Sam Pizzigati — The Flacks for Plutocrats Need a New Analogy

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 rationalize 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. Now we have a new analysis that essentially shreds what little credibility remains from that once potent rising-tide world view.…

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 from much more than academic studies. 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 raised tax rates on taxpayers making over $500,000 by 30 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.

"Social separatism" is class and power structure by another name, since "class" and "power" are politically incorrect terms in economics.

Inequality.org
The Flacks for Plutocrats Need a New Analogy

Sam Pizzigati | Editor, Too Much, the Institute for Policy Studies online weekly on excess and inequality