George Rebane
[This is the transcript of my regular KVMR commentary broadcast on 13 December 2017. As noted below this commentary was erecognized by KVMR last night during its annual awards ceremony held at the Miners Foundry.]
‘In these commentaries we have examined major trends like systemic unemployment, income inequality, and the notion of a Great Divide that may rend America across one of its ideological faults.’ This was the opening line of my KVMR commentary a little over four years ago (here). In that piece we looked at the emergence of the new ‘cognitive class’ in America as studied and reported by renown sociologist and author Charles Murray in his book Coming Apart, published in 2013. Much has happened in the interval as it affects our views of ourselves. Today, we definitely have more than one picture of who we are and how we are composed.
The main take away from that analysis was that since WW2 we have generated a new and enduring merit-based upper class of people sharing educational achievements and an understanding of the world. And for some odd reason, such people wanted to hang around with others like themselves, a process called homogamy. They tended to live together, socialize, and do business with each other. Through their hard work, they also wound up being financially more successful than the rest of the country. And as their wealth grew they began to be noticed by those with political ambitions and careers representing the not so wealthy.
Economists, sociologists, and others of the bureaucratic bent in academe and government began to boost their own fortunes by pointing out that this cognitive class was enjoying the fruits of unjust inequality, while the rest of the country had to make do with the scraps that trickled down from them. Something had to be done to restore social justice to the land, and government was just the agency to fashion public policies that would bring these people back to heel. The underlying theory then, and still being promoted, was that these folks – now called the ‘1%’ – are a greedy bunch who were using underhanded loopholes to take money from the poor and middle class to fatten their wallets. After all, everyone was taught in school that capitalism was no longer the engine of wealth creation, but the vehicle of greed and the foundation of the great zero-sum game – if they got more than you, then they must have taken some of what should rightly have been yours.
In the same year 2013, French economist Thomas Piketty wrote Capital in the Twenty-first Century, which became the most successful academic treatise in modern times and landed on the NYT best seller list. Piketty argued that capitalism by its very nature causes inequality, and is a danger to democracy which only government can cure through massive reform. The lynchpin of his argument was that ‘patrimonial capitalism’ – wealth garnered through inheritance – was the bogeyman that had to be exorcised through what Bastiat called ‘legal plunder’. The collectivist world cheered, but perhaps a bit too soon, because by 2014 Picketty’s theory began to unravel as more economic and demographic data was analyzed.
Over these intervening years of re-evaluating Picketty, we now come to A Century of Wealth in America, the just released magnus opus of left-leaning NYU economics professor Edward Wolff, an expert in wealth and wealth disparity. His treatise presents an in-depth analysis of how wealth is really generated and transferred from generation to generation. For our socialist contingent, Dr Wolff’s inconvenient bottom line is that “in the US more than ¾ of all wealth is created anew in each generation, and the ‘1%’ is an overwhelmingly self-made group.” There is much more to learn in Dr Wolff’s massive 865-page tome, but before diving in, you may first want to catch the high hard ones by reading the excellent review by UC Davis economist Gregory Clark, the link (here) to which is included in this commentary’s online transcript.
My name is Rebane, and I also expand on this and related themes on Rebane’s Ruminations where the transcript of this commentary is expanded and posted with relevant links, and where such issues are debated extensively. However, my views are not necessarily shared by KVMR. But I do thank KVMR and its News Director Paul Emery for recognizing this commentary, now in its eighth year, with a ‘Certificate of Excellence’, awarded last night at the annual holiday dinner for the station’s staff and volunteers. And during this holy season Jo Ann and I wish all of you a Merry Christmas and Happy Hanukkah. Thank you for listening.
[Addendum] It’s hard to include everything you want to say on a topic as complex as wealth dynamics in an economy in a 4-5 minute radio commentary. My big concern with Wolff’s research is that the large cohort of impressionable lightly-read voters will either not get the message about the ‘1%’, or not understand the import of ¾ of all their wealth is created anew in each generation. But the most important and untold part of this story involves how this new wealth is created, and then how it is managed by the 1% (we’ll use that label for the wealthier Americans).
For every dollar that accrues to the 1%, that dollar is the leftover profit from the founding of countless businesses that created thousands of jobs and supplied products and services demanded by countless other people across the country and the world. Other sources of such profits came from properly allocating capital to enterprises (buying equities and making loans) in which it was most valuable and useful. And these risky activities continue as a matter of course in the management of the 1%’s portfolios, none of which get converted into ‘stuff’ (e.g. gold bars) and un productively hidden under a mattress. Wolff’s analysis demonstrates that more often than not much of this wealth is lost by last generation’s 1%, and dispersed into the economy to be gathered and assembled again for new enterprises. It is the nature of the capitalistic system that wealth is a dynamic resource that is constantly recycled for the betterment of all, and that includes those who are not able or willing to actively partake in growing the economy.
As a coda to these observations, no one should expect the progressive (i.e. collectivist) faction of our society to understand and/or accept any of this, since doing so would utterly destroy their ideological narrative with which they seek an anti-capitalist alternative future for all of us.
