The American Dream: The "Occupy Wall Street" Movement's Argument Regarding Redistribution of Wealth in America [104f]

AND THOSE THREE rather busy looking charts above tell you precisely why. Hopefully, they won't be as intimidating as they might appear on first blush, with a little explanation, they should become much more understandable. I hope so, because individually, but especially together, they tell a huge story, and one that contradicts everything the Conservatives want you to believe.

We will get to an discussion of those charts in a bit, but first, let me dilate on the "Occupy Wallstreet" movement a little. If I am not mistaken, the original point of the protest was disgust over the apparent immunity the very rich are able to receive from the consequences of their unethical and illegal actions simply due to their wealth; in effect, they are allowed to get away with financial murder. This is a view I hold because it is true.

Since that point, however, it has morphed into a more generalized protest against wealth itself with all sorts of wing-nuts coming out of the woodworks giving the movement a bad name and dulling its message; the Tea Party experienced the same phenomenon. I simply cannot agree with a protest simply against wealth, regardless of how much that wealth may be; wealth, on its own, has no morality. It is those who possess the wealth, how they earned it and what they do with it, that deserves scrutiny. If wealth was earned honesty and ethically, then more power to the earner, is my view. On the other hand, if wealth was achieved via dishonest means, on the backs of those less advantaged, then that wealth is not deserved and needs to be protested if the dishonesty is not addressed legally; which, historically, it has not been in America.

It is the rampant excesses of the unrepentant and unprosecuted bankers, financiers, industrialists, and manufacturers who have poisoned the environment; killed, injured, and financially ruined people for the sole and simple reason of putting an extra dollar in their pocket that has finally ignited the protests all over the country. Conservatives, of course, are surprised by this because they deny these excesses exist beyond one or two anecdotal cases rather than the epidemic it really is.

Well, the charts I present, and will revisit, do not speak to the extraordinary lack of ethics that seem to infect an inordinate number of the more powerful and wealthy financial movers and shakers, but they do present a clear picture about the redistribution of wealth from the lower and middle income classes to the higher income classes without the expect increase in economic growth; exactly opposite of the Conservative mantra. In fact, these three charts clearly show that every word regarding the Conservative ideas on the taxes and the economy uttered by the likes of Senator Mitch McConnell, Speaker John Boehner, Reps Kyle, Bachmann, and Ryan are dead wrong.

THE CONVENTIONAL WISDOM Conservatives, and everybody else, for that matter, have beat into our heads is that Liberals (who are really Socialists) want to take money from the Rich, Redistribute it, and Give it to the Poor ... how UnAmerican is that? Well the Truth, the REALITY is the data easily show that the Reverse is Actually True; the Rich Taketh away From the Poor and Middle Class and Keep for Themselves.

Yes, you heard me right, although some of you intuitively knew this to be the case already, the less well off are subsidizing the more well off in America. OK, how can I say this, with just two charts, one you have already seen and a companion, comparison chart. Let me explain the first chart.

I recreated the "Before Tax Household Income" chart to the right, but the one at the top of the Hub is much more readable. What this chart portrays is what the median before-tax household income was for five income groups, the top 5% earners, the bottom 20%, and three 20% increment groups in-between for the 60-year period from 1947 to 2007.

As you can see, in 1947, income levels were relatively appropriate with the top income earners making almost four times more than bottom wage earners, in constant 2007 dollars; not a bad distribution and closer than I thought it would be. The 80%-tier earned a little more than twice the lowest tier.

Even by 1970, the distribution was still within bounds. While the 20%--tier had only grown about $3,000, the top tier, had grown about $55,000 and the 80%-tier, $15,000. Now the distribution was 6-times and 3.75 times the lowest class, respectively. Quite a change in distribution but not embarrassing yet.

By 2007, however, things changed drastically; for the worse. While there was virtually no growth, maybe $5,000 in 37 years, disgusting really, while the 95%-tier grew $80,000 over the same period. Now, the top tiew earns an astounding 8 times what the lowest income earners make in a household. The disparity in incomes between the highest 5% to the lowest 20%, which all but Socialists, agree ought to exist, has nearly double, in percentage terms, in 60 years; that is tremendous!

