Wealth fails to trickle down to the working class

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http://bangornews.com/news/t/viewpoints.aspx?articleid=156462&zoneid=67

John Buell
Wealth fails to trickle down to the lower, working classes
By BDN Staff
Tuesday, November 13, 2007 - Bangor Daily News


Forbes is up to its old tricks. Once again it celebrates the wealthiest among us with its annual Forbes 400. The minimum entry fee for this exclusive club is a net worth of $1.3 billion. Once upon a time, during the hardly socialist era of Reagan#65533;s America, a mere few hundred million would suffice. Any time a leftwing columnist worries about escalating wealth, he or she is accused either of envy or of failing to recognize the benefits everyone derives from the accomplishments of the wealthy elite. There are, however, sound reasons to worry about the causes and consequences of gaping wealth disparities.

When some populists, socialists, and 60s radicals bemoaned what they regarded even then as unacceptable wealth disparities, they met a familiar rejoinder: Even if a socialist government were to confiscate a large portion of these fortunes for redistribution to the poorest third of the population, these sums would not dramatically enhance the circumstances of the poor. An argument of this sort has less power today.

Journalist Holly Sklar points out that the Forbes 400 now has a combined net worth of at least $1.54 trillion, more than a tenth of the nation's Gross National Product. Were even a third of that (circa $500 billion) redistributed to the poorest third of our population in health care, education, public transit services or even reductions in Social Security taxes, etc. it would make an immense positive difference in their lives.

No one, even on the left, is proposing such a vast transfer. Nonetheless, arguments that most of the rest of us have benefited from the gains made at the top are problematic. Edward Wolff of New York University points out that between 1983 and 2004, the average wealth of the top 1 percent of households grew by 78 percent, while the bottom 40 percent lost 59 percent. The benefits of wealth accumulation have failed to trickle down.

One consequence of the economic distress of those at the bottom is that if the basic social services on which equality of opportunity is based are to be funded adequately, sources other than taxing poor and working-class income must be found. And borrowing against future generations has its limits.

Liberal Democrats advocate repeal of Bush-era tax cuts, which have disproportionately benefited the wealthy. Since our total tax structure, including Social Security taxes and state and local income and sales tax, has become much less progressive over time, such a change is long overdue.

Though polls suggest American citizens would support such reforms now, many working-class Americans still shrug off or even resist any tax increase. They assume that they too will become rich, either by working hard or developing a new product or just through luck. Call it Powerball politics.

Some might change their minds if commentators, even those on the left, did more to remind citizens that many of today's wealthiest did not, as the Smith Barney ad used to say, "Make money the old fashioned way, they earned it." Behind many of today's great fortunes lie abuses of power and privilege by those already well placed. In addition, not only have these actions failed to bring the poor and working class along, they have contributed to their problems.

Sklar points out that much of today's great wealth comes from Wall Street speculation. The current difficulties in the subprime mortgage market are symptomatic of larger pathologies. Guardian (London) business writer Will Hutton points out: "lending 100 percent mortgages to borrowers with no income, employment or assets, packaging up the resulting debt and selling it to banks around the globe while taking a handsome fee on every transaction can be launched with impunity."

Conflicts of interest and abuse of insider information taint the entire system. The firms issuing the new securities pay the purportedly impartial rating agencies, Moody#65533;s and Standard and Poor. The Bush administration touts the freedom to create these new exotic financial instruments. Nonetheless, when the whole system eventually starts to implode, the same insiders who once demanded freedom from government beg the Federal Reserve to opens the discount window to keep big financial houses from failing.

Federal bailouts, either through Fed interest rate cuts or direct subsidies, have allowed the big investment banks to escape the emerging markets and long-term capital management debacles of the 90s only to plunge the U.S. economy into a tech stock bubble and now a housing bubble. The biggest financial players not only escape but also often prosper. Many manipulated borrowers, investors who don't manage or own elite firms, or simply aren't privy to inside information lose their houses and other assets. High tech and housing markets are overbuilt and then subject to equally extreme retrenchment.

The Fed should take the risk of economic collapse seriously, but the underlying sources of both our vast inequalities and our dangerous market volatility need attention from federal regulators. Otherwise, taxpayers and ordinary citizens not only won't become rich. They are going to continually bear the brunt of saving financial Goliaths from the messes they create.

John Buell is a political economist who lives in Southwest Harbor. Readers may contact him at jbuell@acadia.net

[TheArtist]

It does appear that speculators in the housing market and perhaps some bad mortgage practices could use some sort of regulatory scrutiny. However I dont see that as the sole or a primary reason for income disparity or failure for "wealth to trickle down to the working class".  

Just out of curiosity. In what form do these billionairs have their fortunes? Is it in a bank collecting interest or stuffed in a mattress? I seriously doubt it. They dont actually "have" that money at hand, in their wallets per say. Its often invested in businesses, businesses that employ people, businesses that the average person can also buy shares of. Say the person does "cash in" and purchase something other than more shares. Whatever they purchase is made by workers who earn a living because they make and sell what is being made. If your the wood cabinet maker for a yatch, you will not complain that they are spending that money for you to earn a living. If you are laying the tile in a huge mansion, your family is not going to complain that they have that income that came from those stocks that that wealthy person sold. Afterwards that house and that yatch just sit there and the wealthy person pays taxes on them. "whether its enough taxes can be debated" But its still just a "thing" that sits there. The wealth that created it has indeed filtered out into the world. There is no value on it other than what we place on it. A boats a boat a roofs a roof, but one can pay a lot more people to build than another and a lot more property taxes etc.

Basically a wealthy person "circulates" a lot more money than a poor person and has more influence on where that money circulates.

If you have a good education and a decent job you can live quite well. You arent walking down the hallway in your house, sitting in your living room, any differently than a billionair. And can be just as happy doing so. The food you eat doesnt have to be any less healthy or less enjoyable than theirs. If their coffe table cost 50,000 dollars and yours 500, well the person who made and sold that 50,000 dollar coffe table will be able to spend more than the person who made and sold the 500 dollar table. Both ways it goes from the stock "the part of a company that enables people to be employed" back into the economy "employs different people".

One concern right off is, medical bills. If the poorer person gets sick, the wealthy person can still have a roof and food whereas even the average person may lose theirs. The cost of and adequacy of medical coverage is definitely an issue.

The other thing is obviously those who do not have an adequate education and a good job and thus can not do work that pays enough to have enough food and shelter security, and also through their numbers in a city or area create a lack of wealth so that those working at low-tech, basic, or menial jobs do not pay as much. Dirt is cheap because there is so much of it, if dirt were rare, it would cost more. If most people were highly educated, then even the trash man or the person at Mc Donalds would earn much more for several reasons. Knowledge is the one resource that is limitless in its demand and potential.  So adequate education is also an issue.