by-line treatment it deserves. Sorry.

      But, there shall be a limited response and, suffice it to say, the Sedate Me Lexicon will almost certainly get invoked. I preemptively apologize should any rapid firing of “motherfuckers” wound anybody, at least anybody I’m not aiming it at. But why should I be apologizing for collateral damage? Nobody else ever does. “They deserved it!” is the motto of the day.

    • Alright. Well… you know where to find me…

      (I think you’re right about avoiding a line-by-line debunking. 1. Can’t be done. There’s no way you can disagree with every conclusion in here. 2. I already dropped a 1,700-word load [to use your vernacular]. I’m not about to do it twice. [At least, not on the same page.])

    • I think you’re right about avoiding a line-by-line debunking. 1. Can’t be done. There’s no way you can disagree with every conclusion in here.

      Is that a challenge, motherfucker? Are you “dropping the gloves”, as they say in my home and on native land? I’ll have you know I can disagree with and rip apart ANYTHING, even the most brilliant shit ever written (aka mine). I’ve got a Dead Man’s Switch and I’m not afraid to use it!

      I actually started a line-by-line debunking, but was unsure about the value (and basic human decency) of posting it here. As for 1,700 hundred word loads, I routinely edit that much out of my comments before posting them. (You’re welcome.) Mercifully, you only ever get to see a fraction of what I generate.

      But I probably will have to come up with something, if only to keep Elizabeth aroused.

    • Sedate Me, I can only imagine what foreplay is like with you…it must go on and on and on…:-)

    • I’d imagine it would be that way too, elizabeth. Sort of like Sting’s tireless epic length tantric sex sessions, which are only exceeded by his tiresome anecdotes about how awesome he is at it.

      Yeah, I’m throwing down the gauntlet. If you’d like, SM, I can excise another 1,700 words once it arrives in the comment thread.

    • It’s starting to heat up in here…

    • Like sex, torture is the most fun when you get your victims to the point where they beg for it and then later beg for you to stop because they can’t handle any more.

      Not to sound too immodest while spinning braggadocio, but this one night in a hotel room, I had a gal literally screaming at the top of her lungs before, at the finale, and numerous times in between. When I checked out, the attractive young night manager who was indifferent at check-in was aggressively flirting with me while the other gal stood next to me. She did everything but ask me to check-in with her later that night.

      Anyway, it seems you’re both reaching Stage One. Unfortunately, I can’t get back to you until at next Friday at the absolute earliest, so you’ll have do make due with your vibrators. (But be forewarned, sometimes I like to change it up by “cumming & running” and leaving them tied up, naked, and begging for more.)

    • All I ask is that you don’t force me to open my eyes during ‘the moment’ like that French dude I was dating. I think I have some sort of adult onset Aspergers and recoil from making sustained eye content (furtive glances work best). The rest sounds titillating, SM (and if you drag it out too long, I’ll have to beat the crap out of you).

      Sorry Cap…not sure how we segued from closing the income gap to ‘relations.’

    • I’ll tell you how it happened: you brought up SM. One thing led to another and here we are, horrified by the actions of Frenchmen. In other words, it’s a day like any other.

    • Status Update:

      I am currently at the 8,000 word mark and I figure I’m only about halfway. I’ve also had at least 2 strokes.

    • If it means you will complete the job SM, I will nurse you back to health and support you through every step of rehab (any flavor of rehab). We realize these tomes take time. A LOT of time. Fortunately, CLT’s posts are so fascinating, I never get bored with them or for that matter, your responses.

    • Oh, my response to this one bores me almost as much as the topic boils my blood. I can only imagine how interminable others will find it. Somebody call the Coma Unit.

      But I do love me them nurses, especially the naughty ones. http://www.youtube.com/watch?v=N9hcVP489sg So I’m tempted to go through with it.

    • 8,000 words and only halfway done? That’s over 4 times the length of my post. Have you considered submitting this feature-length essay somewhere else that’s better equipped to handle it? Like the “New Yorker”? Or charity? (People could donate per word.)

      Otherwise, it’s good to see you’re still among the overly-verbose living. I thought for a bit that you’d abandoned Fancy Plans for the sole purpose of punishing Don Mills for existing.

    • First, unless Don Mills goes senile and starts spouting bullshit, I’d never punish him. Even then, I’d just walk away and try to keep my memories of him unsoiled. Don Mills is an international treasure preforming a great public service. (Remember back when the words “public service” weren’t always preceded by “I got convicted and now I have to preform 250 hours of…”?

