Territorial Economic Inequality: On the Impact of Ideological Category-Mistakes

Why do some countries have more inequality in terms of wealth or economic development, whether between big cities and urban areas, or just from region to region, than do other countries? I contend that in comparing the internals of one state/country to those of another, as much “all else equal” should be satisfied as possible. This can be accomplished to a large extent by resisting the error, or temptation, to make category mistakes, such as in comparing Singapore with China—a city-state to an empire-scale country—or in likening an E.U. state to the entire U.S. European scholars of comparative politics tend to make this category mistake, and non-European scholars are so used to the ideological aggrandizement that they do not typically even recognize the category mistake of treating an early-modern(rather than Medieval) kingdom-scale state of an empire-scale federal union as equivalent to another such union, as if a state in one such union, or a comparable sovereign state, were itself an empire-scale union. Resisting the ideologically-driven urge to begin with a category mistake would do wonders in studying comparative politics and political economy and providing more accurate and beneficial conclusions and recommendations.

Illinois, for example, has fifteen economic regions, yet the one containing Chicago dwarfs the other regions, with are either rural or sport a medium-sized city like Springfield, Rockford, and Peoria, none of which is known for its wealth. How does this compare with Switzerland in contrasting Zurich, and to a certain extent Geneva, which is half the population of Zurich, to the counties, or cantons, that are mainly rural? Both in territory and population, Illinois is larger than is Switzerland, and Chicago relative to the rest of Illinois has a higher population and greater metro-territory than Zurich has to the rest of Switzerland; perhaps comparing Paris in France to Chicago in Illinois would be a closer comparison. Unlike Switzerland, neither Illinois nor France has a federal system, and both are semi-sovereign states in federal systems, the U.S. and E.U., so in comparing Illinois and France, a scholar would better able to “hold all else constant,” except in terms of population, than is the case in comparing Illinois and Switzerland. In that regard, comparing Arizona and Switzerland would be better, as the respective populations are around 7 to 8 million people.

Avoiding the temptation to make category mistakes, such as in claiming that Switzerland is a United States of Europe, with county-sized cantons be likened to red and blue American states, is a prerequisite to being able to make accurate comparisons. At a talk at the Center for European Studies, a Swiss junior scholar acted on the urge during a talk on this topic in November, 2024, to ignore this point even though it had been made by a senior scholar and the scholar from MIT visiting to give his talk that E.U. and U.S. states are comparable with respect to contrasting large cities with rural areas. Ideology, whether States’ Rights in America or the Euroskeptic, or “nationalist,” ideology in Europe, can entrap even scholars, such that their scholarship may be compromised from their decision on an axis of comparison. Hawaii, Alaska, or Texas becoming a member-state in the U.S. is not comparable to one of Switzerland’s county-scale cantons.

After avoiding category mistakes that are based on ideology rather than reason, we can investigate whther too much power being given by a government to localities and regions increases the economic inequality from region/locality to region/locality because there tends to less economic redistribution to less developed regions or urban areas, and because they tend to compete with each other for direct investment by companies. How can we reconcile the cities competing against others to economic equality between regions and cities within a country?

Moreover, there is not only an economic divide between big cities and rural “left behind” places; there are social and cultural differences too; for example, anti-urban sentiment can be non-economic barrier to moving to a big city for school or a job. In some states/countries, the chasm may be more cultural whereas in other cases the difference may be more economic.  To claim that cultural differences within a European state are comparable to those between certain U.S. states, such as Hawaii and Alabama, even ignoring the fact that different languages are spoken to a considerable extent in those two U.S. states and even dismissing the non-linguistic differences that can exist between two distant and large geographical territories, such as Hawaii and Alabama (or Louisiana!), reflects the convenient imprint of a European ideology.

In short, category mistakes, whether spuriously using political, economic, or cultural factors, can doom a study of comparative politics and economics from the start. Much of what is concluded by reason once such a mistake has been made is likely to be faulty. Perhaps the largest cost in doing so in many studies may be in the loss of scholarly reputation of the fields of comparative politics and political economy. Judging from the talks at Harvard’s Center for European Studies, the ideological motivate is salient even among scholars, and this prompts me to ask whether the results of their scholarship is in fact academic in nature or too compromised by the common instinctual-urge to put one’s own ideology in the driver’s seat. To Nietzsche, the content of ideas is instinctual urges, and reasoning is the process in a brain whereby those urges compete with each other for dominance.  

Executive Compensation Tied to Firm Performance: A Critique

With robust economies in America boosting companies’ sales, corporate tax cuts, and an increase in stock buybacks lifting stock prices in 2018, the default mantra in executive compensation circles that high CEO pay is justified if it is tied to firm performance could be questioned. Similarly, the typical assumption that high pay would have to get higher for a CEO to be motivated to do the basics of the job, including overseeing mergers and acquisitions, (or that doing the basics warrants a raise) could be questioned. Particularly in 2018, the comfortable, self-serving ways of the business elite in the U.S. were ripe for critique.

