Income Inequality and Socialism

Mao Zedong believed in a classless society, where everyone was equal. His Cultural Revolution was all about leveling the playing field. The best Chinese universities were forced to accept agricultural workers and welders completely unprepared for higher education. Effectively, the country lost about a decade of higher education and slipped hopelessly down the economic ladder. By the time Deng Xiaoping took over China in the early 1980s, he realized that “some must get rich first,” and that human beings would never align into complete equality. He began reconstructing China to allow hard-working, better educated people to rise in Chinese society. It took a few years to undo the damage of Mao’s theories, but what you see in modern China is the result.

The notion of income inequality that is disturbing to so many is not countered by a utopian vision of complete equality; we absolutely know that does not work. There’s nothing wrong with people getting rich, really rich, from great ideas, hard work and determined innovation. That part of the American dream is strong and should resonate positively with just about everybody. The notion that needs to rub people the wrong way is unfair advantage, where an elite has a different set of regulations, different tax rates and incentives, and where market forces that support the rich at the expense of the rest are silently supported by the government… or where financial manipulation substitutes for real value creation.

You’ll notice that every proposal to reduce our taxes to either a flat tax or one with only a couple of layers – when you run the numbers – truly benefits the mega-rich much, much more than anyone else. The regulations that they want to see go away would allow companies to pollute without paying for the damage they cause and to push away financial regulations and responsibility so they can keep the playing field solidly tilted in their favor.

There are plenty of rich entrepreneurs who believe that tampering with the one percenters is bad for the country. “The argument, made most recently in a blog post by venture capitalist and Y Combinator cofounder Paul Graham, is that inequality gets too much of a bad rap. Contrary to the popular narrative, not only is there nothing inherently damaging about inequality, but any political agenda that tries to make rich people less rich holds back natural, exponential growth in productivity and distracts attention from tackling real problems like poverty. Where inequality is concerned, the focus should be on rooting out wealth created through ‘bad’ practices (e.g. high-frequency trading) and then on learning how we can all collectively imagine a healthy society in which there is great variation in wealth created by good behavior, such as is found in Silicon Valley startups.” FastCompany.com, February 16^th.

The problem, of course, is that the notion of what constitutes “bad” practices is hardly universally acknowledged. Is it fair, for example for a fund manager who invests nothing, to receive capital gains treatment (“carried interest”) on the appreciated value of his fund participation, when his/her secretary (who also is not invested) pays vastly higher earned income rates? Are capital gains rates even fair when wealthy folks make most of their money at these lower rates that the rest of us do not get? Is it OK to shelter income off-shore in complex structures available only to the rich when the rest of us are paying the bill? Is it OK to allow companies to pollute air, soil and water without paying for the damage they are inflicting, when taxes are used to repair what is lost? What is fair? Should we reward fund managers creating tradeable derivatives but adding not one whit of value to society?

And then there are the social barriers that tend to lock people into the social strata of their birth. We’ve seen how our deteriorating public schools and the skyrocketing cost of higher education (without off-setting aid) have cut off millions from what used to be a fairly normal upward social mobility that once defined the United States. For all practical purposes, upward social mobility in this country has all but gone. In fact, for too many poor Americans and an increasing number of what were once the middle class, their ownership/participation in the American economy has plunged as a percentage of our nation’s overall wealth. Graham doesn’t even address these factors at all.

Here’s just one example: “The median wealth of black households in the U.S. is an astonishing 4.5% of that of white households. This, in turn, points to that other glaringly important variable: political influence. As this 2014 Princeton study showed, America is an oligarchy, run by a small group of wealthy and influential individuals; any resemblance to a democracy is merely an illusion. Racial inequality means that African Americans have a lot less of the only political currency that really matters for securing the equal opportunity they so obviously lack right now: actual currency. Graham’s analogy denies these factors entirely. And you can understand why, given that analytical thinking, with its instinct to squash things together, simply can’t cope with multiple variables.” FastCompany.com.

So to fix these issues requires a whole lot of rule changing and a commitment to elevate the social and educational benefits to the bottom segment of economic wealth – which will never pass a Republican Congress. And if this is a huge issue for the present, there is another even bigger variable that makes our struggles with outsourcing to China, Mexico, India, Vietnam, etc. seem mild by comparison. So much of that outsourced work is indeed coming back to the United States. But not to enrich the coffers of workers who used to do the work.

As experts tell us, there is an awkward factor as self-learning, mega-sophisticated automated machines slowly replace a rather large segment of the skilled and educated working population. Money that used to be earned by labor will instead be paid to the owners of the machines that will replace them (already begun). The Guardian (UK), February 13^th, explains: “Expert Moshe Vardi told the American Association for the Advancement of Science (AAAS): ‘We are approaching a time when machines will be able to outperform humans at almost any task… I believe that society needs to confront this question before it is upon us: if machines are capable of doing almost any work humans can do, what will humans do?’

“Physicist Stephen Hawking and the tech billionaires Bill Gates and Elon Musk issued a similar warning last year. Hawking warned that AI “could spell the end of the human race” and Musk said it represents ‘our biggest existential threat.’

“Cells grown in petri dishes could allow researchers to observe the effects of drugs on neural activity as well as on the health and function of brain cells… The fear of artificial intelligence has even reached the UN, where a group billing itself the Campaign to Stop Killer Robots met with diplomats last year.

“Vardi, a professor at Rice University and Guggenheim fellow, said that technology presents a more subtle threat than the masterless drones that some activists fear. He suggested AI could drive global unemployment to 50%, wiping out middle-class jobs and exacerbating inequality.

“Unlike the industrial revolution, Vardi said, ‘the AI revolution’ will not be a matter of physically powerful machines that outperform human laborers, but rather a contest between human wit and mechanical intelligence and strength. In China the question has already affected thousands of jobs, as electronics manufacturers, Foxconn and Samsung among them,develop precision robots to replace human workers.”

Our politicians haven’t even begun to grapple with that reality. So it appears that no matter who is elected as our next president, or how Congress is configured in 2017, this inequality factor will only get worse. We hear truly stupid, disproven ideas – like the failed supply-side trickle-down theory that sustains the inequality under the new name of protecting the “job-creators” – but very little in the way of coherent solutions.

I’m Peter Dekom, and as long as we opt for slogans over substantive reality, we are simply planting the seeds of our own demise.