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Banta writes: "The difference between the extremely rich - the top 0.1% - and all the rest of us has turned into something with the potential for destroying the fabric of our society and reducing our democracy to a hollow shell."

Occupy protesters warn of class war ahead. (photo: AFP)
Occupy protesters warn of class war ahead. (photo: AFP)



For Class Warfare, There's the 1%, and Then There's the 0.1%

By Henry Banta, Nieman Watchdog

19 April 12

 

he problem of income inequality has at last become a subject for political discussion. Commendable as this is there is something misleading about the current discussion that the press needs to help correct.

There is a point where sheer magnitude can change the fundamental nature of a thing – when something becomes so big, so large, so immense, that it morphs into something very different from all else that otherwise would be in the same category. The staggering growth in the wealth and income of the top 0.1% is just such a thing. It is not just bigger than the gap between the 1% and all the rest, it is so big that it presents a vastly different set of problems.

I'm not suggesting that the difference between the top 1% and the other 99% is not a problem or even that the differences between the top 5% or even top 10% and all the rest of us is not a problem. They are very serious problems. But the difference between the extremely rich – the top 0.1% – and all the rest of us has turned into something with the potential for destroying the fabric of our society and reducing our democracy to a hollow shell.

This is not a new idea. Some time ago David Cay Johnston (who won a Pulitzer for his tax reporting) suggested that the really important gap was not between the top 1% and all the rest of us, but rather between the top 0.1% and everyone else. Indeed, looking at the gap between the top 1% and all the rest is misleading because it hides how insanely large a share is taken up by this tiny 0.1% – even when compared with the share of the bottom half of the top 1%.

All this is not to say that the gaps within the bottom 99% are unimportant. They are, of course, a big deal, but in no way are they as big a deal as the gap at the top. Talking about it in the same way obscures the enormity of the gap at the top. Johnston shows that the disparity within the top 0.1% is actually greater than the disparity within the remaining 99%:

"In 2009, the income entry point for being in the top 1 percent was slightly less than $344,000. . .The median income taxpayer – half made more, half made less – made slightly less than $33,000 that year (and their average adjusted gross income was under $15,300, or less than $300 per week). The median income taxpayer would need 10.6 years to earn as much as someone at the low end of the top 1 percent.

Using 2010 estimates, Emmanuel Saez (University of California) reports that the average income of those 140,550 families in the top 0.1% was $2,802,020. Within this tiny fraction income is even more highly concentrated; the top 15,617 families in the top 0.01% had an average income of $23,846,950. (Editor's note: The New York Times ran a profile of Saez on April 16th.)

Again, none of this suggests that the broader issue of inequality is not important. It goes to the basic values of economic opportunity and fairness that are the ultimate justification and moral foundation of our market system.

Unfortunately a large part of the upper class has opted out of the world that most Americans live in. Perhaps Charles Murray (Coming Apart: The State of White America, 1960-2010) is right when he identifies a new upper class that lives apart in affluent upscale neighborhoods with people much like themselves in terms of income and education. They send their children to private schools, never serve in the military, and almost never come in contact with people who do not have at least a college education. He may be right in seeing the increasing isolation of this class as a serious problem, but what Murray may be wrong about is its power – certainly relative to the very top.

There are at least three things that distinguish the lower ranks of the well-off from the very rich, the top 0.1%. First, the very rich are uniquely able to dramatically affect the political process. The current Republican primary season has given us a spectacular demonstration. Without Sheldon Adelson's wealth (about $24.9 billion, according to Forbes) how long would Newt Gingrich have been able to keep his campaign alive? The bottom part of the top 1% may be rich but how many can buy TV time to promote their own causes and candidates? How many can hire scores of lobbyists to promote their own legislation? How many can afford battalions of consultants and lawyers who can endlessly parse the economic opportunities available in a global market? How many can use off-shore financial institutions to avoid taxes? The corridors of power are uniquely the territory of the very rich.