But this only tells a small part of the story. It doesn't answer the question about the redistribution of wealth from the poor to the rich, nor does it really show how it is ONLY the top 5% of Americans who have actually participated in America's phenomenal growth over the last 60 years. When you compare and contrast this next chart with the last, you get that knowledge.

THIS CHART IS A "What If" chart. It shows what median family incomes might have been if each income group had participated in America's growth EQUALLY. All I did was let their starting incomes grow or decline according to the change in GDP. This is not a totally unrealistic expectation in a fair economic system. The sign of an unfair economic system is one that deviates from this "ideal" situation.

When you compare this chart then, with the first one, it becomes abundantly clear that the American system is Unfair and the "Occupy Wall Streeters" have a basis for protest, without considering how the wealth was earned in the first place. I am not suggesting that there is any conspiracy going on here among the wealthy to cause this disparity, but what I am stating concretely is that this disparity is a natural outgrowth of unregulated capitalism.

Let me clear right now, I think Capitalism is the best thing since sliced bread; America would not be the great country it is without it; there is no question in my mind about that. I also know for a certitude, however, that unrestrained Capitalism leads to the first chart you looked at. It isn't so much the 95% getting so much larger, it is lower three lines remaining nearly constant over time. America should be embarrassed beyond belief for this outcome when, as you can see from the second chart, a FAIR outcome would result in such a different, and much better outcome.

It is in the comparison of these two charts where I get my idea that wealth in America is being redistributed from the poor and working class to the rich and very rich. It goes something like this.

1. Wealth in a country over the short-term is a zero-sum game, which means there is only so much of it.
2. What there is of it must be distributed in some fashion among the citizens of the country.
3. In a Fair economy, there is no reason that distribution shouldn't remain constant over time. Even as the economy grows, each class should grow at approximately the same rate ... in a fair economy. (This isn't to say that individuals within a class can't move up or down classes, based on initiative or lack of it.)
4. If reality deviates very much from the "ideal", then other forces must be at work to cause this deviation.
5. It is clear, from comparing chart 1 with chart 2, that the four bottom classes, the bottom 95% of Americans, deviate quite a bit from the top class or top 5% of society.
6. That deviation is obviously a suppression of the lower class' income and an increase of the top class' income relative to the norm, the "ideal".
7. My conclusion from this line of logic is that the wealth that should have gone to the 95% of Americans in a "fair" economy ended up being redistributed to the top 5% of American society.
8. Not relevant to this discussion at the moment, but nevertheless important, is that, in America, the reason for this "redistribution" is an artifact of unregulated Capitalism.

This is why the "Occupy Wall Street" movement resonates with me.

I OFFER CHART 3 again so that you won't have to keep flipping to top to view it. I won't spend too much time on this fairly simple chart as it really needs to be viewed in relation with the next chart. These is, however, a bit of information you can glean from this chart alone. First though, let me explain the chart a bit.

There are two components to the chart. The first are the lines that step down through chart from left to right with various bumps here and there along the way. There are three stacked lines; the bottom one is the lowest tax rate and the top one is the top tax rate. The one in the middle, however, is a little more complicated. Currently, the top tax rate for a married couple is 35% for earnings in excess of $380,000. What I tried to show was what the tax rate was for that amount as you look back in time; so, for example, the rate on what would be equivalent to $380,000 in 1947 would have been about 68%. All of the numbers you see are, for the bottom line, the amount, in 2007 dollars, the rate was good to, and for the top two lines, where that rate began. For example, in 1947, the tax rate on $0 - $25,000 was, 20%, over $380,000 to the next level was 68%, and above $2,493,000, it was 94%.

The vertical bars represent recessions and their width, their approximate length. I have color-coded them as to cause; for the blue ones, the recession was the result of montary policies to counteract external events such as the oil crises; the green ones were monetary and fiscal policies to counteract an overheating economy caused by internal reasons; the last to are recession caused solely by internal monetary reasons, largely independent of direct Federal Reserve or other government actions. (The severity of the 2008 recession, however, I maintain IS a result of Conservative economic policy, deregulation, and lack of action by the Federal Reserve.)

