Fair Distribution: Ending the Wealth Gap

Tax cuts in 2006 gave 70 percent of their benefits to the top 5 percent of Americans

The growth-centered nature of our world economy is relatively new. For most of human history, growth has been slow and almost stagnant. Over the last 200 years (essentially since the invention of fossil-fuel driven machines) that has changed significantly and our growth has largely benefited us: increased our health and means. That is, until sometime between the 1950s and the 1980s when growth become uneconomic and actually harmful to our happiness.

Today, most of that “economic” growth now goes to the Liquidating Class, the top 1 percent of our economy. According to some Northwestern University economists quoted in Bill McKibben‘s book Deep Economy, “the top 1 percent of wage earners ‘captured far more of the real national gain in income than did the bottom 50 percent'” between 1997 and 2001.

Brian Czech notes, “approximately 62 percent of the annual increase in American wealth goes to the one percent of Americans whose per capita net worth is already greater than¬†$2.35 million… as much as [wealth] that [is] owned by the bottom 90 percent of the population!” (Shoveling Fuel…)

Tax cuts in 2006 gave 70 percent of their benefits to the top 5 percent of Americans, while only about 6.5 percent landed in the pockets of the bottom 80 percent. This isn’t what we want: 84 percent of Americans have the desire to have incomes in the top 20 percent. Neither of these distributions are sustainable. (McKibben, Deep Economy)

This difference in income creates a vast inequality in wealth distribution. Current US corporate income inequality is up to a factor of 500! That means the CEO of a company is receiving 500 times that of the lowest man on the pole. Is that CEO really worth 500 people? The military has, for quite some time, capped this range in salary at a factor of ten to twenty and they seem to be doing just fine. (Daly, A Steady State Economy)

In the United States we have a mandated minimum wages (although the federal minimum wage has not been increased in a long time). However, there is also an unfortunate belief in the US (and most of the world) that wealth can grow without limit. We do have a limit, though, our ecosystem is finite. Besides, do we really want 90% of the wealth in the hands of one or a few? This sounds like a feudal system, not a democracy.

So what is the proper factor? Herman Daly suggests if nothing else to start at a factor of one hundred, as the “bonds of community break at or before” this point.¬† The ultimate goal would be moving from there to a more realistic factor like twenty, fifteen, and then eventually even ten. At these numbers the wage inequality is justifiably for experience, education, and responsibility differences from those at the top and those at the bottom. (Daly, Beyond Growth)

This limit to minimum and maximum wage will do one thing that our current growth-centered economy claims to do but fails to truly deliver: raising the poor out of poverty. Instead of a “trickle down” effect we mistakenly believe works, we will have a “lift up” effect. For example, say you run a company and want to make $1 million a year, at a factor of ten you must pay your lowest worker must be paid at least $100,000 or at a factor of 20 that same worker is paid $50,000, and so forth. Our current system pays that worker $2000 a year – while the CEO earns $1 million a year!

Minnesota Congressman Martin Sabo proposed the “Income Equity Act” which would limit tax deductions on executives whose salaries no more than 25 times the lowest paid worker. (Daly, Beyond Growth) This is a step in the right direction. Policies similar to this will improve the general well being of all without removing our ability to move up, self-actualize, or enjoy ourselves. We simply remove the ability to own more houses than you can count or multiple private jets. These are far from sacrifices.

The concept of fair distribution in a steady state economy encompasses more than just income inequality. Policies reforming taxes, creating a minimum income, placing taxes on resource extraction instead of subsidies, and altering our standard work week to a livable pace are all issues also included in the topic of fair distribution. These will be included in future posts of this series. I also encourage you to read more at The Center for the Advancement of a Steady State Economy’s (CASSE) website.

14 thoughts on “Fair Distribution: Ending the Wealth Gap”

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  3. Setting a minimum wage factor of 10 in such corporations which have a skilled CEO making 2 million per year will NOT redistribute wealth at all. At 200,000 for the lowest paid employee those jobs can easily be automated for far less or outsourced overseas. If outsourcing is banned, such entrepreneurs will simply leave the USA for friendlier economic climes such as Singapore. Many of those with high wealth are those who accumulated that wealth by forgoing expensive restaurant meals with overpriced meals, first class travel and cruises and other luxuries. Saving and carefully investing say 50 K per year out of a professional income of 200 K before taxes in dividend paying securities can easily result in wealth of quite a few million after 30 or 40 years.(Use the rule of 72) This is the result of personal choices and responsible behavior. Who the hell is going to enforce these wage factors? Maybe some economic genius from North Korea?

    1. Andrew,

      I appreciate your comment. However, I believe you miss the point entirely. Not everyone is able to invest 50k a year for 30 or 40 years. The fact of the matter is that the system itself makes it increasingly harder for even upper middle-class citizens to achieve this, including the most “careful” ones. The fundamentally theory that the only thing you need is determination and willpower to become wealthy is put forth by those that are already wealth, the few that have succeeded in such a way, and the others that buy into that theory. The truth is that we cannot all be the top 1% – it’s not physically possible – and the world cannot support that level of wealth, consumption and waste.

      Who will enforce these wage factors? The people who put them in place – the elected government, the people, and (yes, dare I say) the companies. If companies wish to go elsewhere, let them. Not all of them will, and those that do are better off not here in the first place. Wage gaps like this are already in place in the military, and common practice in many European countries. Yet, their companies and their economies flourish all the same. The countries in Europe that do this have higher life satisfaction, longer and healthier lives, and a general increase in overall well-being (Denmark, Germany, France are examples) without a failing economy or low standard of living.

      Given these examples in contrast to our failures makes it hard for me to believe that efforts to decrease income inequality would fail. Read The Spirit Level if you want more proof, I don’t want to continue to argue a point that is already well made elsewhere.

      Putting monetary wealth and profit before the human well being or in front of the well being of others is morally reprehensibly. We all know it, more people just need to say it. “Pulling yourself up by your boot straps” is an idea that has be proven wrong by the last 75 years of liberal economies, just look around at the growing rates of poverty, deteriorating national health statistics and collapsing social structures. We’re unhappy with our lives more today that we have ever been. Perhaps our society and economy need some revision?

      Thanks for the comment!

    2. Of course the reason for a shrinking middle class is just poor fiscal planning and not that the wealthy one percent are taking gross profits. The thing is, is that eventually this upper echelon will choke on its own greed. Who will buy what they are selling? Surely not someone making .25 cents an hour in slave labour in North Korea.

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