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Inequality: Fair or Foul?

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Inequality is fast becoming the issue of our times, as more and more reports appear about widening income and wealth distribution between the wealthy and the poor. It seems, however, that some don’t agree with the reports or deny their significance in our lives. There is a minefield of numbers and conflicting data, but can we simplify the numbers and use basic statistics to illustrate that inequality is rising? Can we use readily available, reliable sources to do the math ourselves and bypass the partisan hyperbole that pits one versus another in increasingly caustic terms? In the name of liberty, one hopes so.

In the Customer Reviews section on Amazon.com for French economist Thomas Picketty’s recently published Capital in the Twentieth Century, one can see the skewed accounts firsthand, where almost 300 reviewers gave it a 5-star rating, 160 a 1-star rating, while under 100 rated it 2, 3, or 4 (as of June 3). Clearly, the bimodal rating is not a true indication of the merits of the book, but indicate differing world views of the readers (or planted reviewers): the citizen whose idea of liberty rests in a shared collective versus the Libertarian-fuelled individual solely in charge of his or her world. It’s Karl Marx versus Ayn Rand in a 10-round, knock-down brawl.

Rob Urie especially noted the vitriol directed at Piketty, commenting that “A profoundly misguided and tedious bit of social misdirection was unleashed” by The Financial Times about alleged errors in Picketty’s research. The FT article (May 24) suggests Piketty got his sums wrong about how inequality is returning to pre-World War I levels. It blames transcription errors in his spreadsheets, not unlike the recent pro-debt contraction work of economists Carmen Reinhart and Kenneth Rogoff, who underestimated the debt percentage at which a country will implode, and hence encouraged pro-austerity budgets. It seems that both sides of the divide are having trouble with the math.

How about former Secretary of Labor Robert Reich’s sums? As a top advisor in Bill Clinton’s government in charge of the Bureau of Labor Statistics, he should know the numbers. He notes that in 1978 the typical male worker made $45,302 and the top 1% earner made $393,682, but by 2010, the typical male worker made $33,751 while the top earner made $1,101,089 (a 26% decrease and 180% increase!). He further noted that the top 400 in the U.S. is now equal to one half of the population. He’s not making up these numbers, although to hear some it’s as if the devil himself had spoken.

In his recent movie, Inequality For All, Reich further adds that we need to take big money out of politics to correct the imbalance and start playing by fairer rules to return equal opportunity to every citizen, his stated cornerstone of the American Way. Is this also crazy talk from one who was raised on the Constitution?

Nonetheless, can we find our own data to analyze the claims for ourselves, to create our own informed view, without having to rely on others? In a world of conflicting accounts can we go to the reliable source?

The United Nations University World Income Inequality Database (WIID) has compiled their data source from numerous separate references and is easily accessible to view or download. Here, the numbers pop out immediately about unequal U.S. income distribution between the bottom 10% (D1 decile) and the top 10% (D10 decile). From 1974 to 2000 (the time range of their data), the bottom 10% decreased from 1.86% to 1.81%, while the top 10% increased from 26.3% to 29.0%. No intermediary with an axe to grind has washed these numbers.

Data are also available for numerous other countries. In the U.K, the change in income to the top 10% since 1979 is mind boggling (Margaret Thatcher was elected in May 1979). From 1979 to 2002, the income for the top 10% in the U.K. rose almost 14% (from 20.4% to 27.7%), while income decreased to the lowest 10% by a staggering 32.6% (from 4.23% to 2.85%).

It’s all there in black and white. The rich are getting richer, relatively speaking in terms of income distribution from the U.S. to the U.K., or if one cares to do the simple sums, from Albania to Zimbabwe.

At the same time, the American finance industry has grown at the expense of home-grown manufacturing. According to the U.S. Department of Commerce Bureau of Economic Analysis, where data is also easily available, the finance industry continues to benefit in an increasingly unequal economy, making excess profits for the few while costing jobs to the many.

Given the corresponding social costs of economic inequality and lost jobs, could it be that too much of our economy has to do with money? It’s not exactly 1% versus 99%, but it should be no surprise that the top 1% owns one third of all wealth in the U.S., while the top 1% owns two thirds in the U.K. By any measure, wealth distribution is horribly skewed.

Of course, economic data can seem devious or cooked. In The Merchant of Venice as Antonio says to Bassanio about the ever crafty Shylock, “The devil can quote Scripture for his purpose.” Indeed, whose numbers do we believe? Aren’t there numbers to fit any bias?

In Do The Math: On Growth, Greed, and Strategic Thinking, I have looked at some examples outside of traditional economics to try to quantify inequality, from sports leagues to pop music to changing demographics. I wanted to show as easily as I could whether the world is becoming more or less fair and whether everyday living is becoming overly monetized.

Sports seem a perfect place to start, every armchair statistician’s favourite world of data. Can we predict the future from the past to show who will win tomorrow’s game (perhaps throwing down a bet to prove our predictive prowess)? Does the point difference between the top and bottom teams from one year to the next quantify the fairness of a league beyond our intuition? Do all teams stand a fair chance of winning year in and year out?

Sports are supposed to be fair. One year, the Yankees win and thanks to reverse-order player drafts, profit sharing, and salary caps, the next year the Brewers win. It doesn’t matter the different market base between New York and Milwaukee, fairness in American sports is sacrosanct. If sports were to become a bidding war for talent, however, only the moneyed teams would win, anathema to that basic idea of fairness.