Second, about 60% of the income of the top 0.1% comes from the corporate and financial worlds. The sources of income for those a notch or two down from the very top seem to be far more persified than those at the top. This lower end of the scale appears to include very successful physicians, lawyers, corporate middle managers, entrepreneurs, sports figures – people whose wealth and income may be in multiple millions, but not billions. In contrast, those with the very highest incomes come from the top ranks of corporate management and finance. What is most notable about this group is that their income has absolutely exploded over a very few decades without a decent explanation.

Perhaps an argument can be made that the wealth and income of those below the top 0.1% represent the rewards of success. But this argument has a hollow ring when made for the very top. The enormous increase in top management compensation has defied all efforts to relate it to performance. In several articles on wealth in the Washington Post, Peter Whoriskey (June 13, 2011, June 23, 2011Sept. 22, 2011, Dec. 5, 2011) reported, among other things, that executive compensation in major firms has roughly quadrupled since 1970s. No compelling reason has been offered as to why virtually all the benefit of the economy's increase in productivity should go the very top while middle class wages stagnate. After the financial crisis of 2007-8 the financial sector's claim to its massive share of the GDP is nothing short of ludicrous.

This issue of the income source is often ignored by those who would confuse the question of the astronomically rich with the ordinary rich. In a recent op ed piece in the Wall Street Journal, Phil Gramm and Steve McMillin attributed the growth of inequality to changes in the tax code that reduced the personal rate below that of the corporate rate, creating an incentive to turn what otherwise would have been corporate income into personal income. They also attribute it to Reagan's promotion of a golden era of entrepreneurial enthusiasm. But this explains very little regarding the inequality at the 0.1% level.

The third important aspect of this monstrous skewing of income to the very top is that dealing with it may present an insurmountable difficulty for anyone who thinks that it is a problem that public policy should address. The conventional approaches to inequality, education and tax reform are plausible enough in the context of the 99% versus the 1%, but the concentration at the very top presents a special problem. Education is hardly relevant; except in very rare cases it is implausible that the top 0.1% owe their wealth and income to superior education. As to tax reform, it most certainly could provide a solution. But tax reform on the scale necessary to make a dent in the position of the top 0.1% would have to be on a massive scale, restoring a degree of progressivity not seen since Eisenhower. The Tax Policy Center notes that the top 0.1% received 38% of all capital income in 2011.

The pursuit of better education and modest tax reform has broad appeal. As a means of restoring some measure of economic mobility they are essential, and in a political sense they are also safe. They are not likely to trigger cries of "class warfare;" indeed they can be used to avoid confronting the problem of the very rich. Three things will be necessary to face this problem. First, real progressivity must be restored to the tax code. This requires very steep rates at the very top, and it requires the elimination of the vast opportunities for avoidance or evasion in off-shore tax havens.

Second, and perhaps more importantly, the question of corporate governance must be honestly addressed. Corporate boards of directors must be discouraged from incestuously and unconscionably wasting resources on extravagant management compensation. Finally, the sheer scale of the financial sector must be reduced. At present the financial sector is able to suck far too much out of the economy for the service it provides – both in terms of money and talent. It can do this because of insanely generous tax treatment and the excessively permissive regulatory environment it currently enjoys.

None of this will be easy. The very rich are unlikely show any remorse over their success in accumulation a massive share of the nation' wealth. They can be counted on to defend their wealth and income with all the means at their disposal. Those few who get 38% of the nation's capital income are likely to consider its taxation as a matter of strong personal interest. Harold Meyerson in the Washington Post describes the vehement outrage from Wall Street in response to the modest efforts of the Obama Administration to reign in the most egregious misconduct.

One can only imagine the political war that would follow any serious effort to restore the middle class to its previous position. The Supreme Court's decision in Citizens United has provided the super rich with an awesome arsenal of weapons that they will not be reluctant to use.

