The greatest threat the world faces today is not terrorism, or global warming, or nuclear weapons*. The greatest threat facing us today is income inequality. And it’s easy to fix. We just need the willpower to do so. And we need to convince the very people being screwed to ask it to stop.
This is difficult to do, and it presents a bit of a paradox. Every Sunday, millions of people who don’t have much money send what they can to televangelists who have millions. It’s no coincidence that this is the same demographic that thinks rich people should get more tax breaks. The trickling down is supposed to happen from both the heavens and Wall Street. That it doesn’t does not shake anyone’s faith — the money keeps moving from the impoverished to the scandalously rich.
Whenever I see a paradox in human behavior, I don’t assume it’s faulty wiring; I assume the wires were soldered down in a different time for a different purpose. We overeat because we were made for a time of scarcity and infrequent feasts. When a stash of sugar was found thousands of years ago, it paid to gorge and sock energy away in fat. That same wiring gets us diabetes today. It used to serve us well; it no longer does. This is the very sort of thing I write about at length in my WAYFINDING series. Much of human suffering follows the same pattern.
In my upcoming WAYFINDING entry, I go into detail exactly why I think people vote against their obvious best interests. But here on my blog, I want to concentrate on the financial outcome of our modern economy, why I think it’s going to get worse, and why we need to act on this right now and not a moment later. We are in the same place we were with global warming three decades ago. Most of the damage had been done, but it would’ve been a good time to change course. Now is a good time when it comes to income inequality.
The arguments against redistributing wealth should be familiar to the reader. One is that the poor today have never had it so well, and this is true. Global poverty is plummeting even faster than our most optimistic estimates from just two decades ago. Fewer people live below the subsistence level; women are gaining freedoms around the world by taking more control over their financial well-being; fewer children are being forced to work. The pockets where progress is slowest are coming into stark relief precisely because it’s becoming more rare. All of this should be acknowledged and applauded.
But absolute wealth is not the key to human happiness. Relative wealth is.
There are dozens of game theory experiments which bear this out across cultures and age groups. The concept of fairness is wired into our DNA. Children shown shapes of different colors being unfair to other shapes take sides without prompting. They do the same for puppets acting out various scenarios of ill dealing. And in a classic experiment where two people are presented with a sum of money, and one gets to choose the split while the other gets to take or leave the deal, almost no one gets away with screwing the other party. If the split is too great, the person who can accept refuses, and nobody gets anything. People are willing to harm themselves a little in order to spite someone who is being unfair.
In nature, prey often signal a warning when spotting a predator. This puts the caller in greater jeopardy but saves the flock or herd. Such altruism is often explained by group selection (the individual shares DNA with the rest). But this theory isn’t accepted by all. And there are rewards for those who shirk, just as the group will often punish shirkers when found out. Even in nature, no one likes a freeloader. But you often find animals doing the equivalent of paying too little for a shared pizza, so that even among friends, the till comes up short. Good people often try to do as little good as possible. What’s important for the group is that fairness is maintained by punishing those who attempt to get away with too much. Even if everyone in the tribe is stuffed, if you have one person larding away ten times as much for the lean days, resentment will build. This resentment should not be underestimated. Society is more likely to crumble from this threat within than any threat without.
Think about what money represents for a moment. Money is just a symbol of work someone has performed. It might not be the person holding the money (maybe it was given as a gift or inherited), but when it was originally handed over in a transaction, it was because the person giving it accepted goods or services from the person receiving it. I need my roof fixed. My roofer needs groceries. The grocer’s roof is just fine, but he is having trouble sleeping at night. So I pay the roofer, and he can pay the grocer, who buys one of my books. Now we all sleep well at night.
The most important thing for any economy is circulation. There’s a classic example that bears this out: A college professor has her students dump out their bookbags, purses, and pockets onto their desks, everything except for money. Now the students walk around and see what everyone else has. If they wish, they can trade any of their items for anyone else’s items. Trades invariably happen, and since both parties agree to each trade, both feel that they are getting the better end of the deal (one boy’s trash is another girl’s treasure). At the end of the experiment, the same amount of items are still in the room, and yet everyone feels richer. That’s the beauty of trade. It’s not zero-sum.
This is compounded, of course, when actual things are made from raw materials. That might be programming code from the raw material of intellect and time. Or a network of train tracks built from steel and sweat. The more productive the things we build, the more reward we expect to see for society as a whole (though rarely for those doing the building). There’s a balance to be had, of course. The railroad tycoon is risking his entire fortune to build the rail, all for the hope of great reward. The immigrants dying for peanut pay are escaping terrible conditions at home for the hope of freedom in a democracy. The pay is not equal, but neither is the risk nor capital. Some balance needs to be figured out.