It is odd that in the most unconstrained economy in the world fairness in sports is sacrosanct as if to appease the masses who might otherwise rebel, but alas even this hallowed egalitarian model is being undermined in the era of near trillion dollar television deals. Indeed, with the recent signings of Masahiro Tanaka by the Yankees and Yu Darvish by the Texas Rangers (the current top two ERA pitchers in the American League), the demise of professional baseball has begun, not to mention the Yankees routinely flouting the salary cap in recent years. Excessive money is starting to rule the baseball roost.

Indeed, the difference in winning percentages between the top and bottom teams in the four major North American professional sports leagues over the last 50 years illustrates how inequality grows when sports is run solely as a business (witness the disastrously unequal football leagues of Europe since the advent of the Champions League). All one has to do is collect the numbers, readily available to download from any league website, and the numbers pop out. For example, it is easy to see that the NBA is the most unequal North American sports league and that the English Premiership is the most unequal European football league. Is this the way of all future sports?

DTM-NBA

DTM-EPL

NBA and EPL (1961–2010): Highest winning percentage (top curve), lowest winning percentage (bottom curve), and absolute deviation with trend line (middle dashed curve)

Of course, the harder part is to explain why. To me, it is as old as the hills: me versus us, a skewed idea of I and thou, selfish schoolyard individualism versus more mature shared relationships with others. In short, Libertarian Social Darwinism run amok since the pioneering days of “Go West, Young Man.” But didn’t we hit the limits of our Manifest Destiny ages ago?

Such “me-first” ideals are highly seductive though, when lumped in with Libertarian personal issues, such as drug use and sexual practice, all fine as long as one doesn’t harm others by their actions. Personal taste cannot be dictated, and here Ayn Rand and Co are right to demand selfhood without outside interference or government control.

With money, however, such rugged individualism fails. Taxes, welfare, subsidies, trade barriers on the scale of nations require regulation, if only to organize our many individual efforts. Not to mention biased control of the national money levers that make it impossible to act without impacting others. Money is like water – it always seeks its own level regardless of the obstacles – and thus fair controls are essential. Just like a fair baseball league. Who will stop insider trading in a perfect Libertarian world?

One can start with Alan Greenspan to mark our current me-first money world. Although a friend of Rand’s from their “Collective” days in New York (she showed up at his 1974 White House CEA chairmanship swearing-in), she eventually disowned him for his meddling in the supposed “free-market” economy. Alas, he didn’t meddle for all, but first most on behalf of the money men, ensuring that derivatives weren’t properly regulated, considered by many to be the tipping point to the 2007 meltdown. His policies more than any added to the wealth for the few at the expense of fair living standards for the many.

But why are Americans so blinded by wealth? Perhaps, because of an irrational fear of communism, the United States must err excessively in favour of the individual. So afraid of the red bogey man who will take away my freedoms, I build walls to ensure my own world whatever the cost to others. Like Howard Roark I tear down the shared commons, before it tears me down. Perhaps this was the pioneering way, where my will, my world, was ever boundless.

But the world is not boundless. The self cannot trump the group or the collective, with money dictating all. Here, we are in philosophical ground, where Albert Camus is a better guide than Ayn Rand to remind us of our duty. Camus was every bit as critical as Rand about the ills and errors of communism and putting government levers in the hands of the unelected elite. His simple and elegant knock against the Soviet Union was that you cannot win freedom by first enslaving.

In The Rebel, Camus also reminded us of our duty to say “no,” not for the sake of rebelling or culture jamming, but because saying “no” ensures our freedom. In an always switched-on consumerist society, the citizen rebel says “no” to obsessive selling, “no” to materialist one-upmanship masquerading as progress, “no” to slavery and debt, “no” to laziness that lets the powerful define my needs. We must always examine the fallacies in our lives and remember that the devil has no power, only lies. Money and markets are not the only measures in our lives.

Can we stop inequality and imbibe our world with renewed hope? Sure. Stop consuming. Don’t eat at McDonalds. Don’t shop at Wall-Mart. Cycle to work or take the bus. Say no to every market force that reduces one to an object and says that money is the only measure.

When I was young, and the department store catalogue would arrive at the door, I used to tink that possessions marked a plentiful life as I flipped through the pages in foggy youthful delight. Of course, as I got older, I had to prioritize my life to what I needed and could afford. But imagine if I could buy the whole catalogue with a wave of a finger as the economically unchallenged 1% among us surely can. All would be lost, not won, because my will is no longer a measure of my needs, but an empty Faustian expression of my wants. I certainly don’t need all that is in the catalogue nor should I ever want it. My life is not a collection of things.

Fairness matters for democracy. Equality matters for liberty. Balance matters for my soul. In a just world we decide our futures by a show of hands not by a show of bank accounts. Alas, inequality has become the foulest of modern ailments, ruinous for all.

JOHN K. WHITE, an adjunct lecturer in the School of Physics, University College Dublin, and author of Do The Math!: On Growth, Greed, and Strategic Thinking (Sage, 2013). Do The Math! is also available in a Kindle edition. He can be reached at: john.white@ucd.ie.

John K. White, an adjunct lecturer in the School of Physics, University College Dublin, and author of Do The Math!: On Growth, Greed, and Strategic Thinking (Sage, 2013). Do The Math! is also available in a Kindle edition. He can be reached at: john.white@ucd.ie.

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