Democracy, Oligarchy, and the Fractile Nature of Inequality
Occupy Wall Street, with their focus on the top 1%, changed the conversation. New evidence suggests they massively understated their case. Yes the top 1% did capture 93% of economic gains in 2010, yes the middle class keeps shrinking, yes the median male worker makes less today than he did in 1973 but the real winners in the modern economy aren’t the penny ante millionaires making a mere $343,000 a year (£164,000 in the UK) but rather the top .01%. Those 12,000 households (out of 120 million in the United States) with an average income of $27 million a year captured a shocking 5% of national income.
In a democracy, why do the rest of us put up with it? Plato famously argued against democracy, claiming the mob would confiscate the wealth of its betters. That doesn’t seem to be the case today. One can understand, in a world where the bottom 80% see their income shrink but the top 20% are ever more prosperous, that the average voter would favour policies that help that richer class, in the hope that through hard work he could join it. But when even those of us in the top 10% are struggling, why do we vote in governments whose guiding principle seems to be to protect the interests of the super rich at the expense of everybody else?
Mass democracy is a recent phenomenon. Democracy in Athens was based on a slave economy. The Magna Carta only enshrined the rights of barons. Parliamentary rule during the Napoleonic wars represented the interests of the propertied class. World War I changed everything. The recognition of the sacrifice the common man had made in the trenches, combined with the threat of socialism convinced the ruling class of their responsibilities to the common weal. The welfare state after World War II elevated the prosperity of the ordinary citizen as the primary responsibility of government.
During the Golden Age from 1950 to 1973, median real wages more than doubled. Prosperity became general. We had never had it as good before. The rich got richer too, but their income growth was slower than that of the average citizen. Then came Reagan and Thatcher, the evisceration of unions, the rise of finance and a return to belle époque levels of inequality.
Rising inequality ultimately is a political decision. The fractile nature of our income distribution tells us that the top 1% absorbs the gains of the top 10% and much of that groups wealth flows to the top .01%. Inequality does not stimulate growth. It certainly does not create a happy society. The economy grew faster in the 1950s, when top marginal tax rates were over 90%, than they have ever since. We could raise taxes on incomes of over $1 million and reduce them for the great majority of citizens. Why don’t we?