 

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+3 # barbaratodish 2012-04-19 14:43
The top .001% May have almost ALL the money, but there is one thing they will ALWAYS be defensive about: they may try their hardest to experience PRIMAL life and they may THINK that they are EXPERIENCEING it with loads of money spent on pornification of force entertainments, distractions, but they will only be VIRTUALLY experiencing anything that remotely is PRIMAL life. To VALIDLY experience the PRIMAL life, you first must HAVE a life TO risk and the .001% risk nothing, because they, in effect, are nothing, at least PRIMALLY speaking. Instead of having ANY life at all, money HAS the top .001%. You might think or say, "Well, why WOULD anyone even WANT to experience PRIMAL life, when most people are even afraid to admit they watch and are frightened of Primal (or the "dark side" of) life, from afar? The very FEAR of what this side of life is, causes people to deny they even are drawn to VICARIOUS, even SYMBOLICAL representations of Primal life, so there must be something that is very VITAL about it, maybe it could be said that PRIMAL life is something that all the money in the world cannot buy!
 
 
+11 # pernsey 2012-04-19 17:40
The obscenely rich are clueless as to what it takes for real people to survive, and they dont care. Its the republican mantra, we got ours so screw the rest of you!
 
 
+4 # maddave 2012-04-19 21:52
Pernsey: Don't you believe---not for a second--- that the super-rich plutocrats consider themselves to be Republican or Democratic. True, they may support more GOP candidates than Democratic, but this is because the orthodox conservative Right Wing supports & promotes those ideas and concepts which benefit the top-'o-the-top 1%! As a group---whether you are democratic or republican---un less your philosophy and efforts further their wealth and lifestyle---the plutocrats would not stoop.to piss on you even if your hair were on fire!
 
 
-2 # MidwestTom 2012-04-20 05:06
Remember that the Kennedys and the Kerrys are far wealthier than Romney. The very wealthy are close to both parties.
 
 
+1 # ABen 2012-04-21 09:19
I think you might find a difference in the way their respective fortunes were accumulated. If a person is raised with the ides of the "Social Contract," they tend toward using wealth and position for the good of society. If one is raised (or schooled) with a Social Darwinist notion of how society should work, his/her concept of what is good for society is a rather scary, self-serving perspective. Extreme wealth is not the problem, how one gets it and what one does with it is the problem.
 
 
+1 # pernsey 2012-04-20 05:40
I get it maddave, they got theirs and screw the rest of us, and if the GOP didnt vote for stuff in their interest they wouldnt support them.
 
 
+1 # DPM 2012-04-19 20:47
Fire doesn't differentiate between rich and poor. Let's hope it doesn't come to that.
 
 
+8 # maddave 2012-04-19 21:37
Why is it that no one seems to get the big picture? The essence of our problem was alluded to in but one sentence, above: "Corporate boards of directors must be discouraged from incestuously and unconscionably wasting resources on extravagant management compensation." OK, but what s does that mean?

J Lt me try to explain with a realistic-but-h ypothetical example: Given 3,000 seats on major corporate boards of directors, perhaps only 1,500 individuals fill those seats---which are parceled out as plumbs. These directors receive, maybe, $25,000 per meeting attended, and, in essence, they serve at the pleasure of the individual board presiden: not bad for a few hours work ... qnd no, place for a "troublemaker".

Again, hypothetically, I sit on my friend Joe's board and he sits on mine, and (not at all by chance) we appoint each other to our respective compensation committees---al ong with a few other "trusted friends". The result is that, over a period of time we vote each other obscene salaries, bonuses, stock options, pensions, parachutes and perks--- which may-or-may-not be tied to corporate performs or production or profitability.

The money itself is irrelevant: In reality, money is THE way that sociopathic bean-counters with massive egos keep score. Anything worth having is worth cheating for, and the end is not yet in sight.
 
 
+2 # Capn Canard 2012-04-20 06:22
maddave, absolutely, it is a game and money is how they keep score, and being a game it isn't likely to occur to them that people actually suffer when they "win".
 