What are the take-aways from this chart as a stand-alone? One is the obvious, tax rates on the wealthy have fallen tremendously over the 64 years since 1947, from 94% to the current 35% with a low of 28%. Another is there is no real history that the Conservatives or Liberals can definitively use to show where tax cuts or increases have consistently had a predictable effect on the economy. You should easily see that tax cuts and recessions rarely line up.

Another, very important take-away, though, is when you compare this chart, chart 3, with chart 1, at the top of the hub. Take a quick look up there and note that the top 5% wages almost tripled while, from chart 3, you can see their tax rate is now 1/3 of what it used to be. Now look at the bottom rung and note they increased only by a 1/3 while their tax rate was cut in half! Not very equitable, the way I see it, go figure.

NORMALLY, I HAVE A 10' by 10' screen to show a chart like chart 4 on; there is a lot of information crammed on to this little chart. It really is a simple chart, just information packed if you take the time to look it over.

First, the up and down black line. That is the change, measured in %, in Gross Domestic Product (GDP) which measures the Nations economic output. When it the line declines for a period of quarters, even it doesn't dip below 0%, generally means an economic downturn and sometimes a recession. You can compare it to chart 3 to see if it was. Certainly, if the lines goes into the negative region, we do have a full-blown recession.

Next, the red and blue shading indicate whether a Democrat or Republican held the Presidency, their name appears directly below their respective columns. Below that is a long horizontal line where I show the predominant amount of financial regulation in place at the time. Finally, all of the rest is just major events that occurred, including the various tax cuts and tax increases. Now, I would like to direct your attention to different parts of the chart.

First, look at the period from 1945 - 1954, a period of very high volatility; and why not, you were coming out of WW II with millions of troops coming home and an industrial base winding down. Following that, America got involved in the Korean War which first, dislocated hundreds of thousands of Americans once more and spun up the industrial base only to drop all these people back in the ranks of the unemployed in a collapsing economy with the end of the war.

Even though Truman started to cut taxes in the late 40s due to the end of WW II, he had to stop and raise them again to fund the Korean war. Eisenhower was the first to finally make a permanent tax cut in 1954 as funding for the wars were no longer needed and to help get the economy going again. (Here tax cuts can work because they were so high to begin with and the need was gone.) It got going in a big way, shooting up 7% then falling right back down as monetary policies from the Federal Reserves tried to control an overheating economy, and fiscal policies trying to reign in a burgeoning deficit (by their standards). Even though it drove the country into a short, but sharp recession, it stopped a run-away economy and balance the budget to boot by 1957.

Also notice that preceding that we had three other recessions, two resulting from reaction to wars and one mild recession brought on by the Fed tightening things up because of the economy heating up again.

It is really from 1957, where our story should begin because outside forces had died down for awhile. It is interesting to note, that during the period from 1957 to now, the budget has been balanced at least three times, 1957, 1960, and again in 2000.

There is so much you can discern from this chart, but I am going to limit it to just a few things; I may pick it up again in another hub though. The first interesting thing to note is this: if you draw a straight line, from left to right, starting at the high points of the GDP line moving along the tops, as near as you can, of subsequent lines until you get to the one at 2010. You should notice this is a relatively steep downward sloping line meaning each time the economy recovers from a downturn, its subsequent growth is less than it used to be, not a good sign. Also, starting in 1973, as deregulation starts to take hold, it seems our downturns are getting worse, although statistically, it is too soon to tell yet.

Now, go back and look at chart 1 and observe the income of the top 5% of wage earners; it is moving steeply in the other direction. Conservatives tell us that to tax the wealthy more means they will invest less in business and therefore depress economic activity. Well, those two lines in charts 1 and 4 moving in opposite directions so dramatically suggests to me the Conservatives don't have a clue as to what they are talking about. The reason for this is that for the two lines to move such they do, the wealthy must be keeping their money; otherwise, we would see more growth in the economy, if the Conservatives were correct, and we don't; we see less growth! The consequence of this, of course, is increasing the tax on the wealthy to 39% will not impact growth at all and will definitely help in balancing the budget.

