American Inequality

As a European, I often get frustrated debating with right-wing Americans on the topic of inequality. The Americans I encounter have the illusion that their society in the USA is "classless" and quite different to old Europe. To them, it seems that Europe is a strange amalgam of outright communism and hereditary privilege, with an added element of satanic ritual. The idea that the USA is a society in which anybody can "make it" through hard work and personal talent is very hard to shift, even though in today's USA inheritance determines most of the life chances for any newborn.


The European perspective is that the US is a great place to be rich and a terrible place to fall ill or to be poor. The statistics on the growing wealth of America's top 10% and especially its top 1% are jaw dropping. More concerning, surely, is the evidence that such wealth is no longer primarily gained through anything we might choose to call "work" or effort or individual achievement in any form. Instead it is money that makes money.


I feel that Americans (meaning the USA for this piece) have their own distinctive take on history and it is important for a European to remember that American history and social experience is quite unlike that of Europe. The United States of the past had at least two massively different types of economy. The southern states had a deeply divided society, with slaves making up perhaps 40% of the population until well into the second half of the Nineteenth Century and supporting an agrarian economy in which social status hung on inherited wealth. Inequality could not be greater than a society in which so many human beings not only owned nothing but were owned, and slaves as property - as assets on a balance sheet - made many people rich. In the more northern and western states, most of the population were still first or second generation immigrants, they brought very little if any wealth with them and land was plentiful and cheap. For the white population of these states, inheritance played a lesser role, the gap between rich and poor was relatively modest and it could be bridged by hard work and entrepreneurial ventures. The inability of black / African Americans to fully benefit from this fantasy was explained in racist terms, blaming them and discounting the crushing legacy of slavery.


In the Twentieth Century, Americans took great pride in their fortuitous and unplanned version of a relatively egalitarian society and were concerned, from the Thirties through the Seventies, to prevent the unfair accumulation of excessive and undeserved personal wealth. In 1919, Irving Fisher, president of the American Economic Association, devoted his presidential address to the question of inequality, arguing that the increasing concentration of wealth at that time was the country's foremost economic problem and threatened the very foundation of American society. The fear generally was that America might come to resemble the plutocracies of old Europe. Many people blamed the Great Crash of 1929 and subsequent Depression on the economic and financial elites and from the election of Roosevelt in 1933 to 1980, nearly half a century, the top federal income tax rate in the US averaged 81%, while the top rate of tax on estates was kept at between 70% and 80%. The only other country to match US tax rates on the wealthy was Britain. (See Piketty, Capital in the 21st Century, pp 505-7). It is hard to credit the absurd argument that high taxes in that fifty year stretch held back the entrepreneurial spirit of the American people.


All this changed with the election of Reagan and a period began in which neoliberal economic theories held sway. Deregulation, sharply reduced taxation for the wealthy, attacks on government spending and services, free trade agreements, delayering of management hierarchies, the transfer of wealth to the wealthy and freezing of incomes and rewards for everyone else, a series of speculative asset bubbles culminating in the collapse of Lehman's and the implosion of the banking system in 2008... Somewhere along the line, America seems to have reached the weird notion that their problem is the behaviour of "progressives" and "liberals". It is a bit astonishing trying to track their logic in this respect. Part of the problem as I see it is that in the US both parties of government (Republicans and Democrats) share the same basic economic theory known as neoliberalism - or neoclassical economics - and that approach to economics has now been tested to destruction in less than forty years.


As wealth is concentrated increasingly in the hands of the top 10%, it follows logically that the people below this marker have less to share between themselves. The wealth is not going to the bottom 50% who have consistently held only 5% of total wealth. Whatever Americans believe about 'redistribution' this is not a transfer of wealth from rich to poor and the poor are not bleeding the economy dry. No, since the 1970s, the section of the population which has sacrificed its share of income and wealth in order to enrich the top 10% has been the middle class. They have not seen any benefit from economic growth since they elected Reagan into office and it is their jobs and their social benefits that have been targetted for destruction.


Many middle class Americans are angry and want to return to a golden age when hard work and ingenuity provided the basis for a supposed meritocracy. Yet paradoxically, they appear to accept the nonsensical proposition that the route to their new frontier is paved with tax cuts, reductions in government spending, deregulation and the explosion of free trade. They see nothing but a "liberal" plot in any concessions to immigrants or environmental protection. All of these and more are the policies required to maximise the profitability of capital at the expense of those who work to live. All are at the expense of the middle class themselves. The ultimate perversion of reason arises because Americans and the Supreme Court have allowed corporate interests to corrupt their politicians and the political process to such an extent that it has lost trust and people no longer recognise the central importance of government to their hopes for the future.


What the Americans I debate with cannot accept is that the best protection of the ordinary American and not least its middle classes was, for a long time, precisely the intervention of the state and the role of progressive taxation in preventing the excessive accumulation of unearned wealth by an emerging plutocracy. It is wrong to think the American dream requires more wealthy people to come along the line. Plenty of wealthy people have appeared since 1980 and their growing wealth has been the cause of economic instability and turmoil in an increasingly unequal and unfair society. What the American Dream ought to offer is for more Americans to be allowed to earn a good living in a fair society and for a long time in the Forties, Fifties and Sixties, that was close to reality at least for about half the population, primarily being white skinned. Americans should be working for their living not waiting for the wealth of an undeserving plutocracy to trickle down to them by some yet to be discovered route.


Meanwhile, the lowest 50% have always been abused and have nothing to hope for in conventional capitalism on American lines. For them the frontier has long been closed. A rational debate about poverty in the USA will not happen until the delusion is finally removed that hard work and personal merit are the basis for economic success in American capitalism. That really is nothing better than an American daydream.