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What’s Really So Unequal?

The Liberals’ Class Problem

by GEOFFREY McDONALD

The rich get richer, the poor get poorer – that’s hardly a secret in America today. It forms the subject of political debates, speeches by economists, stories on the evening news, and protests in the streets. Everyone seems to agree that it’s one big social problem – from the Occupy movement which made the slogan about the 99% and the 1% into household words to President Obama with his pledge to revive a “disappearing middle class.” If such different political standpoints criticize the growth of economic inequality, isn’t it time to take a closer look at what is meant by this complaint? If even the Commander in Chief can join the chorus, it’s clear that this isn’t just another way of talking about the class war from above.

A “Responsible” Criticism

When liberals – in America today, called “the left” – complain about inequality, they are very careful to say they are not calling for an equalization of incomes or an equal distribution of wealth or anything like that. According to them, some degree of inequality is only reasonable – different income levels provide the incentives people need to work hard, for companies to innovate, and for this best of all economic systems to grow. But when looking at the numbers showing a very few getting very rich while most barely get by, they see an injustice: people are not earning what they deserve. The “widening wealth gap” signals something amiss in paradise.

When liberals see inequality as a problem, they not only point out that they do not want to be confused with wild-eyed socialists who would level all incomes; they also reject any connection between inequality and capitalism. The Nobel prize winning economist Joseph Stiglitz, for example, points out that while other countries may also be market economies, they are not as radically unequal as the USA. This may well be true, but by treating inequality as an aberration from an otherwise beneficent economic system, he assumes that inequality does not fit with it. In the liberal view, true responsibility for inequality lies with government, which either has the wrong tax policies, bad regulations, or does not provide enough opportunities – criticisms which all aim at the overseer of the economy, while leaving the economy itself untouched.

In other words, these critics of inequality object to an economic outcome, but take for granted all kinds of economic realities – in the first place, the existence of a group of people who have so much money that they use it make more money and a group of people who have nothing but their ability to work. Their objection to inequality is that there is simply too much of it. So it must be asked: what amount of rich and poor would they find unobjectionable? What would be a fair balance between poverty and wealth?

Misunderstanding the Nature of Wealth

Liberal critics of inequality look at the composition of wealth in capitalism as if it were shares of a total. Their theory is that extremes of wealth and poverty come from dividing up a pot – or, in one of their favorite images, a pie. Pie charts are a particularly useful pedagogical device for their purposes because they are so disarmingly persuasive. In a “viral” You Tube video on “Wealth Inequality in America” (http://www.youtube.com/watch?v=QPKKQnijnsM&list=TLrlSWMBQCPl8), a series of pie charts shows the discrepancy between “real inequality” and “perceived inequality” in the US. When noticing this contrast, the narrator never fails to mention how much inequality he would be ready to accept; he has no problem with rich and poor, “but,” he asks, “that much?”

The first big basic mistake of these critics is that they misunderstand the nature of wealth in this society – or, to be less charitable, they are willfully ignorant of it. Wealth is not a pie or a community chest (pick your metaphor) which is divvied up. It is, first of all, private property. Of course, nobody would deny that the Hamptons mansion or stock portfolio of a billionaire is private property. But when getting upset about inequality, these critics imagine them as parts of a community chest. In reality, of course, people don’t produce a common good and then get asked: who deserves what?

Ignoring Differences in the Sources of Income

In talking about the quantitative distribution of wealth or income, it first needs to be pointed out that inequality is based on a qualitative difference. Does a person earn money by owning a factory or by working in one? Inequality results from the different sources of income. The difference is not just in the amount of money, but how one gets this money. By treating all incomes as differing simply in quantity, they are also treated as qualitatively the same. This is a lie.

What does the compensation package of a CEO have in common with the wage of a worker? Business supporters will be quick to point out that CEOs also work hard, as their high number of heart attacks attest. But what do CEOs get paid for? They organize the labor of others as profitably and cost-effectively as possible – meaning, to get lots of hard work for low pay. CEOs get paid so handsomely because they are agents of an economic goal – profit – which they themselves benefit from. By contrast, the worker’s wage depends on them carrying out this profitable labor. In fact, the worker has to make the rich richer in order to have any income at all. It’s a quantum leap to pretend these two types of income could get along well together, if only one were paid less and the other more!