There are those who think the answer is a flat tax, that the wealthy and poor should pay the same rate. As an argument for simplicity, this works. In practice, it would lead to far greater income inequality and more social strife. It seems like a good deal for the wealthy until their country is burning down around them; there are unintended externalities not only to polluting factories but polluting policies. The flat tax is a terrible idea, whatever the revenue generation models tell you, because of the psychological effects of inequality. The game theory results that reveal people are willing to harm themselves in order to bring ruin on the unfair should serve as a warning. A grave warning. Ignore the psychology of human behavior, and you’ve ignored everything that matters when it comes to the economy.
I have changed my mind 180 degrees on this issue. I used to think the wealthy should keep what they make. They earned it. Why should they be punished? And they are job creators. I had all the lines down. But it’s all bullshit.
My instruction began as a yacht captain. I worked for billionaires who had yachts that cost upward of $20,000,000. That’s twenty million. I think typing out all the zeros is useful. I’ve seen owners who use their yachts a few weeks out of the year. Sure, they created jobs for the boat builder, and for the crew on the yacht, but you still had $20,000,000 of people’s time and energy tied up in a big piece of plastic that was barely used. The yachting industry didn’t shake my previous conviction, though. I still saw the 1% as job creators. Just wasteful and largely unhappy ones.
In my next career, I installed high end audio video equipment in the second homes of the very wealthy, and my education continued. Mind you, there was zero envy on my part, just curiosity and bewilderment. I never wanted the things that these people had. My convictions weren’t shaken by comparing my lot to theirs, but by seeing how much capital was being tied up rather than circulated. There was no trickle down. There were giant buckets, puddles, pools, and reservoirs. Lakes, even. And with celebrity rags, the paparazzi, and social media, more and more people could see the inequality building. Societal unrest (even the poison of societal discontent and unhappiness) were the natural result.
What really sealed the deal in my conversion was a story in the newspaper about the modern fine arts trade. Granted, this was just the straw that broke the camel’s back; I was already coming around. Then I read about warehouses full of paintings that no one could see. It turns out that paintings are now an investment commodity. They go for tens of millions, and then are put away in dark rooms to appreciate (all based on speculative bubble-blowing). It’s not the artists’ hard work that I saw wasted here, but rather all the work from all the people who paid a dollar or pennies at a time into the pockets of billionaires. All that pooled money, trickling up from so many consumers, investors, and builders, was ending up in warehouses of art that didn’t even go looked at.
There is a problem when the hours being put in by so many people are ending up in yachts no one is driving, houses no one is living in, and art no one is seeing. The solution to this is very simple, and it would not only fix most of the social unrest (including a lot of race relations), but will also finance the fixing of many of our other major issues. Instead of that money sitting in warehouses full of art, imagine it sitting in a new smart power grid, high speed trains for shorter commutes, higher wages for teachers, or a guaranteed income for every American. There is easily enough wealth for all of this. And no, you are not going to remove incentive if you levy higher taxes on the wealthy.
The impetus for working hard and having more than your neighbors will always be there, as long as some inequality is possible. Inequality in itself is not bad. Trying to remove all of it is a terrible fucking idea, as evidenced by every attempt to do so in human history. You can’t motivate people to work if the level of their hard work is not commensurate with how much they earn. Those who work the hardest and take the most risks should enrich themselves. Those who agree with this need to come around to the idea that there’s a limit to how much this is a good idea. It doesn’t do the wealthy any good for the rest of society to not be able to afford their wares and services. And as the classroom example and the art warehouses show, the key to a healthy economy is for wealth to shuffle around.
The highest federal US tax bracket is currently around $415,000. That’s not nearly high enough. The difference between making $400,000 a year and making $400,000,000 a year is ENORMOUS. An individual making $400,000 a year in New York City is upper middle class. But take 41% of that money in federal taxes, and 6.85% in state, plus all the sales taxes, tolls, gas taxes, etc, and you’re living off less than $200,000 in a city where modest rent can take up a third of that. Compare that to someone making $400,000,000 who is paying the SAME federal rate. That makes absolutely no sense in the world. We need more brackets, and we need a higher rate for the top brackets.
This isn’t about punishment for success, either. The wealthiest are being rewarded the most for the changing economy. The tools being built are benefitting them disproportionately. There are dozens of examples, and they all follow the same trend we see in entertainment (a trend I’ve been on the winning side of myself). It’s a blockbuster model. Working backwards from the present, you go from having a Facebook founder in Mark Zuckerberg who has hundreds of billions, to dozens of media CEOs who have mere billions, to hundreds of local media tycoons who have millions, to tens of thousands of similar niche and local forums and social networks where people were making a solid wage, to salons and bowling alleys where people were congregating and socializing in person.
