In a recent Newsweek article, Robert Samuelson wrote an article arguing that the fact that the rich have been suffering from the recession is bad for everyone. Not surprisingly, people who are not rich have not been terribly sympathetic to the rich who are not quite as rich as they once were. After all, it is hard to feel the pain of people who are still vastly better off than the overwhelming majority of Americans (and incredibly better off than the vast majority of human beings).
Like most of the non-rich, I have fairly minimal sympathy for those who are merely less rich. After all, it does not make sense for me to feel bad for folks who are still considerably better off than I am, at least financially. My sympathy is reserved for people who are truly suffering, such as the folks who are struggling to make enough money to pay rent and feed their kids. I just cannot feel for someone who is suffering because she has to wear last year’s $10,000 dress to that party at the Hamptons or is dealing with the horror of having to fly first class rather than taking a private chartered flight to a vacation getaway at his fourth house in Cape Cod. Of course, I do have sympathy for people who have been totally ruined, such as those who were deceived by the likes of Madoff.
Of course, the general state of the economy does concern me and it is true that the fact that some rich folks are less rich does impact the economy. Samuelson makes a case for why we should be concerned about the plight of the rich by presenting three considerations.
First, he notes that consumption spending (which is a major fuel for the economic engine of America) is dominated by the rich. Folks who make $100-200,000 make up 14% of the US population, but compose 34% of the spending.
As he notes, they are able to spend so much because they make so much more money. In addition to having more money overall, they also have more income left over after meeting their basic expenses, thus allowing them to engage in more consumption spending on non-essential items. This spending by the rich enables many of the rest of us to have jobs making things for, selling things to, and providing services for the rich.
Of course, they are such a important factor because they have so much wealth. Naturally, if this wealth were spread out (or distributed, to use a word guaranteed to jack up the blood pressure of any Republican reading this) we would still have the same amount of overall spending, only it would not be coming from such a small percentage of the population. Also, if the wealth were more distributed, it would enable more people to enjoy better lifestyles (such as being able to afford health insurance).
Of course, there is the obvious question of why such a broader distribution of wealth would be desirable. One way to argue for this is to use an analogy: suppose there is a party and 14% of the guests consume 34% of the food. This would strike most people as being a rather unfair situation-why should so few people consume so much?
The obvious and stock reply to this is that the analogy is flawed. If the 14% who consume 34% of the food paid for all that food themselves, then they are entitled to that extra consumption.
Of course, the question does arise as to whether or not the wealthy actually deserve such wealth and whether or not everyone has a fair chance of achieving such wealth. Obviously, some people do earn their wealth and some do not. But, more importantly, not everyone has a fair chance of getting wealth. By this, I do not mean an equal chance: not everyone has the abilities, skills, will, and drive to achieve the success needed to be wealthy. A fair chance is like the starting line of a race: everyone has to run the same distance and everyone has to run. Of course, that is obviously not the case. People born into wealthy families get a vast head start and are given additional advantages. People born into poor families are way behind from the start and are generally confronted with ever increasing obstacles rather than given any advantages.
The current economic problem revealed a great deal about how many companies and individuals became wealthy or increased their wealth: scams, “magic money” packaging and repackaging, unearned bonuses, predatory loans, and other morally dubious means.
Of course, there are “rags to riches” tales of people who started in poverty or challenging circumstances and ended up in a mansion (or the White House). But these tales are the very rare exceptions. To say that they show that the current situation provides fair access to opportunity for everyone would be like claiming that most high school/college athletes become pro athletes by pointing to a few examples.
My thought is that while we should be concerned that the rich have less money to spend on consumption, we should be more concerned that so few people have so much more than everyone else and that we have to rely so heavily on them. We should also be concerned about how this wealth was acquired.
Samuelson’s second point is that the rich pay most of the taxes in the US. As he points out, 50% of the 2006 taxes were paid by the wealthiest 10% of the population. Amazingly, 28% of the taxes were paid by the richest 1%.
Part of this is due to the obvious fact that the rich are richer and hence would pay more even if they paid the same percentage of their income in taxes. The other part is due to the fact that the income tax is progressive-the more you make, the higher percentage of your income you pay in taxes.
While this does show that the rich pay most of the taxes, it also raises the obvious worry: why do so few people have so much wealth? Perhaps this is perfectly just: the rich earned their wealth and deserve, if not every penny, at least most of what they earn. If this is the case, then this is obviously just and fair. Obviously, the mere fact that the distribution of wealth is so extreme does not itself entail an unfair system. To use an analogy, I have far more running trophies than most people, but that is not due to injustice. It is due to the fact that I train hard and race hard, thus earning those trophies.
Of course, some of the disparity is no doubt due to unfair factors-just as some athletes win by using steroids and by other unfair means.
One final point here, to borrow from Thoreau, is that although the rich pay more taxes, they tend to benefit more from the government. As such, they should be expected to pay more for what they receive. For the argument, read Thoreau’s essay on civil disobedience.
Samuelson’s third point is that the rich give the most to charity. To be specific, half of the charitable contributions of money are made by the 10% wealthiest Americans. Even more extreme is the fact that 27% of such contributions come from the wealthiest 1.5% of Americans
While it is good that the wealthy give to charity (and presumably they do so not just for the tax breaks or the good PR), it is still worrisome that so few people have so much wealth. It might be noted that if wealth was not so concentrated, there would not be so much need for charity.
Samuelson’s final point is that the wealthy provide money for venture capital. As he points out, about 10% of this money comes from individuals and families.
While venture capital does help companies start up and thus creates more jobs (for someone at least, even if the jobs created are overseas jobs), the rich can do this because they are already rich. Also, they provide such capital in order to become even richer, although perhaps some of them do it out of a concern for helping provide new jobs.
Samuelson’s article does do an excellent job at laying bare how much the economy depends on so few. However, this facts should not inspire us to be worried about the well being of the rich. Rather, we should be dismayed by such an extreme concentration of wealth and consider how this concentration itself helped bring the economy down.