Jan 15, 2010

The Redistribution of Wealth: Comparative Economics, Neoliberal Capitalism and Wall-Street Bonuses

One thing I've noticed from studying anthropology and reading ethnographies of other cultures is that every economic system, whether it's composed of egalitarian hunter-gatherers or hierarchical aristocracies, has had some method for redistributing wealth. I think there's a good reason for this; it seems intuitive to me, though I couldn't back it up with actual data, that the natural flow of wealth is always upward. That is, wealth tends to flow towards those who already have it and away from those who do not. There are, of course, exceptions, but it seems to be a reasonable generalization. The same is true for power. Though I don't agree that wealth and power are equivalent, I do believe that there is a reciprocal relationship between the two - wealth can buy power and power can attract wealth. In fact, it may be this cyclical relationship between power and wealth that drives the upward flow of both.

The problem is that, when a society's wealth becomes overly concentrated in a few hands, that society becomes increasingly unstable. Extreme poverty sits outside in the cold while extravagant wealth dances and drinks cocktails in a penthouse on the top floor. The flow is unsustainable, and it is the flow of wealth, like blood through veins, which keeps a society alive. This is why every economic system has developed some system for redistributing wealth - small groups use reciprocity, slightly larger groups use complex rituals and centralized priesthoods, even larger groups use governments and taxation. The point is to siphon wealth from those who have a lot of it and give it to those who have little, thus maintaining the flow of wealth and a degree of equality within the population.

I'm sure you've all seen, or at least heard of the champagne glass distribution of wealth. What has happened in recent decades is that wealth has become increasingly concentrated in the hands of a very small population. The reason for this is that classical, laissez-faire Capitalism, as it's presented in theory, lacks any form of redistributive mechanism. Government intervention through taxation, the only form of redistribution that could potentially handle the enormous flow of money generated by industrial capitalism, is considered harmful and the "invisible hand" of the market is supposed to take care of everything.

In the past, the government has intervened anyway. After the Great Depression made it clear that laissez-faire capitalism doesn't work, the US government implemented a series of social programs that effectively redistributed wealth to the general population (mostly in the form of services rather than actual cash). In the years that followed, welfare state capitalism attempted to balance the distribution of wealth (though it still allowed for extreme differences as well, and it also gave rise to the Military Industrial Complex that Eisenhower warned about). Then, in the 1970s, the oil crisis hit and the world was thrown into another economic recession. This time the blame was placed on Keynesian economics and the welfare state, and Neoliberal economists were able to worm their way in to a dominant role.

There is, however, a key difference between Neoliberal economics and classical capitalism. The difference is that Neoliberals are not opposed to the redistribution of wealth, as long as the wealth is redistributed to those at the top in the hope that it would "trickle down" to the rest of the population (which, of course, is the opposite of the theory proposed above). The result is that there has been an acceleration of the natural upward flow of wealth so that, in just a few decades we have seen both the US and the Global economies develop that champagne glass shape. The problems with this have become glaringly apparent in the last decade as the global economy has been plunged into a deep recession and a number of economic scandals (i.e. Enron and Godlman Sachs) have plagued our nation.

However, policy makers have done nothing to address the root cause of the crisis - the lack of redistribution of wealth. Bush's final act was to give trillions of dollars to the banks to bail them out of their problems. Obama has continued that approach, and what we see now is that the banks are the only groups to have recovered - drawing record profits roughly equivalent to the amount of taxpayer money they were given by the government and offering enormous bonuses to the very CEOs that caused the current economic crisis.

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With this principle in mind - that an economy requires redistribution of wealth in order to be sustainable - the best practice, one which most economists would likely scoff at, would have been to give the money to the poorest populations either in the form of hard cash or services (i.e. universal health care, subsidized college tuition, social security programs, etc.). That kind of subsidy would truly lift all boats, as the money would flow up the wealth ladder, enriching everyone on the way. Instead, our governments and international agencies continue to support the trickle-down theory, which amounts to corporate welfare and legitimized theft by the wealthy from the poor.

It's time we were outraged by this. It's time somebody said "Enough is enough!" and demanded that the corporations give back our money so we can do something useful instead of waste it on a fragile, inequitable economic system.

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