The Income Share Of America's 1% Has Doubled Since 1970 — And That's a Good Thing

An article in the Financial Times titled "How The Rich Are Making Sure They Stay On Top"  perpetuates the liberal notion that there is a worldwide conspiracy to repress the working classes. This dark side of income inequality has been the hallmark of the Obama administration as it conducts class warfare to garner political gain.

The success of the affluent in recent decades is not part of a master plan among business people to abscond the lion’s share of wealth and enslave average workers. Rather, their entrepreneurial spirit made the success of the group possible. This sense of ambition has motivated a wide swath of Americans, although some minority groups have missed the boat for a number of reasons. 

The aforementioned article is supported by data from the “World Top Incomes Database” that was summarized in this summer’s “Journal of Economic Perspectives.”  It clearly identifies a widening income gap. No one denies this worsening situation. Yet, the causes of it and the solutions to rectify it are highly debatable.

In the U.S., the income share of the top 1% doubled since the 1970s, having now risen to 20%. A similar, but slightly less dramatic trend occurred in Australia, Canada, and the United Kingdom. Interestingly, there is no corresponding trend in France, Germany, and Japan.

The classic progressive contention about the trend in this country is that the gains of the rich are ill gotten, or are the result of an “old-boy” network, fraud, and exploitation of taxpayers. The obvious response to these accusations is that old-boy shenanigans are not necessarily illegal and totally undefined. No proof of a nationwide conspiracy to commit fraud has been surfaced, and the wealthy in the U.S pay the lion’s share of taxes, while 50% of Americans pay no income taxes (most do pay payroll tax).

Or, the current state of affairs could be attributed to other causes “that are noxious: misery and envy, or ill-health, or dysfunctional democracy, or slow growth as the rich sit on their cash, or excessive debt and thus financial instability.” These comments are totally esoteric and empty in the absolute.

Research in the JEP symposium points out that bankers are not the only ones who have done well. Partners in law firms, owners of privately held companies, hedge fund managers, and sports stars also enjoy high compensation. Not mentioned are Hollywood celebrities, entrepreneurs, authors of best selling books, and media people. The fact is that the most creative workers in highly skilled industries actually do have a chance to earn compensation far greater than their peers.

“The uncomfortable truth is that market forces-that is, the result of freely agreed contracts- are probably behind much of the rise in inequality.” It is stated in the article that new technology accrues benefits towards the highly skilled. Why does this shock anyone? And why should it not be so? Manufacturing jobs and other positions that do not reward exceptional performance will not lead to significantly greater wealth, and the ability to move up the income ladder is problematic. When workers have a chance to shine, income mobility increases. 

One of the most important comments by the writer is the following: “... People only earn high incomes if they create enough economic value to justify those incomes.” If this is so, should anyone doubt that bankers who earn seven-figure compensation are doing so because they are providing huge value added service to their companies?

The author contends, “The more unequal a society becomes, the greater the incentive for the rich to pull up the ladder behind them.” This is utter nonsense. It is such a warped perspective to think that millionaires earn high pay, and then think about ways to prevent others from making more money. A look at history will reveal that those who did this in the past paid the price- the French aristocracy in the 1700s and the Russian czars in the early 20th century.

Another contention in the same vein is, “plutocrats can shape the conversation by buying up newspapers ... or funding political campaigns.” How can anyone make a case that the media is biased towards the wealthy is beyond belief. Even when media companies are acquired, the news divisions demand autonomy. The political campaign argument is also a canard. Wealthy people such as the very the liberal George Soros and many Wall Streeters (ironically) support progressive candidates and causes. Moreover, unions and lawyer organizations have evened the campaign playing field considerably in recent years. One person on a news program predicted that Hillary Clinton alone could receive campaign support far in excess of $1 billion that was raised by Barack Obama in 2012 if she runs for president in 2016.

The only thing that is an undeniable fact in this article is: there is an income gap. Most of the accusations were manufactured and frivolous. A much more productive way to chip away at inequality is to bring up the less fortunate and not bring down the most successful among us. Improving education and creating skilled jobs in America will best achieve this goal. Unfortunately, our leaders have failed miserably regarding the latter, and have encouraged corporations to export good jobs overseas with repressive taxes.