 
+2 # PGreen 2012-04-20 07:36
Nice description of how it works.
The .01% are kings, queens, dukes and duchesses, in all but name. As Glenn Greenwald wrote about in "Liberty and Justice For Some," the oligarchy is now virtually considered above the law, as exemplified by the pardon of Nixon, personified by Dick Cheney, and more recently affirmed by Obama's non-prosecution of the Bush regime torturers. The establishment media accepts this revision with scarcely a blink of the eye, and even legal institutions look away.
 
 
+3 # Regina 2012-04-19 21:51
There is another problem for many in the 99% -- the almighty buck doesn't buy much any more. So ordinary -- and even lower-echelon extraordinary -- folks need more bucks, at least 20 times the income of 40 years ago. Wages haven't kept buying-power pace for mere wage earners. That depresses the lifestyle available to them, and cheats their children. The top 1% has no inkling of the deprivation hitting the bottom 40-50%. And they machinate endlessly these days against any provision to improve living conditions for those being squeezed. Hence the anti-union measures, the anti-women's equality machinations, and the pension-killing enactments; the schemes for strangling Social Security, Medicare, and health care reform; the sabotage of revenue-increas ing measures -- the whole Paul Ryan syndrome. As for the top 0.1%, they can't begin to imagine the binds of others' lives -- just look at the Romneys. They're so high up that they can't even see the rest of us as they look down their noses.
 
 
+2 # bluepilgrim 2012-04-19 22:49
There is a bunch of new material from Rick Wolff, the increasingly
famous and popular economist who teaches Marxian theory, at
rdwolff.com, including videos of the April Global update, as well as
the Global Update from February, which was not originally available
for free when it was on Blip TV. Blip TV cancelled his account and
the video material has been restored and is now on Vimeo. There are
links to the videos, and also new interviews (MP3s) and articles at
his web site.
 
 
+2 # Andrew Hansen 2012-04-20 02:04
The primary weapon in the kleptocracy's arsenal is secrecy. Sadly, that weapon is most effective on a timid populace. Occupy is about coming together, sharing information, and stiffening the 99%'s or the even the 99.9%'s neck.
 
 
+2 # 666 2012-04-20 03:21
What would the system be like if we drafted into the military the sons of daughters of the uber-rich? We should start with the richest, and work our way down the system through about the top 5% - requiring at least 6 years of active duty service (no National Guard service!). Once the ranks have been filled with the scions of the rich, we open service to volunteers from the other classes.

As long as they reap the benefits of the MIC (whirlwind?), they ought to pay the price.
 
 
0 # PGreen 2012-04-20 07:24
Interesting speculation. The wealthy are generally big drinkers of the national kool-aid. I suspect that though at first you would likely find them objecting to such a policy (and probably able to maneuver around it, given their resources), if they were forced to accept it, they would adapt. Newer members would likely sacrifice family for wealth, accepting the ethos because that is how (in part) they become rich. The only real solution is to restructure for equality.
 
 
+1 # MidwestTom 2012-04-20 05:15
Remember, the 0.01% are all bankers; bankers own the Fed, when the government runs a deficit it raises money by selling treasury bonds and notes, the Fed is now buying 61% of those debt instruments, we the taxpayers then pay our taxes so the government can pay interest to the bond and note holders, namely the Fed and the bankers that own it. The deeper we go in debt as a nation, the wealthier the bankers become. This is why hamilton and Jackson spoke against a central bank. To quote baron Roethchild" give me control of a nations currency, and I don't care who runs the government".
 
 
+2 # dick 2012-04-20 06:17
The once 90% progressive tax was intended to keep the 0.1% from buying the government. We need to get back to that concept. If compensation above, say, $1m/yr. were taxed at 90% there would be little incentive for obscene pay for people accomplishing less & less, & incestuous relations "on board."
 
 
0 # corals33 2012-04-21 16:31
the basis of capitalism is that it create the obscenely rich who in turn will create riches for those who pursue this path who will be called the winners and the rest would be called losers. thus if the winners do not distance themselves as far away from the losers they might become infected with the losing virus and defeat the whole object of the exercise.
 

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