By extension, if these two conflicting sources of income – wages and profits – are treated as merely quantitatively different, they are also, like all quantities, reconcilable. In this way, the antagonism between rich and poor is first noticed, then denounced as unfair, but then finally brushed aside.

How “Who Earns How Much” Comes About

What are the critics of inequality getting so upset about, then? They look at the income statistics and can’t find their ideal of justice in them: that people get out of the economy as much as they put into it. What is wrong with the idea that how much you earn is factored by how much your effort contributes? Quite simply, there is no correlation. Caring for children, being a nurse or a doctor, a professor, a worker in a factory – these are all qualitatively different activities that give no indication for characterizing what it means to “work hard” or justifying their different earnings. Different jobs, different tasks – they have nothing in common except they are paid money, and then they are paid differently. Nothing about the activities themselves reveals what would explain the differences in income. Why should a teacher get more or less than a nurse? And so on.

The general mistake is the image of a collective pie to which the different occupations are a contribution; that is, a division of labor consisting of different functions needed by a community. But if this image were taken seriously, nobody would ever say: this job is less important than any other. A nurse is as important as a surgeon. That’s no argument to distinguish between different incomes. It’s a contradiction to imagine the hierarchy of jobs as a division of labor in which each person works for the community’s well-being and then ask: is this job more valuable than another? It’s also a curious moral principle that claims: if someone contributes a lot, they should be entitled to get a bigger share.

There are many popular beliefs about why some people earn more or less money than others, but there’s no objective basis to any of them. It is said that, e.g., a surgeon is entitled to earn more because of “education.” But what determines the value of education? Simply the income that one earns after the education is finished; in other words, how well one succeeds in the wild free-for-all that is the labor market What an education is worth is interpreted back into the division of labor based on one’s success (or not) in the competition with everyone else. No better argument is ever made for the differences in “who earns how much.” One just grasps at justifications, such as the “risks” taken by those who invest their money. But what are they risking? Their livelihoods or their assets? It’s the same with “responsibility.” Are they responsible for people in a hospital or a pension fund?

Size Matters

The starting point for the criticism of inequality is that effort should pay off. And the greater the effort, the better the reward. But this alleged principle of capitalism is observed only in the breach. A popular variant of this is: “they don’t work that hard, why should they get that much?” – a gripe made more often about union workers or public sector employees than the 1%. But what decides whether work or effort is decently rewarded or not? Quite simply, one’s share in the wealth of this society is decided by the power of one’s weapon in the competition over private property. Some people let their capital “work” for them. Other people work a lot and earn very little – that’s their source of income. This defines classes.

As we saw, the liberal critics of inequality happily accept some degree of inequality, based on the ideal that one receives according to one’s effort. They look at all the income-generating activities as contributions to the society – as if we’re all part of a community and then we sort out these activities. Those who earn such shockingly huge sums supposedly make their contribution – maybe overcompensated, but still – by allowing others a chance to earn a living at all. This justification is so taken for granted that it is seen as only fair that “job creators” earn more because they perform this noble service. This turns the subordination of one class to the enrichment of another into a service for them.

Liberal critics of inequality always talk about the reality of capitalist society, but in this upside-down way. They never criticize private property or the competition over it, but see these as good things for producing this nice type of wealth. They only start criticizing when it is not distributed more fairly. They turn a blind eye to the fact that the “rich getting richer” is the goal of all economic policy and activity. They prefer to see it as just a decent thing that is needed so that a company can “give people jobs.” It’s all wonderfully moral. Unfortunately, it’s an ideology based on a fiction.

At Home in Class Society

Liberal critics of inequality insist on their moral ideal – you get out what you put in – which is far from the truth of this economy. They perceive the gap between their ideal and the reality, but willfully ignore that this economy is a competition over private property, characterized by relations of dependency, subordination and antagonism. They insist on viewing it as a community, even though they are constantly struck by the fact that it doesn’t act like a community. So they are left with their timid plea: “ultimately, doesn’t justice demand …?” It really must be insisted back at them: the rich getting richer and the poor getting poorer is really nothing to wonder at. It’s the very condition under which we work and live.

Geoffrey McDonald is an editor of  Ruthless Criticism.