The last system characteristic on the economic report card is market stability. Stability depends on income and wealth distribution and the rate of inflation. Both high wealth disparity and high inflation hampers the ability to trade goods and services, the essence of market activity. The economic report card revealed instability due to both factors of disparity and inflation. However, by now this is old news. The average person on the street has known for years that wealth and income disparity has been increasing and we now have known for months the instability of our economic system.
Yet what folks do not really know is that this results from a system out of balance since the seventies. What keeps a social system out of balance is hidden or distorted feedback. In regards to our economic system the main sources of hidden or distorted feedback have been Puppet Libertarians and the Powell Cabal, corporate advocates with an academic pedigree. The majority of folks fooled and harmed by this feedback has been the middle class. In a sense, we are both the ultimate victims and villains for the negative trends that have occurred since the seventies.
The numbers speak for themselves. Out of all the four system characteristics market stability is where we have failed the most, meaning this is where thirty year trends reveal the most imbalance. What I would like to do in this recap is not focus on the numbers so much as the distorted information used by Puppet Libertarians and the Powell Cabal to pull a fast one on us all. I will pair up common defenses or complaints used by this misinformation network with one of the stability indicators, to illustrate how they have been goading us to perpetuate these trends.
Wealth Distribution for the Top 1% – The Pareto Principle
If you want to impress upon folks your academic pedigree nothing does the job quite so well as a “natural” equation. The Pareto Principle states that 80% of the resources tend to be concentrated among 20% of the individuals in a system, whether those individuals might be persons or grains of sand. There are some natural phenomena that abide by this principle, most do not. But the Pareto Principle was not “discovered” in nature anyways, but from the distribution of resources in the economic system of one country, Italy. The Pareto Principle is really a cultural/economic phenomenon that applies to only a certain type of economic system. The two most important ingredients for such economic systems are greed and authoritarianism as the norms. Without those two ingredients the Pareto Principle falls apart.
But here’s the kicker. Our system does not reflect the Pareto Principle because we have too much wealth concentrated at the top. Depending on the methodology used the top 1% controls anywhere from 20% to 40% of the wealth. Even for a capitalist and paternal democracy we have too much wealth disparity, so any Puppet Libertarian or laissez faire economist who defends our economic system because of the Pareto Principle is basically full of ****.
Income Distribution for the Top 5% – Tax Redistribution
A common complaint heard recently from Puppet Libertarians and the Powell Cabal is the further harm progressive tax redistribution will do to our economy. Actually, this has been an ongoing concern of theirs since the seventies and we have responded well to their constant feedback. Taxes on income have flattened considerably since then and capital gains taxes now are less than some income tax brackets. Meanwhile, the income distributed to the top 5% has increased by at least 45% since the seventies. In fact, the top 5% now receive more income than even the Pareto Principle would allow for total wealth, including non-income assets such as real estate and stocks. Yes, sir, one can just imagine the harm that threatens our economy should we make tax on capital gains more than earned income once again; we might find ourselves regressing to the income distribution of the seventies. That would be a horrible fate for Puppet Libertarians and the Powell Cabal.
The Ratio of Net Dividends to GDP – Rising Tides
The Middle Class Forum has compared the trends for net dividends and gross domestic productivity already. The “Rising Tides” argument also has been debunked on this web site. Increasing the income of the least well off does not provide any real benefit if wealth disparity increases as well. In fact, increasing wealth without economic productivity in return, as happens with inflated net dividends, trickles down severe impacts to those who do not receive this type of capitalist welfare. Inflation of essential and expensive goods is driven more by the limits of money supply among the wealthy, not the poor. Finally, this particular distorted feedback has had “legs” in terms of assessing the Consumer Price Index and poverty levels, which amount to letting us know how well we are doing as our likelihood to go bankrupt triples.
Increase in Medical Care Costs to Personal Income – Socialism
We all have our pet peeves. Out of the distortions fed to us for thirty years by Puppet Libertarians and the Powell Cabal the one that bugs me the most is how they complain of increasing socialism even as we become less so. Here’s how it works. They hold out a laissez faire ideal that never existed in the course of history because it can’t exist even in theory. They then proceed to criticize how we fall short of that ideal at any moment of time, completely ignoring previous states of the economy. The system responds to their constant feedback by commanding the economy more towards benefiting large corporations.
In regards to medical care costs the Puppet Libertarians and the Powell Cabal have an easy means for feeding us this pattern of distortion. Medical care costs have almost doubled as a proportion of our personal income over the past thirty years. Part of that cost increase is due to socialized insurance, which provides steady fodder for Puppet Libertarians and the Powell Cabal to howl about socialism. But in response to this constant feedback the increases in socialized insurance dwarf in comparison to private group insurance, as would be expected for a joint commodity. Thus while we never will reach an impractical and even impossible laissez faire ideal we have trended steadily in that direction. This has been true for the past thirty years whether in regards to shifts to privatized benefits, private enterprise income or even a sharp reduction of welfare provided to the poor over the past thirty years.
Increase in Home Sales Prices to Median Family Income – Upward Mobility
Occasionally Puppet Libertarians and the Powell Cabal treat our economy as a system. This is mainly to declare that as long as there is upward mobility we have a healthy system. People rise, and presumably fall, according to their merits. There are two problems with this argument. One is that just because there is mobility does not mean that merit is the driver. The Middle Class Forum has established a variety of ways in which merit distinctly is not the driver of our economic system. The other problem is that upward mobility is not what it used to be. This is no more evident than what has occurred with housing prices. Yes, housing prices go up because of larger houses, but they also go up in the absence of anything resembling economic productivity. In a sense, houses have been counterfeiting money up until the recent downturn. Consequently, it takes a lot of upward mobility just to acquire the same amount of housing as thirty years ago. It also takes more “upward mobility” to afford the same amount of health care or education. It takes more “upward mobility” to be able to save or head off debt. Finally, this “upward mobility” has been achieved in part by multiple jobs and more people in a family working.
While we can get upset about the loss in market diversity, adaptability and stability we will gain little by trying to fix these problems directly. We might curb future degradation, but we will not return our system to the health it once enjoyed. The loss has been due to long term trends nurtured by a misinformation network distorting the feedback needed to keep our economic system in balance. Fixing the ultimate problem will involve some means of marginalizing this network with their academic pedigree, moving away from their economic scholarship and towards an economic empiricism that focuses on the real experiences of the middle class.
The next entries will examine this economic scholarship a little further, particularly in regards to that oh so conveniently elusive ideal of “laissez faire capitalism.”