Why income polarization is a problem

My very first post, published May 2010 on Open Salon

Income polarization has become extreme in the US. The last thing I heard, probably apocryphal, is that the top 1% owns more wealth than the bottom 95% of the population. [It depends what’s being measured; we’re close by some standards and already there by others: seehttp://sociology.ucsc.edu/whorulesamerica/power/wealth.html ] We have lower overall taxes than we’ve had since at least the 1950’s, so those with money can’t legitimately complain about how high their taxes are. So, why should anyone care?

Make believe you own a business in some community on the East Coast that Route 1 runs through and that you belong to the Chamber of Commerce. Picture the businesses on Rt. 1: fast food outlets, car dealerships, drug stores, gas stations, toy stores, clothing stores, shoe stores, video game stores, restaurants, supermarkets, electronics stores, hair salons… you get the picture.

Someone comes to a Chamber meeting and announces that you all have a choice: Either one person is going to move to town who makes a billion dollars a year or ten thousand people are going to move to town who make $50,000  apiece. [Note: I’m not a mathematical idiot, I know that 10k x $50k = half a billion, not a billion, but if you make $50k a year you’re costing your employer substantially more than that, so I’m trying to be fair here.]

Unless you’re in the business of selling yachts, mansions, or Rolls Royces, you’re not opting for the billionaire. It doesn’t matter how much wealth that person has – one person can only eat so many burgers, get so many haircuts, wear so many pairs of shoes (Imelda Marcos notwithstanding). In order for your business and the other businesses in town to prosper, you need customers with disposable income.

That, in short, is why income polarization is a bad thing, why wealthy countries have big middle classes but Third World countries are extremely polarized. The United States is polarizing rapidly and we’re not paying enough attention.

The peculiar thing is that businesses are so accepting of this phenomenon. People on Wall Street will tell you that what really matters to businesses is their tax climate or even their access to capital but the one thing businesses need more than anything else is customers with money. (Capital is 100% loans, not profit; even if you self-capitalize, it’s with the expectation of return on investment.)  There are only two exceptions: one is called a shelter or writeoff and the other is called a front. The most important asset possessed by businesses is their customer base and, if they had any sense, they’d be fighting to preserve it. The American customer base in particular drives more of the world’s economy than any other – it is the goose that lays the golden eggs. A fiscal policy that involves feeding the goose less and refusing to pay its vet bills is not fiscal responsibility but fiscal suicide, and it’s not just America that is at risk from our polarization because of how much we import. (That’s why China extends us so much credit: because they’re highly dependent on our imports to keep their factories running.)

The real reason I think this is happening is that no one is advocating change to the right people or for the right reasons. Liberals/progressives, whose policies lead to less polarization, are busy selling their (our, I’ll make no secret of my leanings) agenda based on conscience, what conservatives might call “shoving guilt.” It’s the wrong sales pitch for anyone other than other liberals. We should be pitching the business community on the basis of their survival.

A problem with the conservative perspective on this is that they tend to view the economy as a zero-sum game, which it isn’t. In case you’re unfamiliar with the term: a zero-sum game means there are a fixed amount of resources and if you get more someone else gets less. When dealing with economies, however, the size of the pie isn’t fixed. The lesson to be taught and learned here is that if you get a thinner slice of a larger pie you could end up eating better, so stop concentrating solely on the width of your slice and start concentrating on making the pie grow.