Piketty, Peter Schiff, and Inequality

I keep trying to figure out what is bad about wealth inequality.  Peter Schiff has several very good points in this post from May:

according to Forbes, Bill Gates is $78 billion richer than the poorest American. Finding another instance of that much monetary disparity may be difficult. But wealth is measured far more effectively in other ways, living standards in particular.

For instance, the wealthiest Roman is widely believed to have been Crassus, a first century BC landowner. At a time when a loaf of bread sold for ½ of a sestertius, Crassus had an estimated net worth of 200 million sestertii, or about 400 million loaves of bread. Today, in the U.S., where a loaf of bread costs about $3, Bill Gates could buy about 25 billion of them. So when measured in terms of bread, Gates is richer. But that’s about the only category where that is true.

Crassus lived in a palace that would have been beyond comprehension for most Romans. He had as much exotic food and fine wines as he could stuff into his body, he had hot baths every day, and had his own staff of servants, bearers, cooks, performers, masseurs, entertainers, and musicians. His children had private tutors. If it got too hot, he was carried in a private coach to his beach homes and had his servants fan him 24 hours a day. In contrast, the poorest Romans, if they were not chained to an oar or fighting wild beasts in the arena, were likely toiling in the fields eating nothing but bread, if they were lucky. Unlike Crassus, they had no access to a varied diet, health care, education, entertainment, or indoor plumbing.

In contrast, look at how Bill Gates lives in comparison to the poorest Americans. The commodes used by both are remarkably similar, and both enjoy hot and cold running water. Gates certainly has access to better food and better health care, but Americans do not die of hunger or drop dead in the streets from disease, and they certainly have more to eat than just bread. For entertainment, Bill Gates likely turns on the TV and sees the same shows that even the poorest Americans watch, and when it gets hot he turns on the air conditioning, something that many poor Americans can also do. Certainly flipping burgers in a McDonald’s is no walk in the park, but it is far better than being a galley slave. The same disparity can be made throughout history, from Kublai Khan, to Louis XIV. Monarchs and nobility achieved unimagined wealth while surrounded by abject poverty. The same thing happens today in places like North Korea, where Kim Jong-un lives in splendor while his citizens literally starve to death.

But then, it turns out that Bill Gates has some advantages that not only are beyond the reach of the ordinary American, but in fact define the lives of all of the rest of us.  From the Washington Post:

For an initiative billed as being publicly driven, the Common Core States Initiative has benefited enormously from the generosity of the private philanthropy of Bill and Melinda Gates. How much? About $150 million worth.

I’m inclined to be against the common core standards, just on the principle that top down command-and-control government regulation is generally more harmful than helpful, as well as the awesome results we have seen from the similar process that gave us NCLB.

But the point is not whether I or you are for or against the common core standards.  The point is that we don’t have a voice in the public education system, because we don’t have $150 million to spend lobbying for whatever it is that we want.  This is where extreme inequality is problematic.

Michael Edesess has been thinking on this also.  His quotes here are from The Great Escape: Health, Wealth, and the Origins of Inequality, by Princeton economist Angus Deaton:

It is desirable for a nation to ensure equality of opportunity, though not necessarily equality of outcomes. However, extreme inequalities of outcomes – extremes of wealth – can undermine equality of opportunity. Those who are successful have every incentive to pull up the ladders of opportunity behind them to ensure that others will not follow. “The newly rich,” says Deaton, “may use their wealth to influence politicians to restrict public education or health care that they themselves do not need.” If the newly rich are extremely successful, their wealth can be lavishly applied to both public information (and misinformation) dissemination and private lobbying of politicians and bureaucrats in an effort to limit others’ opportunities and to enrich themselves further.

Deaton cites evidence that political lobbying has played a key role in the increase in top incomes: “Changes in what might appear to be arcane or obscure rules on how markets operate, on what firms can and cannot do or on accounting rules can mean immense sums to particular interests. … Rules are set not in the public interest but in the interest of the rich, who use those rules to become yet richer and more influential.” And the costs to the wealthy, he claims, of political lobbying and campaigning are extremely low. “Even the costs of recent presidential elections are dwarfed, for example, by the annual advertising budgets of car manufacturers,” Deaton writes. “Political favors come amazingly cheaply relative to the potential benefits.”

All of this threatens democracy itself, according to Deaton: “The political equality that is required by democracy is always under threat from economic inequality, and the more extreme the economic inequality, the greater the threat to democracy.”

So it seems that the real problem is all the money that is allowed in politics.  If you couldn’t buy influence, then income or wealth inequality wouldn’t matter, or at least not as much.  How do we get money out of politics?



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