Monday, January 03, 2011

Those Who Have The Marbles Make The Rules!

Where did all of the money go? In just a quarter century, Americans generated half of the entire amount made in our country’s history. At the time of the 1976 bicentennial this nation’s promise was confirmed in the 20/80 rule with 20% held by the wealthiest 1% of Americans but 80% distributed among the rest.

Today is puzzling. The wealthiest 1% has expanded its share by 75%. Some say they just worked harder and smarter but really…enough to now hold 35% of all wealth? In fact, conservative vitriol aside, a calm, thoughtful backgrounder is the careful work by NYU economist Edward N. Wolff as published by the Levy Economics Institute showing that 1 in 5 Americans possess 93% of the wealth and the rest of us have 7%.

The current situation doesn’t sound much like the land of opportunity I love. It is naïve to think that this all occurred from working hard and smart and taking risks although those are important.

I think the gap has more do with a theory with which a good friend would console me during each of the times I was turned into “road kill” while standing up for my community in the face of powerful external interests – “he who has the marbles makes the rules.”

I’m a capitalist, a free-market believer and I know from experience the importance of rewarding good talent and performance in the marketplace, but I also know that government “rules” play a significant role in making sure the “playing field is level.”

I also don’t buy that President Obama is bent on redistributing wealth…any more so than the extent to which this country has always done with things like education, roads, school lunch programs, corporate subsidies etc. His words and deeds clearly signal a belief that education, access to opportunity and technology are answers.

In digging down past news summaries and op-ed hyperbole about the wealth issue, I’ve been reading the reports behind the reports and I wasn’t surprised to find out that people right here in Durham or who formerly lived here are some of the excellent resources I’ll be referencing in this blog.

Durham is indeed “where great things happen” but we also struggle with issues of wealth disparity.

The issue isn’t just taxes although it is intriguing, given how much some people bellyache, that the wealthiest bracket of Americans pay a tax rate of 17.17% today compared to 42.4% in 1961.

While taxes constitute only a portion of these “rules” that are supposed to “level the playing field” of opportunity, it would help if more than half of us actually paid any taxes at all or that all products and services were taxed equitably.

Hopefully people who are wealthy don’t just work harder and smarter but they should also proportionately put back into the taxpayer-funded system that in large part underpinned their success.

I like the way multi billionaire Bill Gates and his father think and not so much the miserly way the hugely wealthy founder of Amazon and the current head of Microsoft reacted to a state income tax on income above the first million dollars in income and intended to improve education.

A good, quick read is Free Lunch by Pulitzer-winning, former tax reporter for the New York Times and current Syracuse University law and business professor David Cay Johnston who also writes a column entitled Tax Notes.

Especially after the Supreme Court’s reversal of precedent last year resulted in unlimited and anonymous corporate campaign contributions, there is even more evidence today that the “rules” of the past 30 years betrayed a “level playing field” and fueled instead what a great Republican President, Theodore Roosevelt termed in his day as a “combination of business (corporations) with politics and the judiciary which has done so much to enthrone privilege in the economic world.”

Apparently, I’m not the only American who didn’t perceive the massive shift in wealth. A professor who teaches here in Durham at Duke University, Dan Ariely along with Michael Norton at Harvard conducted an excellent nationwide public opinion survey to reveal both what Americans perceive is the distribution of wealth to be and what we would consider ideal.Percent of Wealth Owned

The chart shown in this blog (click to enlarge) illustrates 1) the actual distribution, 2) what we perceive it to be and then the really positive news, 3) what we think as Americans it should be.

Americans aren’t selfish nor unrealistic. Despite being badly misinformed about the current state of disparity, across all income groups, we tend to agree in general and regardless of ideology or income group on what the disparity should be.

Collectively we perceive that the wealthiest 20% of Americans possess slightly less than 60% of all wealth. Actually, it is in excess of 80%. We pretty much all agree it should ideally be just more than 30%.Percent of Wealth By Income Income and What Would Be Ideal

The issue now is how to reset the “rules” (Wall Street and Healthcare insurance report, passed in the last session of Congress is good start.)

The new Congress has an excellent opportunity to cut waste, reduce or restrain government, increase access to opportunity including technology and reduce the deficit all at the same time.

They can do this by a bipartisan reset of the “rules” including closing all loop holes, dramatically overhauling the tax code and fueling research and innovations in education with the goal of achieving what Americans agree is the ideal distribution of wealth.

Another excellent summary of sources is written by Duke graduate Bill Domhoff, a research professor at the University of California at Santa Cruz. Bill definitely has an ideological perspective but doesn’t dilute his easy-to-read summaries with it.

Unfortunately I haven’t been able to find sources by advocates of the current distribution that go beyond just huffing and puffing or saying “it ain’t so” but we would all do well to heed the warning I included earlier in this post from T.R, who himself was raised in privilege but like Bill Gates by an altruistic father..

A better distribution of wealth can be achieved without entitlements and without forsaking “personal responsibility.” It is the American way.


davidcay said...

Thanks for the kind words.
Two points:
1. I teach at Syracuse University, not Harvard, in the law and graduate business schools.
2. I don't blog, but write a column for Tax Notes, which is sometimes posted later at its companion and free website,

Reyn said...
This comment has been removed by the author.
Reyn said...

Thanks for the clarifications. I've made edits to the blog.