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Wednesday, December 18, 2013

Assets versus workers again: Wealth inequality is even more disturbing than income inequality

by David Atkins

Matt Yglesias can often be frustrating and infuriating, but he does occasionally get things very right. This post on income versus wealth inequality is one of those times, riffing on this chart that has been going viral in progressive circles over the last week:

[T]he distribution of capital income is much more unequal than the distribution of wage income. Which is to say that the gap between LeBron James' salary and the salary of a middle-class sales manager at the Miami Heat is small compared with the gap between Micky Arison's investment income and the income earned by that sales manager's 401(k) holdings. All discussions of inequality that talk about labor unions compressing the wage scale, human capital, superstar effects, etc. are talking about inequality of labor income. But even though labor income is unequally distributed it isn't all that unequally distributed.

In contrast to labor income, we understand the sources of the unequal distribution of capital income extremely well. Capital income is unequally distributed because wealth itself is very unequally distributed. There's no substantial controversy about this. The distribution isn't skewed because investing skill is massively skewed; it's skewed because money-to-invest is skewed. Now of course you can get wealth in various different ways—you could found a business, you could get a high paying job and save a lot, or you can get your fortune the old-fashioned way and inherit it. But once you've got your fortune, wealth begets wealth...

These points all matter because they point to the existence of two different axes of inequality. One is the wage gap between the high earners and the low or median earners. But the other is the traditional class conflict between the people whose earnings are dominated by work and the people whose earnings are dominated by wealth-possession. In particular, a structural shift in the economy to become less favorable to people who work for a living (including rich people like King James) in favor of people who own things (including the relatively modest fortunes of "middle-class" retirees living off accumulated savings) isn't necessarily going to do anything to the wage-distribution curve. And yet the clash between peasants and landowners, between factory workers and factory owners, and now between people cheered by the S&P recovery and those saddened by the wage slump is probably the more significant political issue.

One issue this poses is that analysis of political issues in terms of "income" quartiles can get pretty misleading. A married couple where Dad earns $65,000 a year and Mom works part-time bringing home $15,000 a year is in the fourth quartile of the American income distribution. A 70-year-old widower whose $2 million in savings bring him an annual income of approximately $80,000 is also in the fourth quartile. But their policy-relevant economic interests are unlikely to have very much in common since in reality their financial situations are entirely dissimilar.
Democrats are often afraid to talk in these terms because it sounds positively Marxist to do so. But while I don't consider myself a Marxist, I've been writing for a long time now that it's important to recognize that we have an asset class and a wage-earner class--and their interests don't align at all.

For most of the wage-earner class, increasing home values are an impediment to having a decent home, not an asset for their retirements. For the asset class, rising wages constitute a deterioration of their incomes; for the wage-earner class it's the reverse. For the asset class, the recession ended a long time ago. For the wage-earner class, it's been grinding on for more than five straight years.

The challenge we have politically isn't just moneyed corruption and campaign spending. It's that all of policy is designed by the asset class, for the asset class. In the same way that the struggles of the very poor are all but invisible to the comparatively comfortable middle classes, the struggles of the wage-earning middle classes are all but invisible to the asset classes, who simply assume that if asset prices are rising, then growth will follow to the benefit of the invisible wage earners.

But that's just not so. And in a world of increased globalization, mechanization and deskilling, the decoupling of the asset class from the working class is going to become even more severe.

I'm not the first person to say this, but just because Marx didn't have the right answer, that doesn't mean he wasn't asking the right questions. State Communism was obviously a dramatic failure. But that doesn't mean our dominant economic system represents the pinnacle of human freedom and progress, either.