      Second, against my better judgment, YOU challenged me (See: Sedate Bait tag) to write a line-by-line debunking of every conclusion in your little 1,700 word can of condensed bullshit. That takes time, effort and more characters than the Twits on Twitter can generate in a day. What? Are you afraid my metaphoric train is too big to fit into your tunnel? Wouldn’t be the first time that happened.

      But it’s not too late to cry “uncle” and save yourself a day or seven worth of very painful reading and all the potential negative fallout, which I honestly won’t enjoy in the slightest. I can save what I have for my (perennially pending) website because the New Yorker may not exist by the time I finish.

      It’s not too late to save yourself. All you have to do is admit you’re wrong which, apart from one or two parts I shall mock and assail anyway, you are.

    • If I thought I was wrong, I certainly wouldn’t have spent a few days and a few thousand words on this post.

      If your “debunking” is as lengthy as it sounds, I may have to remove it from the comment threads and do a little debunking of my own in a brand new post.

    • This is why I don’t need television. Do not capitulate CLT. I fully expect the promised 8,000+ word treatise (manifesto?) from you, Sedate Me (probably in a new post). This is going to be SO GOOD I’ve scheduled another few vacation days.

    • Listen to Helen Of Troy over there. She’s having a fucking orgasm at the thought of us battling to death! (Women are the root of so much violence in the world.) You fucking Americans and your insatiable blood lust. It repulses me. If I wasn’t such an angry motherfucker, I wouldn’t participate in at all.

      “If I thought I was wrong, I certainly wouldn’t have spent a few days and a few thousand words on this post.” – a severely deluded blogger

      That’s the part that, if I had any emotions left other than rampaging anger, would truly sadden me. And I mean that from the bottom of the charred piece of coal that is my heart. I know that, not only are you wrong, you’re probably smart enough that you should know you’re wrong. Leave the stupidity to the fucktards. It’s not like there aren’t enough of them to pick up the slack.

      I’m slightly over 10,000 words now (& 3 strokes) and I can’t quite see the finish line, nor the point in crossing it besides the 1 in a billion chance you’ll realize you’re wrong. That and my selfish billionaire-ish desire to achieve unmerited word disparity and reduce the members of the Fancy Pants collective to producing a few submissive, Twit Zone sized, praises of my greatness; a greatness that doesn’t take from you and will make your life better as long as you service my every twisted desire, lest I go to some skanky 3rd World bordello where they will.

      I’m conflicted between the culturally fostered desire to stroke my own ego and crush others like a member of the ultra-rich and my saintly desire for social cohesion. My amazing humility is getting in the way unloading a (tiresome) wisdom bukkake on everyone’s face purely for my own pleasure.

      Putting a 10-15 thousand word response here is probably about as tacky as the Nouveau Riche are. Maybe I’ll just post a couple of highlights because I think I might have promised a response and, like all Great Men, I am a man of my forked tongued words.

      Sorry about all this Hamlet-esque waffling. But I suffer from the rare and horribly debilitating diseases of “conscience” and “guilt”. They keep me from reaching my full potential in this capitalist society. I can drink and drug all I want, but it only slightly subdues them. The good news is that science will probably come up with a cure for them any day now.

      Perhaps, in the endless pre-ramble to my response, I’ve already sufficiently mocked, ridiculed, or debunked the misguided thinking behind your mistaken beliefs and don’t need to dispense a potentially humiliating line-by-line debunking and mockery, so that nobody need lose their dignity.

      Or maybe this was all just an elaborate April Fool’s joke and I was just cummin’ & runnin’ all along? Yeah, I have written that punishing rant. But maybe I’m keeping it up for my exclusive benefit(aka website) like any good capitalist would? I’m such a fucking asshole, I deserve a billion or two from somebody.

      Ha! Caught you with your pants down, Liz! 😉

    • That’s the part that, if I had any emotions left other than rampaging anger, would truly sadden me. And I mean that from the bottom of the charred piece of coal that is my heart. I know that, not only are you wrong, you’re probably smart enough that you should know you’re wrong.

      Have I come across as beholden to certain political systems or corporations? Because if you think this has anything to do with that, you’ll be retracting 8-10,000 words.

