Does income inequality matter to the richest Americans? Not very much. Here’s why. And it’s more than just greed-is-good– it’s because the rich will just get richer.
A study by economists at Washington University in St. Louis tells us stagnant income for the bottom 95 percent of wage earners makes it impossible for them to consume as they did in the years before the downturn. Consumer spending, some say, drives the U.S. economy, and is likely to continue to continue to dominate, as the decomposition of America’s industrial base dilutes old economy sales of appliances, cars, steel and the like. That should be bad news for the super-wealthy, us buying less stuff?
But that same study shows that while rising inequality reduced income growth for the bottom 95 percent of beginning around 1980, the group’s consumption growth did not fall proportionally at first. Instead, lower savings and hyper-available credit (remember Countrywide mortgages and usurous re-fi’s?) put the middle and bottom portions of our society on an unsustainable financial path which increased spending until it triggered the Great Recession. So, without surprise, consumption fell sharply in the recession, consistent with tighter borrowing constraints. Meanwhile, America’s the top earners’ wealth grew. The recession represented the largest redistribution of wealth in this century.
The gap between most Americans and those few who sit atop our economy continues to grow. For two decades after 1960, real incomes of the top five percent and the remaining 95 percent increased at almost the same rate, about four percent a year. But incomes diverged between 1980 and 2007, with those at the bottom seeing annual increases only half of that of those at the top.
This leaves the very real issue for the rich of who will buy all the stuff their big corporations make? But don’t worry. They’ve got it handled.
Taxpayer Subsidies to Big Corporations
Don’t worry about the big guys; they have figured out how to profit off poverty. Wal-Mart, Target and Kroger have made profits of $75.2 billion off food stamp purchases, even setting a new record in 2012.
And never mind how food stamps and other benefits are used by those same retailers to subsidize the low wages they pay their workers. Meanwhile, the same bill in Congress that would cut food stamps pays out farm subsidies to America’s billionaires, including Microsoft co-founder Paul Allen, Charles Schwab and S. Truett Cathy of Chick-fil-A.
The American Beverage Association, a lobby group that includes Coca-Cola, strongly opposes restricting soda purchases by food stamp recipients. Why? Recipients spend from $1.7 to $2.1 billion annually for sugar-sweetened beverages. While alcohol and other unhealthy items are restricted for purchase with stamps, soda stands available.
Government Defense Spending
About the only manufacturing-industrial sector of the American economy left prevailing over all foreign competition is defense. America buys its military hardware almost exclusively from domestic corporations (with a few crumbs tossed to allies like the UK and Israel) and fills the job ranks of the industry, contractors, and military with Americans.
In 2011, the U.S. government spent about $718 billion on defense, including arms sales and transfers to foreign governments. Hardware alone accounted for $128 billion. The total figure does not veterans benefits of $127 billion in 2011, or about 3.5 percent of the federal budget. America’s newest aircraft carrier cost $13 billion, not including development costs.
The Stock Market
The stock market (which set record highs in 2013) is a significant source of wealth in America. Indeed, what could be easier than placing money into an investment and, with no sweat or effort of one’s own, seeing it grow. A rising market lifts the national economy, and a rising tide lifts all boats.
The truth is closer to a rising tide lifts all yachts, as historian Morris Berman observed. Less than half of Americans own any stock at all. The wealthiest five percent of Americans meanwhile hold some 70 percent of all stock.
Bump the “top” group to the wealthiest ten percent of Americans and they own over 80 percent of all stock. At the same time, the lowest 90 percent own the leftover 20 percent.
So Don’t Worry about the Rich
These examples– and there are more– see tax write-offs, use of trusts to limit inheritance tax, offshore banking, large scale real estate (the top ten percent own about 40 percent of America’s land) show that income inequality is not a problem for the rich, and it is not a problem for America’s “economy” per se. The huge concentration of wealth in a small number of hands, and the methods by which those few acquire and maintain their wealth, means that the 99 percent of us edge closer and closer to playing no significant role in the economy anyway. We are becoming merely the collateral damage of income inequality.
Photo of Paul Allen via Wikimedia Commons