3167. Income Inequality: Why Social Class Matters

By Kamran Nayeri, January 22, 2019

July 29, 2015 interview with Vox about international income inequality. 

As the race for the 2020 presidential elections in the United States is beginning with a line up of Democratic Party hopefuls, jockeying for influence by policy wonks has also begun.  Income inequality and taxing the super-rich that was the focus of Senator Bernie Sanders in his unsuccessful bid for nomination for the Democratic Party presidential candidate in 2016 has been brought back to focus by the Democratic Congresswoman Alexandria Ocasio-Cortez’s floating the idea of a 70 percent tax rate for incomes above $10 million.  

While four years ago Sanders’ campaign against high income inequality in the United States did not get much support from the Democratic Party policy wonks, that is not so this time.  In today’s New York Times, Emmanuel Saez and Gabriel Zucman (January 22, 2019), both economists at the University of California, Berkeley, argue that taxing the very high incomes is needed to prevent “an oligarchic drift that, if left unaddressed, will continue undermining the social compact and risk killing democracy.” Saez is considered a leading economist on income inequality. Earlier, Paul Krugman (January 5, 2019) wrote a column in the Times in support of Ocasio-Cortez’s idea. He cited research by Peter Diamond, Nobel laureate in economics and “arguably the world’s leading expert on public finance” and Saez who “estimated the optimal top tax rate to be 73 percent. Some put it higher: Christina Romer, a top macroeconomist and former head of President Obama’s Council of Economic Advisers, estimates it at more than 80 percent." 

There is a side debate here between Krugman who sees high taxes on the super-rich as "soaking the rich” and Saez and Zucman who see it primarily as a way to stop the “oligarchic drift” in American politics: "Just as the point of taxing carbon is not to raise revenue but to reduce carbon emissions, high tax rates for sky-high incomes do not aim at funding Medicare for All. They aim at preventing an oligarchic drift that, if left unaddressed, will continue undermining the social compact and risk killing democracy."  

However, the key question for the working people is this: What is the source of income inequality in capitalist societies? Neither of these notable economists nor the “left-wing” politicians who popularize their views such as Bernie Sanders or Ocasio-Cortez takes up this question. The answer is capitalism itself.  As long as the social means of production are the private property of a small section of society, the capitalist class, and the vast majority of the population has to sell our labor power for a wage or salary, national income would be distributed unequally between the “haves” and “have nots,” between those whose income comes from wages and those whose income comes from profit (and financial capitalists who collect interest and capitalist landlords who collect rent).  Income inequality is built into the capitalist mode of production, just as unemployment and poverty and other ecosocial ills are built into it.  The reformers of capitalism, those who work to ensure it is maintained and efficiently run as a system, constantly work to address alleviate these systemic problems. 

Thus, the presumption that a high tax on the super-rich will either cure income inequality or stop “oligarchic drift” in American politics is flawed.  Capitalist economies rest upon class power relations.  The “economic machine,” that is, the matrix of ecosocial relations then capitalist class controls, is used to extract wealth from nature by exploiting the working people through subjugating nature and society to the capitalist rule.  Still, the anthropocentric industrial capitalist economy creates its own systemic crises. One of these has been the rapid rise in income inequality in the U.S. and across the world.  This has been partly due to the neoliberal response to the 1970s the crisis of the anthropocentric industrial capitalist civilization which has intensified the ecosocial modes of exploitation and public policies that ensure distribution of ever more portion of the extracted wealth into the hands of a fewer and ever richer tiny group of super-rich across the world.  

According to the Credit Suisse report (2016), the richest 3.5 million people worldwide (o.7% of world population) control $116 trillion or 45.6% of the world’s wealth (Of course, even in this tiny group wealth is highly concentrated in an even tinier subgroup).  The share of the poorest 3.5 billion people (73% of the world population) is only $6.1 trillion of wealth or on average less than $10,000 in wealth each (Of course, a majority in this group have no wealth or even have negative wealth, debt).  

The combined ecological, social and political crises in the periphery of world capitalist system have led to the migration out of sections of Asia and Africa, and from Central America to the capitalist centers in Australia, Europe, and United States.  They have become a scapegoat for the rightist politics of a section of the capitalist ruling elite and fanned the flames of even more rightist public policy and wider acceptance of the neo-fascist groups in the West even as the entire capitalist political system has been moving to the right for almost four decades.  Saez and Zucman outline this rightist shift in taxation and public finance in their Times article and in detail elsewhere. Still, it is crucial to remember that they are dealing with the symptom, not the cause, which remains the capitalism itself. 

The bourgeois liberal response to these is as inadequate as it was in the 1920s and 1930s when a similar crisis engulfed the world.  The only way to eliminate income inequality and evermore concentration of wealth and power in the hands of the superrich is to empower the U.S. and world working people.  Class matters not only for understanding the sources of problems currently discussed in public policy but even more importantly, if we are to build the only resistance capable of defeating the dangers of the far-right and fascist rise in the West: the power of hundreds of millions of working people and their mass organizations.  Alas, both theory and history tell us that the liberal bourgeois policymakers would rather see the rise of fascism than the undisputed power of the working class. Let's remember that their proposed policies to tax the super-rich or moderate income inequality is, to use Saez's and Zucman's words, to avoid "undermining the social compact." Like the word "Deal" in New Deal or Green New Deal, "social compact" is the bourgeois reformers goal of keeping class peace to ensure a well-functioning capitalist economy.  The fascist movement offers a forceful solution to the class conflict to save "the system." Because the liberal bourgeois policymakers' focus is on serving the capitalist system they would rather not see a powerful and militant labor movement that may go beyond fighting fascism and bring down the anthropocentric industrial capitalist civilization itself. 

References:

Credit Suisse. The Global World Report 2016. 2016.
Krugman, Paul. “The Economics of Soaking the Rich.” The New York Times, January 5, 2019.
Saez, Emmanuel and Gabriel Zucman. “Alexandria Ocasio-Cortez’s Tax Hike Idea Is Not About Soaking the Rich.” The New York Times, January 22, 2019)