The US was built on inequality, and was structured so as to maintain that inequality. It’s so deeply embedded in the fabric of the country that most people don’t see it – they’re indoctrinated to see the flip-side of that inequality as “middle class” and “upward mobility.” When a president talks about “helping the middle class” it’s not saying “We’re going to make things better for people!” it’s saying “We’re going to make things more unequal!” Because, the fact of the matter is that the middle class is smaller.
The Guardian [guard] identifies a problem
The authors cite the legacy of discriminatory housing policies, an “upside down” tax system that helps the wealthiest households get wealthier, and the economic effects of mass incarceration as among the root causes for the discrepancy.
The numbers in the chart above are ridiculous: 6 times? The report cited in The Guardian is focused on the trend-line (which is that it’s getting worse) but the starting point is pretty bad. For one thing, if I make 6 times what you make, I get to take advantage of more opportunities to invest and save – “it takes money to make money”. I covered this dynamic, specifically in relation to the practice of red-lining, with some important quotes from Robert Paul Wolff. If you haven’t read that piece, I urge you to [stderr] – Wolff’s explanation is devastating. His summary:
Michael, on the other hand, even though he has as good a job as Skip, will never be able to buy his own home, for his father has no assets that may be deployed to give him the down payment. The disadvantages of the fathers are visited upon the sons. Thoughtless social commentators will wonder why Skip is doing so much better by the year 2000 than Michael is, and will come up with elaborate cultural and psychological explanations, blaming low self-esteem [if they are liberals] or the lack of a suitable work ethic [if they are conservatives] but all of their fancy explanations will be wrong. The real explanation of the generations-long effects of explicitly discriminatory policies of previous eras , which continue to manifest themselves in dramatic inequalities of wealth, even after inequalities in income have been corrected by the marketplace or even by affirmative action and anti-discrimination laws. [Robert Paul Wolff, Autobiography of an Ex-White Man, amzn]
If you look at American society, there are all sorts of places where things are upside-down: it’s designed to preserve what the “haves” have got, and extract from the “have nots.” For example, why is it that someone who is wealthy enough to own a house, can get a tax deduction on the mortgage interest? Sure, it’s to help make it easier for people to own a house – but only the people who can step across the threshold with the initial payment. There are tax incentives for longer-term investment versus short-term investment, which are billed as “to encourage long-term investment” but – here’s how you can tell that’s a lie: if long-term investment yields better results (as they say it does) then it’s inherently more rewarding and we need no additional incentives. If it doesn’t yield better results then that’s another problem entirely. The long term capital gains tax advantage is set up to favor people who have enough capital that they can afford to have it parked for decades; i.e.: people who already have money.
The Guardian continues:
Recent economic crises have widened this wealth gap, according to the report, as communities of colour took the brunt of the economic hit. Black median wealth has never recovered from the 2001 recession, nor Latino median wealth from the 2008 financial collapse. White median wealth, on the other hand, was left unaffected in 2002, and began rebounding just two years after the speculative housing bubble began to implode.
Right – so there’s a near collapse of the market, and a collapse of a housing bubble. The US Government rushed in to prop up the people who had houses and had investments. All the people who didn’t own their own homes, or have a stock portfolio? The only help they got was in the form of the “bounce” when the economy started to turn around – a “bounce” that was higher and better for the people who had enough assets that they could weather the downturn. Right now, the stock market is at record heights – someone who had the assets to hang on, keep their house, struggle through a period of stress and unemployment – they may have come out better off than they were when the crisis hit. But the people who were on the margins already: they lost their homes and they probably never had enough capital to spare for investment anyway. They’re reset right back to where they started.
Americans have been conditioned to look at household income as a metric, because it’s an OK metric, but it doesn’t tell anything about a household’s financial resiliency – can they take a downturn and come out on the other side? That’s going to depend on their ability to have a financial cushion for emergencies which takes us back to the long-term capital gains/investment tax difference. One of my friends experienced a period of unemployment during the 2008 downturn, and got whacked pretty hard because they had to sell stock they had hoped the profits would be long-term capital gains, but they had to pay a higher tax rate because they needed the money right away. Don’t cry: they were complaining that they had to pay more tax on their profits than they expected. Meanwhile, people on the margins – vastly more of them black and hispanic – were getting foreclosure notices. My friend (who is white) had 8% of his profits go up in smoke. Another couple I know (who are white) had enough money set aside that they were able to take advantage of the downturn to buy several houses that were being foreclosed: they got about a 20% discount on the properties and, when the market rebounded, flipped them and made a fortune. If you buy something at a 20% discount and can afford to hold onto it long enough to get that capital gains deduction (8%) and sell at a 5% mark-up, it looks like this: I buy a $100,000 house for $80,000 then flip it a year later for $105,000, pocketing $25,000 and paying 8% less taxes on the $25,000. Someone on the margin of survival can’t do that. Yet, oddly, the American establishment’s entire concern during the downturn was the middle class. <snark>It’s as if the establishment wants to “divide and conquer” the middle class from the lower class, so they can use them as useful idiots to keep the lower class down.</snark> (Some of those useful idiots call themselves “Libertarians”)
“You find first-generation, even second-generation African-American and Latino households that have professional jobs and are making ‘middle-income money’ – but they have the wealth of a white high-school dropout,” Asante-Muhammad said. “They’re not truly part of a middle class – which would mean financial stability, money to weather challenging economic situations, or money to invest in the economic opportunities of their children.”
That’s the issue: can they invest in their children? My parents ran themselves into quite a lot of debt paying for my sister and my education – but they could: they had a valuable home that was appreciating nicely, which they bought at a substantial discount during the real estate downturn in Baltimore following the “white flight” after Dr. Martin Luther King, Jr. was murdered and there were riots in the city.
The solution, he said, is to “invest in a 21st-century American middle class. We need to make sure, for the first time, that we are investing in a middle class that includes communities of colour. This generally hasn’t been done before.”
The US has not only not done that, it’s done the opposite. Red-lining, school re-segregation, the war on drugs, racial profiling by police, and police violence: all of these things have a profound economic impact, and the key point of all of this is that those economic impacts are long-term.
Imagine a footrace where there’s one runner that has substantial advantages to begin with: better training, better gear, more opportunity to train, and a doctor that supplies them with all the hormone therapies they want. The other people in the footrace start off with shoes they borrowed, they can’t train much because they have day jobs so they workout instead of sleeping – and when the gun goes off, a cop’s there to pepper spray them. Meanwhile, the announcers up in the press box are saying “there’s something wrong with ‘those people’ – it’s like they can’t run worth a damn.”
In the “help the middle class” discussion nobody mentions the rich, because they already got theirs and their social program is to keep it and collect rent on it, allowing them to remain a permanent oligarchic establishment.
The entire taxation system needs to be radically restructured to advantage the poor and, yes, redistribute wealth. As Shiv brilliantly put it: “It’s not taxation, it’s guillotine insurance.”