Over breakfast with a client who had a $90 million fortune, I asked a hypothetical question: would it decrease your motivation as an entrepreneur if it were understood that each year people with big incomes would be celebrated and, as if at a potlatch, would give back to the community all but some small multiple of the average family income?
After a forkful of Spanish omelette, he told me, "no, it wouldn't decrease my motivation or my business creativity: what other game would I play?"
As my client knew, a potlatch was a Native American custom in the Northwest, a feast at which prosperous members of the community sought prestige not by having wealth, but by giving it away.
Let's plug in figures for a conservative yield on my client's fortune and for the average family income. Even allowing no deductions at all, he would be giving away the equivalent of an income tax even higher than the 91%* charged under Eisenhower for the biggest incomes. (It's now down to 35% on whatever portion is taxable after the accountants get done.)
The sample size of my breakfast survey was just one, and the respondent was unusual: as a philanthropist, he was already giving some of his fortune away and he had a broad worldview. He took seriously the claim that, above a certain level, money is only a way keeping score.
I thought of his reply when reading the results of a survey of a representative sample of more than 5,000 U.S. residents commissioned by a Michael I. Norton, professor at the Harvard Business School, and Dan Ariely, a colleague at Duke University. They found that the average U.S. citizen radically underestimates the actual U.S. inequality, and regards as ideal even less inequality than he or she mistakenly thinks now prevails.
Here are the figures from their survey:
The gaps here are so extreme as to raise the question: in a country proud of its democracy, how does the top fifth get away with owning 84% of the national wealth? Even more startling, how is the top 1% of people allowed to own nearly 50% of the wealth?
In the last 30 years, since around the start of the 1980s, we have witnessed, apart from the rich, only a "stagnation" of income. So far, this "plateau" has been disguised by more than one member of the household working, by the availability of cheap goods from abroad, and by the magic of inflation (when dollar income rises; but purchasing power does not).
We could find many explanations for toleration of the present disparity, but they probably rely on the "little people" not suffering a noticeable decline in purchasing power. In other words, I suggest that the American dream can tolerate shifting from "will be better off than the prior generation" (rise) to "will be no worse off" (plateau), but perhaps not to "will have notably less" (fall).
After college my first job was teaching assistant in a course on "American character and social structure" given by the social observer David Riesman, author of The Lonely Crowd. We examined the distinction between economic equality of result (claimed by our enemy of that time) and what this country allegedly had or at least sought, which was "equality of opportunity."
Ambition, ingenuity, and hard work would be "rewarded" by whatever money could be extracted from "the free market." As much as possible, we were supposed to have a "level playing field," on which merit and energy would seek to score. People who did well "deserved" everything they got: why should they pay taxes for anything but the military and a few other essentials? Let everything else be "privatized."
According to Erin Currier of the Economic Mobility Project, "There is not equality of opportunity in the way we as a nation imagine there is." In his view, based on research, "the American dream is struggling."
The Motion Picture Academy just gave an Oscar for best documentary to Inside Job, an expose of what its director regards as "systemic corruption" in what is called the "financial services industry." However, most Americans still don't want to inquire too deeply into the financial system, any more than they want to draw conclusions from findings about climate change or the peak of petroleum production.
Yet we continue to barrel ahead despite the prospect of declining global production of oil, and a growing demand for it, and evidence that the price of oil above a certain amount leads to severe recession.
In a previous article I have suggested that revolts in so-called developing countries can be predicted not only by the fraction of educated youth who are unemployed and other factors, but also by the fraction of household budget spent for food. Now we might ask of developed countries: to what extent will voters tolerate extreme inequality if the standard of living of a large majority of them no longer gradually rises or at least seems to remain stable, but actually declines noticeably?
The occasional Ponzi schemer thrown into the joint for a few years might make one think that laws are meaningful, but for every one caught and prosecuted, a hundred or a thousand go on stealing. What's the next bubble? How are they stealing the money today?
If nothing can be done to move the capital from the richest back into the remaining tatters of the economy, what options are left? Roll over and play dead?
Another problem is that raising taxes on the rich right now will not do anything to reduce the stockpile of wealth the super rich accumulated during the Bush years.
Perhaps it is time we learned a lesson from Islam and instead of taxing income, we should tax net worth? If everyone chipped in 2% of their actual net worth this would encourage spending and also be fair.
http://8020vision.com/2011/02/05/what-feeds-a-revolution/
What feeds a revolution?
"...Worth noting: The real US unemployment rate is about 16%, when considering the more comprehensive U6 Rate. The US has the highest income inequality of all the countries considered in the list above. The US ranks with Rwanda and Uganda. For more on that, see the recent 8020 Vision article When Does the Wealth of a Nation Hurt its Wellbeing?
I am glad Blow listed food as one of the metrics to consider. There is a proverb that governments ignore at their peril:
“Lo que separa la civilización de la anarquía son solo siete comidas.”
(Civilization and anarchy are only seven meals apart.)
—Spanish proverb..."
Americans have tolerated loss of:
o jobs
o homes
o retirements
o better future for their children
But they cannot tolerate starvation. That will be the final straw.