The Flacks for Plutocrats Need a New Analogy

Sam Pizzigati

Sam Pizzigati Editor, Too Much online magazine

A rising tide lifts all boats. A growing economic pie means bigger slices for everybody. Wealth that flows to the top will always trickle down.

Cheerleaders for wealth’s concentration have over the years invoked a variety of images to justify the ever larger fortunes of our society’s most fortunate. These images all rest on a single economic assumption: that letting wealth accumulate in the pockets of a few grows an economy’s capacity for investment and ultimately, as investments create jobs, leaves everybody better off.

That assumption has dominated mainstream economics for generations. But that’s changing. Even mainline economic institutions are these days challenging the notion that good fortune for the few eventually and automatically translates into better fortune for the many. The latest of these institutions to chime in: the OECD (Organisation for Economic Co-operation and Development), the official economic think tank for the developed world.

The OECD’s just-published contribution comes right on the heels of another new analysis that essentially shreds what little credibility remains from that once dominant “rising tide” case for accepting inequality.

The co-author of this new analysis, former World Bank lead research economist Branko Milanovic, has had quite a year. The sensational international success of French economist Thomas Piketty’s “Capital in the Twenty-First Century” may owe more to Milanovic than anyone else other than Piketty himself.

Last fall, Milanovic published the first widely circulated review — in English — of Piketty’s masterwork. His rave write-up ignited within the chattering class a massive pre-publication buzz about the book. Piketty’s chronicle about concentrating wealth would go on to sell over 500,000 copies, more in a shorter period than any other economics tome in global publishing history.

Milanovic is currently doing his research work at the City University of New York Graduate center. His new paper, prepared with the World Bank’s Roy van der Weide, begins by noting a paradox within the economic literature on the relationship between inequality and economic growth.

Measures of income inequality, the two authors note, address how income levels can vary substantially from one economic class to another. But the measures that researchers have used to gauge whether the benefits from a growing economy do indeed “lift all boats” almost always focus on what’s happening to an economy’s average income or GDP per capita.

In their new paper, Milanovic and van der Weide set out to “unpack growth,” to explore how actual individuals “at different steps of the socio-economic ladder” are faring. The two zero in on state-level inequality in the United States over the half-century between 1960 and 2010.

For each state, the co-authors use micro-census data to highlight the income shares of rich and poor at the beginning of each of that half-century’s five decades. How does this initial inequality, they ask, impact how much the incomes of poor, middle class, and rich households grow over the next 10 years?

The answer their research has generated: The higher the state-level inequality at the start of each decade — in effect, the larger the top 1 percent share of each state’s income — the lower the income growth of the state’s poorer households and the faster the income growth of the richest.

The magnitude of this dynamic turns out to be quite striking. A modest decrease in a state’s inequality level at the start of a decade more than doubles the income growth of a state’s poorest 20 percent of households over the next 10 years.

Milanovic and van der Weide have some thoughts of why higher income inequality so stunts income growth for a state’s poorest. They point to the phenomenon they call “social separatism.”

In a society where the rich are grabbing incomes “significantly greater than the incomes of the middle classes,” the rich have little interest in public services. Their lives revolve around private services, everything from private schools to private country clubs.

These wealthy, note Milanovic and van der Weide, “prefer not to invest in public goods like education, health, and infrastructure.” But these public investments — for the poor — make all the difference in the world. Paltry investments in public services translate into paltry, or worse, income growth for the poor.

The political implication? If income inequality speeds the growth of wealthy people’s incomes, Milanovic and van der Weide wonder, how can we expect the wealthy to accept public policy changes that reduce inequality?

We can’t, of course. Most rich will continue to claim that trickle down works, no matter how empty that claim may be. And the evidence for that emptiness is pouring in from more than academic sources.

We now have, for instance, the live-action contrast of Kansas and California. In Kansas, an exceedingly rich people-friendly governor and legislature two years ago slashed taxes on the state’s wealthy, most notably by making business profits tax-free.

In California, meanwhile, voters at about the same time opted to raise taxes on the rich. They lifted the tax rate on income over $500,000 per year from 10.3 to 13.3 percent.

The story since then: California, notes analyst David Cay Johnston, has grown jobs “at 3.4 times the rate of Kansas.” California’s weekly wages have also grown more than weekly wages in Kansas.

So maybe we do need a rising tide after all, a rising tide of voter anger at pols who keep winking at inequality.


This has been reposted from the Campaign for America's Future.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality. He is an associate fellow at the Institute for Policy Studies in Washington, D.C. Last year, he played an active role on the team that generated The Nation magazine special issue on extreme inequality. That issue recently won the 2009 Hillman Prize for magazine journalism. Pizzigati’s latest book, Greed and Good: Understanding and Overcoming the Inequality that Limits Our Lives (Apex Press, 2004), won an “outstanding title” of the year ranking from the American Library Association’s Choice book review journal.

Posted In: Allied Approaches, From Campaign for America's Future

Union Matters

The Big Drip

From the USW

From tumbledown bridges to decrepit roads and failing water systems, crumbling infrastructure undermines America’s safety and prosperity. In coming weeks, Union Matters will delve into this neglect and the urgent need for a rebuilding campaign that creates jobs, fuels economic growth and revitalizes communities. 

A rash of water main breaks in West Berkeley, Calif., and neighboring cities last month flooded streets and left at least 300 residents without water. Routine pressure adjustments in response to water demand likely caused more than a dozen pipes, some made of clay and more than 100 years old, to rupture.

West Berkeley’s brittle mains are not unique. Decades of neglect left aging pipes susceptible to breaks in communities across the U.S., wasting two trillion gallons of treated water each year as these systems near collapse.

Comprehensive upgrades to the nation’s crumbling water systems would stanch the flow and ensure all Americans have reliable access to clean water.

Nationwide, water main breaks increased 27 percent between 2012 and 2018, according to a Utah State University study.  

These breaks not only lead to service disruptions  but also flood out roads, topple trees and cause illness when drinking water becomes contaminated with bacteria.

The American Water Works Association estimated it will cost at least $1 trillion over the next 25 years to upgrade and expand water infrastructure.

Some local water utilities raised their rates to pay for system improvements, but that just hurts poor consumers who can’t pay the higher bills.

And while Congress allocates money for loans that utilities can use to fix portions of their deteriorating systems, that’s merely a drop in the bucket—a fraction of what agencies need for lasting improvements.

America can no longer afford a piecemeal approach to a systemic nationwide crisis. A major, sustained federal commitment to fixing aging pipes and treatment plants would create millions of construction-related jobs while ensuring all Americans have safe, affordable drinking water.

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