The economic data didn’t come in at the same time, but they might as well have done, in terms of political impact. We have in the past five years seen a reduction in real income to the American working class. Simultaneously, we have seen an increase in the share of national income flowing to the wealthiest five percent. The figures of course need refining, but they are there as tinder for those who want to doubt the pretensions of the free market, or else to heighten political means of interfering with its allocations.
Begin with what seems the most arrant locus of capitalist favoritism, the rich. The figures suggest that the richest 20 percent of Americans own about 74 percent of the wealth of the nation.
The shock of this datum is mitigated by an argumentum ad absurdum. Suppose that that figure rose to 100 percent? That would mean that the richest owned everything. But that would also mean that no one but the rich owned so much as the clothes on their backs, let alone a car, or a house.
That is, as conceded, an argumentum ad absurdum, but it is instructive. If a country is productive, its gross domestic product is distributed. That much of it as is distributed to men and women who don’t need to spend it in order to live heads for capital accounts. If John Jones has a billion in assets, most of it has to reside somewhere. If it isn’t bankrolling a new skyscraper, with funds going out every day for wages and for the purchase of concrete, it is residing in banks or is invested in equities or bonds. An increase in the value of such portfolios does not suggest that the capital is comatose — on the contrary, the people who invested the money had it in mind to magnify its size — which means that it is being used to finance economic activity. If the wealth of the country were funneled into gold bullion, there would then be stagnation, but this is not conspicuously happening in the U.S. economy, and there is no reason for it to happen unless inflation inundates us, which isn’t happening.
In the short term, the rich get richer, barring national catastrophes. If a couple puts unrequired money away into savings, these will accumulate interest. Which interest accumulates more interest–and so on. There are natural limits to most such accumulations. John D. Rockefeller had a number of children, and they had a number of children, and after four or five generations, you can conceptualize a Rockefeller of relatively modest means, given the attritions of time and fecundity.
But the whole idea of capitalism is that as surpluses engender an increase in wealth, they must bring on an increase in the income of the non-rich. The snarl about the rich getting richer evolves, in the language of derogation, as: the rich getting richer at the expense of the poor.
This can happen, and probably did so in pre-revolutionary France, though in fact it did not happen in pre-revolutionary Russia. The only means by which the rich can get richer at the expense of the poor is by the exercise of extortionary powers. This is done by the use of government authority, by the exercise of monopoly power, and by controlling the single element of economic production that can’t be enlarged, namely, land.
What could account for the reduction in real average income by the lowest quintile of Americans? The likeliest explanation is the traditional lag between a rise in productivity and a rise in wages. Such lags are historically moderate and temporary, but they are affected by a number of extraneous factors, some of which are unquestionably at work in America. Labor unions have diminished in power, but the consequences of their high moments reach back vengefully. The UAW got huge benefits for its members, but after paying $36 per hour to many workers who were substantially idle, the car makers have started–closing down.
Longevity is of course a factor. The longer we live, the longer the time we spend idle. If Social Security began today at an age that corresponded, in terms of average longevity, with the age at which Americans stopped working in 1936, tens of millions of Americans would be underground before they even started collecting Social Security.
The political moral of all of which is: Don’t get overexcited about the market. It is doing its work.