      Perhaps something more bite-sized would work better or maybe you can finally kickstart that oft-promised site of yours and I can start playing the part of the “Man of a Thousand Words” over there.

      Let me go ahead and show you my cards. You’ll have twice the advantage now, as I can only make assumptions as to where your lengthy rebuttal is going.

      1. This is only a problem for people who want it to be or need it to be. It is not a problem for everybody, top or bottom. It is not a matter of ignorance to not consider an income gap a problem. Life is not fair.

      2. The gap doesn’t come from where you think it does. It has nothing to do with lower taxes on individuals or corporations. Also: raising taxes won’t fix it.

      3. The only entity with the power to close this gap:

      a.) can’t
      b.) if it could, wouldn’t
      c.) may still try, but make things worse

      (The chart showing the wealth of representatives is key to both 3 and 4.)

      4. The real problem lies with those who use this as a voter wedge in an effort to unite a bullshit “us” vs. a bullshit “them.”

      That being said, I’ll still go toe-to-toe with whatever you bring, whether it’s something concise or a sprawling mass indictment. Yes, there is only a sliver of a chance that I’ll see the error of my ways, much like any response I have is less than likely to alter your views. So, much like a wedding, this is more for the attendees than the participants.

      But, if nothing else comes out of this, never mistake me for some head-nodding acolyte of any political party or corporate force. Those are my fighting words. I don’t shill.

    • All this frickin’ foreplay SM…will you just stick it in already?!!

    • I would appreciate it if people stopped treating this comment thread like an extended sexual metaphor. I know I speak for RF when I say that our blog would rather not have anyone “stick it in already.” Not even just the tip.

    • Sorry Cap….just too much damn arousal (I couldn’t help myself).

  3. Way be socially responsible. You wear punditry rather well I must say. As a 90 percenter, I tend to agree with you analysis. Nicely done.

    • Thanks, RX/FJ. The punditry wears well, if a little long. I might try hemming it sometime. I think there’s a follow-up piece in the works, thanks to some new, related info via Bruce Sterling and Tyler Cowen, so brace yourself for that.

  4. This comment was added for your comment count.

    • Your efforts have been noted. Look for something additional on your next paycheck. (Or subtractional. We are in the bottom 90%, after all.)

  5. […] There’s a key phrase in Cowen’s statement, one that doesn’t get aired until much later in Sterling’s piece: “The best is yet to come.” Despite all the negative aspects of the innovation plateau, the fact is small bits of brilliance are still being created daily. In fact, life for most of us keeps getting better, even when infographics say otherwise: […]

  6. I strongly suspect that neither political party really knows what to do regarding the economy, nor do the experts, although they have opinions and theories. The problem is simply too large, complex, and interconnected with economies of other nations, over which the US has no control.
    To fix most things in the universe, you have to get them to “sit still” at least for a short period of time, and suspend those outside factors bearing on the problem. This is a dynamic situation. If we as a society actually knew what worked, and could establish a cause and effect relationship with any certainty, we would have done it by now.
    Is it possible, as postulated by some, that the liberal, conservative, progressive, corporate and banking interests, and libertarian POWER FORCES in our society are laughing all the way to the bank, and that we minions with little money and power are the ones complaining? And that because of new technological advances in communication and the power of the Internet, the voice of the minions is now being disseminated with greater force, essentially saying, “Stop! Enough is enough!”?
    Furthermore, is this a case of the minions fighting for limited scraps at the bottom of the heap, while the real riches are controlled by a few? Have we at the bottom been pitted against one another?

    • I agree with your point that neither political party has any idea how to fix the economy. I just wish they’d stop believing they can as every “fix” compounds the problem. In fact, if they’d stay out of it completely, I would imagine some of this might revert to the mean. But as long as they’re guaranteed employment in the financial world upon their eventual exit, that’s never going to happen.

      If anyone’s pitting the bottom against each other, it’s the pols who can still gather votes by playing up the class warfare angle. There have always been haves and have nots, but the incredible gap is mostly due to gains in the financial sector, which for the most part are completely unrelated to gains in the rest of the private sector and create no physical goods, thus having little to no effect on the GDP.

      Tyler Cowen (“The Great Stagnation”) feels this is due to them being allowed to work with an amazing amount of leverage and suggests that limiting this (and pretty much leaving the rest unchanged) might rein in some of the excesses.

      Thanks for the thoughtful comment, Reggie.

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