Hundreds of billions, to billions, to millions, to hundreds of thousands, to a regular wage. That’s what you see when you scrub back through time in just about any industry today.
Work backwards from Amazon, where you have a hundreds-of-billions founder making what used to be mere billions by CEOs from a dozen mega retailers, to millions from those who owned regional chains, to hundreds of thousands from those who had a few locations, to a liveable wage for mom and pop stores. The same is true for Apple, Microsoft, and so on. Increases in efficiency, global networks, computer systems, the appeal of brand recognition, scales of economy, all work to push more and more of those dollars, which represent hours worked, into fewer and fewer pockets.
There’s no stopping this trend. There’s only redirecting the percentage of flow. Because that’s what economies are all about, flow. Keeping the items moving around the classroom, the dollars circulating through the purses and pockets. There’s no trickle down, there’s trickling everywhere. How we divert that flow will fund all our great infrastructure needs while also making sure those with the least don’t feel like burning that infrastructure down. Again, game theory tells us that people are willing to harm themselves if it means punishing the unfair. Ignoring this is the height of folly. I implore flat taxers and those of a Republican sway to consider these effects.
A number of the billionaires who have benefitted most handsomely have signed on to divest themselves of most of their wealth. One of the responses you’ll see by those who are angered by my argument here is that, “If you believe that, then give all your money to the IRS. They’ll take it.” This is just an attempt to silence the debate, for no amount of overpayments by a handful will correct the overall system. In the presidential debate last night, Donald Trump bragged both about making over $600,000,000 (MILLION) last year and NOT paying a dime in taxes. He’s not alone. All that wealth is going into things like warehouses full of art. It’s a lot of human capital that should be kept in flow and put to better use.
All it would take is more tax brackets with higher rates. And lower the rates at lower brackets. We should be debating these numbers, and not the principles behind them. A top bracket of $200,000,000 with an 85% rate would be my starting point. Work down to a tax bracket of $2,000,000 with a 40% rate. Lower the rate for those making between $400,000 and $600,000. Those making less than $60,000 pay no federal taxes at all.
Tax capital gains at the same rate. Close corporate loopholes. Get rid of all subsidies (including for farmers). When you get to keep the first $60,000 you make, that’s a subsidy for everyone, across the board, with almost no red tape, no forms to fill out. Streamline the IRS as a result. Punish companies who attempt to park profits overseas. And offset the offshoring of cash and the emigration of the wealthy by offering instant citizenship to anyone who moves to the US and puts down a certain figure on a home here (say $400,000), or sets up a business here in the US with initial capital in a certain range (say $5,000,000), so that the people who leave to hide their wealth are more than made up for by those who want to live in the US and enjoy our infrastructure.
If you think that’s naive, look at California. It has some of the highest tax rates, and yet it’s one of three states seeing massive explosions in businesses founded (Massachusetts and Texas being the other two). A great climate, amazing universities for recruits, and other allures more than offset the higher state income tax. You aren’t going to chase off wealth with higher taxes and more brackets, just as you aren’t going to remove the incentive to work hard. People will still want to be millionaires so they can buy Ferraris. They just won’t be able to afford a dozen of them. And that will be a sign that we’re achieving the right balance.
There is absolutely no greater ill facing the world today than income inequality. And it can be fixed by adjusting a few sliders. All it will take is the half of the populace that wants to reward wealth with more wealth to realize that their wiring is not based on reason, or even their own emotions, but evolutionary urges that no longer make any sense. Again, I’ll be exploring those urges in my next WAYFINDING piece. In the meantime, I humbly ask that you start looking around at the places that dollars are pooling, no longer circulating, in things that aren’t being used, or art not being seen, or luxuries not being enjoyed, or taxes outright not being paid, and see if your way of thinking might not swing around to what many of us now believe.
And what we believe is that income inequality has gone too far, is being hastened by modern technological advances, and it must be corrected before it gets much worse. We need to start thinking about a post-work economy, where everyone is guaranteed a living wage as more jobs are automated, disrupted, or devalued by the tools and innovations that are concentrating wealth. This will not be a bad thing. Everyone can prosper. As long as our wealth isn’t stagnating, but is free to trickle in every which direction, with some pools and puddles bigger than others, but to a degree that does not stifle innovation and does not inspire an uprising. That balance exists. Let’s at least look for it.
*Your chances of dying at the hands of a terrorist are slim. Poor eating habits and humans texting while driving have a much greater chance. Hell, ladders do. Even crazier: You have a greater chance of dying in a car while abroad than being killed by a terrorist abroad. Global warming is a major problem, but one that’s on its way to being solved by the plummeting costs of solar and looming population declines. A handful of nuclear strikes by a North Korea would be locally devastating, but income inequality threatens to burn us everywhere all at once.
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