In American politics, there are certain taboo subjects that rile up the masses and earn some people the label of un-American. If someone criticizes the second amendment, and calls for increased gun control, he is un-American. If someone says that the defense budget is bloated and needs to be trimmed, she is un-American. But one of the most toxic subjects in American politics that the right and even the left try to avoid, or brush over, is the topic of wealth distribution.
The redistribution of wealth. Just the sound of it makes politicians quiver. A sure way to earn one the title of Socialist, or un-American. Even with wealth inequality higher than pre-Great Depression levels, there is still a stigma that comes with the idea of distributing wealth to create a more equal and stable society.
This is not to say that inequality is not on everyones mind. Since the Occupy Movement and the release of Thomas Piketty’s best selling book, Capital In The Twenty-first Century, the reality of domestic and global inequality has been impossible to ignore. Last year, a report came out that the wealthiest 85 people in the world own as much as the poorest 3.5 billion people. No matter who you are, this is an astonishing fact, and a recent Pew poll revealed that a healthy majority in the United States believes that inequality is indeed a problem. Forty-six percent see it as a “very big problem” and thirty-two percent as “moderately big problem,” creating a seventy-eight percent majority.
Why this great inequality exists, however, is the cause of great partisan divide. According to Pew polls, the majority of Republicans (39%) believe it is simply a case of some people working harder than others, while the majority of Democrats are split between our educational system (20%) and our governments economic policies (20%). The majority of Independents believe it is because of our governments economic policies (25%), but a great percentage see it as some people working harder than others (23%).
Of course, it is not simply one thing that causes this great disparity, but a mixture of things. However, it is safe to say that Democrats have more of a grasp of these causes. The major factors of inequality in America no doubt have to do with government economic policies and the financialization that came with the rise of neoliberalism in the 1980’s. This is what happens when there is more “financial innovation” than actual innovation.
In Piketty’s book, he explains two crucial factors that influence wealth inequality. The rate of return on capital and the growth rate of economic output. In a capitalist system, the rate of return is generally higher than economic growth, which creates inequality. During the first half of the twentieth century, however, global economic growth actually overtook rate of return on capital, and by 1950 the growth rate was almost four percent, while the rate of return was closer to three percent. Since 1950, the growth rate has fallen to just over three percent, while the rate of return is now about four percent, trading places.
Predictably, with the drop in growth and increase in capital returns, inequality has jumped to new heights. This is not surprising. Historically, the rate of return has always been higher than output growth. The first half of the twentieth century was more of a historical anomaly, contributed to things like capital destruction during the world wars and government intervention. There is no reason to expect a return to mid-twentieth century levels. Indeed, predictions estimate that output growth will continue to drop, while rate of return on capital will continue to grow, creating further wealth inequality for the future. This is especially true if governments decide not to intervene.
We’re All Neoliberal’s Now...
During the 1970’s, there was a global shift in philosophy. In 1971, Richard Nixon famously said, “We’re all Keynesians now,” but by the 1980’s, Reagan and Thatcher were in office, embracing the neoliberal philosophy of Milton Friedman and F.A. Hayek. The crisis of stagflation had given the free market economists a perfect excuse to alter the philosophy of many. Suddenly, the free market was the only solution that could save the global economy from ruin. Keynesianism had failed.
This coincided with the popular backlash against the “redistribution of wealth.” “Welfare Queen” was added to the American lexicon as the great demagogue Reagan villainized those greedy mothers, telling stories about a woman driving a cadillac and making $150,000 a year. While this woman, Linda Taylor, was real, he greatly exaggerated how much she made and used this anecdotal story to make it seem as if every welfare recipient was prepared to cheat the system.
In reality, welfare fraud is not particularly higher than fraud in other industries. Eric Schnurer, president of public-policy consulting firm Public Works LLC, wrote in The Atlantic, “The problem with fraud isn’t government programs or beneficiaries. Its that fraud losses are a part of doing business in just about everything.” Fraud happens, and cutting welfare for the needy will not stop the slim minority who commit it, as in other industries.
Another misconception is the belief that people who receive welfare do not work and that it is an incentive for them not to get a job. On the Supplemental Nutrition Assistance Program (Food Stamps), the Center on Budget and Policy Priorities wrote that “more than half of able-bodied adults in households with children receiving SNAP work while receiving assistance, and some 87 percent worked in the prior year or will work in the subsequent year.”
Single mothers, who conservatives just love to attack, only make up a slim amount of the people who receive welfare benefits from the government. The Washington Post has reported that in 2010, 53% of entitlement recipients went to the elderly, 20% to disabled, and 18% to a working household (non-elderly, non-disabled). This leaves about nine percent for people like single mothers or the unemployed.
These sort of realities did not stop conservatives like Reagan from going after those greedy poor people and union members, while slashing top tax rates for the wealthy and deregulating the financial market; something that Clinton continued in the 90’s. In the alternate universe of neoliberalism, which effected both Republican’s and Democrat’s during the end of the twentieth century, it was not the fraud committed by Wall Street, but the fraud committed by these mythical welfare queens that needed to be stopped.
Welfare Kings...
Not only did the government crack down on the poor during the last few decades, it also started supporting the wealthy more than ever. Today, it has been estimated that the average American family pays $6,000 a year in corporate welfare, which includes direct subsidies and grants, corporate tax subsidies, and interest rate subsidies for banks.
The big difference between corporations receiving subsidies and tax breaks and the poor receiving food stamps is, of course, money. People who survive on Food Stamps do not have money to buy lobbyists and contribute thousands of dollars to their political leaders. No wonder the fossil fuel industry still receives billions in antiquated tax breaks and indirect subsidies.
And yet, the stigma of wealth distribution always seems to land on the back of the poor. The takers. If a politician is accused of wanting to redistribute wealth, he or she will deny it and say they’ve been misinterpreted. Why is downward wealth distribution so much more hated in this country than the upward distribution that has helped create such inequality?
It seems that propaganda and misconceptions are at the heart of it. Wealth inequality is at an all time high and nobody can deny this. This reality is not because of some strange event that has occurred over the past thirty years; it is the natural result of free market, crony capitalism. The attacks on all forms of downward wealth distribution and the elimination of important regulations have created an extreme society of haves and have-nots.
It should not be this way. Wealth inequality causes great instability and also makes it impossible for equal opportunity, one of the foundations of American philosophy. The redistribution of wealth does not cause mass laziness, as Republicans claim. It creates a fairer and more stable society with a flourishing middle class. America came close to having this type of society for many decades in the mid-twentieth century, while the top income tax hovered over seventy percent and even over ninety. Unsurprisingly, this period of high marginal income tax coincided with economic growth and innovation.
Redistribution of wealth should not be a dirty term. It is the framework of a society where every citizen has the opportunity to make it, and where one need not worry about falling into poverty when hard times come around. It is time to put the maker and taker and welfare queen myths to rest, and help reignite the middle class that once made this country great.