Two other simple things to note, which I would like my Conservative friends to explain, are 1) why Republicans had recession every 4.5 years when they were in control and for the Democrats it is only once every 8.7 years and 2) why is in the period from 1951 to 2009, the only two periods of economic stability were the Kennedy-Johnson administrations and the Clinton administration while all of the Republican administrations and the four years of Carter never had a stable moment to there name?

THE ABOVE ARGUMENTS aren't the only way to make my, and Occupy Wall Street's point, about the unfair transfer of wealth from the Poor to the Rich. Consider the following two charts.

THE TOP CHART shows real Wages over the roughly 40 year period from 1964 to around 2005, while the bottom chart is real Compensation (wages plus benefits) over the same period. Also, superimpose, in your mind, the periods of Democratic control (1961 - 1969, 1977 - 1981. 1993 - 2001) of the White House and Conservative Control (all other years) over the top, Wages, chart.

Notice that it is only in the two eight-year Democratic periods that real wages increased; notice also that in all of the Conservative years, as well as the four Carter years sandwiched in-between, real wages decreased. That is very interesting in and of itself (which should be obvious even to a blind person), but doesn't say anything about wealth transfer.

It is only when you compare it to the bottom chart does it become clear that under Conservative administrations wealth was transferred more rapidly from the poor to the rich. That is so because in all of the years Conservatives controlled the economy, real wages decreased while real compensation increase. The implication of that is benefits boomed while wages fell. It doesn't take a rocket scientist to know that benefits in American society are regressive, the more you earn, the greater percentage of your wages are expressed as benefits.

Low wage earners receive little or no benefits. The next tier up may receive vacation and sick leave. Above that might receive 401K and health benefits. Executives receive stock options, bonuses and a whole lot of other perks. So, what those two charts, taken together tell you is that while, on average, everybody's wages went down over the last 40 years, only the more wealthy among us total compensation increased; again, that is a transfer of wealth from the Poor to the Rich.

Let me run down the most common Conservative arguments regarding the economy to see if I have addressed them all.

1. The wealthy reinvest their free money back into business in order to grow the economy for job creation - Comparing the down-slope of Chart 4 with the up-slope of Chart 1 disproves this theory. If the wealthy reinvested their new found wealth from previous tax cuts back into businesses to create jobs, then the GDP growth rates in Chart 4 would be increasing, not decreasing.
2. Tax cuts always spur grow and its corollary, tax increases always depress growth and job creation. - In looking at Chart 4, you should be able to easily determine that for the tax cuts in 1954, 1965, 1982, 1987-88, and 2002-2003 that there was no sustained growth in GDP as a result of the tax cuts ... none. Only in 1963, did the tax cut lead to a sustained economic growth. On the other hand, the two tax increases in 1991 and 1993, were followed by sustained economic growth ... go figure.
3. Wealth is being redistributed disproportionately from the rich to the poor. - Charts 1 and 2, clearly show how wealth is distributed from the poor to the rich, rather than from the rich to the poor.
4. Economic stimulus never work in creating jobs or economic growth - Chart 4 only gives an implied indication that the Bush Tarp and Obama Stimulus worked as advertised, in the quick reversal in 2009 of economic activity that was rapidly sliding into a depression. However, for a more complete discussion on how stimuli work, see my hub titled. "Why Economic Stimuli Work, When Used Appropriately, and Why the Tea Party is Wrong in Saying That It Won't ";lot's of charts in that one.
5. Deregulation and laissez-faire policy is the only sure remedy to a prosperous economy - Notice in Chart 4, how, as the Conservatives chipped away at the financial regulations put in place after the Great Depression of 1929, that growth kept declining until 2000, when the last vestiges of consumer protection was removed, that the economy finally went into a predictable, 1800s-style recession. Please review my hub, "A Short History of Significant Recession and Depressions in America: Their Causes and Implications (updated 10-21-2011)", for more information on the real causes of panics, recessions, and depressions and that this deregulation/laissez-faire economic policy was responsible for a 2008-size recession, or bigger, every five to fifteen years from around 1820 through 1937, with only two or three exception.
6. The lowering of Real Wages but increase in Real Compensation over the last 40 years also is a very strong indicator of wealth transfer from the Poor to the Rich.