An analysis by The New York Times shows that the medium compensation for CEOs in 2018 was $18.6 million, which represents a raise of $1.1 million, or 6.3%, from 2017.[1] Meanwhile, the average private-sector worker got a 3.2% raise, which translates into 84 cents per hour. In short, the CEO compensation increased at almost twice the rate of ordinary wages. The question is whether the increase was justified or a matter of the American business elite taking care of their own.

Years earlier, Congress had given shareholders of American companies a “special but nonbinding vote” on the ratio of a CEO’s pay to that of the medium employee.[2] The nonbinding feature meant, however, that populism would have no weight in corporate boardrooms. If lawmakers had been motivated by corporate campaign contributions, the nonbinding nature of the vote suffered from the start from a conflict of interest exploited by the political and business elites.

Even the (pro-active?) response of corporate boards to pressure from some shareholders and advisory firms is problematic even though it seems to make sense from business perspective. Boards have been tying more of a CEO’s pay to the company’s financial performance as if the CEO has a big impact as distinct from structural forces such as a good economy or a tax cut that help companies’ bottom lines and stock prices. Boards “continue to act as if C.E.O.s have unique powers to deliver better returns.”[3]  

For example, Testla’s board approved compensation as much as $2.3 billion for Elon Musk, the CEO. To be sure, the company’s market value would have to increase 18 times to $650 billion for Musk to see get all “the options in the award.”[4] The board members tied the high compensation to company performance so he would “devote his time and energy” in Tesla rather than “wander to his other ventures, like SpaceX, or that he could leave Tesla altogether.”[5] As pointed out by the Times, this logic is flawed, for he already “owned roughly a fifth of Tesla, [so] his financial interests were already strongly aligned with the company,” according to Analysts for Institutional Shareholder Services.[6] Additionally, a highly paid CEO (without counting the 2018 award, had it been awarded) should be expected to be motivated by the high pay alone (without a 6% raise) to devote a lot of time and energy to the job. To be sure, Musk was at the time considered a visionary at the company. However, using tied-to-firm-performance to motivate him to show up each workday suggests that the criterion or basis undergirding executive compensation is problematic—and this doesn’t even take into account the matter of getting compensated more because of a tax cut or a strong economy, neither of which a CEO should get credit unless he or she had made the political contribution that got the corporate tax cut passed.

[1] Peter Eavis, “It’s Never Been Easier to Be a C.E.O., and the Pay Keeps Rising,” The New York Times, May 24, 2019.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

Beyond Collectivism and Individualism: Freedom from Fear

In his speech on April 13, 2011 on reducing the U.S. Government deficits, President Obama identified two strains that had run through the country’s political history and thus informed the American political culture. “More than citizens of any other country” he said, “we are rugged individualists, a self-reliant people with a healthy skepticism of too much government. But there has always been another thread running throughout our history – a belief that we are all connected; and that there are some things we can only do together, as a nation.  We believe, in the words of our first Republican president, Abraham Lincoln, that through government, we should do together what we cannot do as well for ourselves.”[1]  These two strains can be identified as individualism and collectivism, respectively. I contend that collectivism enables both individual and collective security. Individual security is oriented to a person’s survival and collective security is exemplified by national defense. 

In his speech, the president explicitly placed individual security within the collectivist strain. “Part of this American belief that we are all connected also expresses itself in a conviction that each one of us deserves some basic measure of security.  We recognize that no matter how responsibly we live our lives, hard times or bad luck, a crippling illness or a layoff, may strike any one of us.  ‘There but for the grace of God go I,’ we say to ourselves, and so we contribute to programs like Medicare and Social Security, which guarantee us health care and a measure of basic income after a lifetime of hard work; unemployment insurance, which protects us against unexpected job loss; and Medicaid, which provides care for millions of seniors in nursing homes, poor children, and those with disabilities.”  That is, limits to rugged individualism exist, whether in the state of nature or in an interdependent economy, and collectivized programs can bridge the gap on an individualized basis such that individuals can continue to enjoy liberty. The individualist/collectivist dichotomy is thus not so clearly dichotomist.

According to Obama, societal connectedness with others, something limited to the family or clan in the state of nature, implies the societal duty of individuals with economic surplus to contribute to the survival needs of other individuals, especially those who cannot fend for themselves. Individuals pay taxes and individuals receive sustenance benefits—the collectivism seems in actuality to mean systemic.

I have noticed that rich Europeans tend to acknowledge both that they too may someday be in need of such benefits, and that, under the principle of solidarity, a duty exists to pay higher taxes than otherwise so other people may survive rather than perish. As the American president pointed out in his speech, hard luck can befall each of us; no one is immune from calamity and ruin. Europeans seem to get this; American’s don’t.

Europeans also seem to recognize a basic psychological ease of mind exists in knowing that even in the worst-case scenario, a safety net exists. Even if a rich or middle-income American never needs to draw on Social Security and Medicare in retirement, whether due to age or disability/illness, the psychological security afforded by this recognition through life is surely worth something to the individual. Such a person (i.e., with economic surplus year to year) can justify on self-interest alone paying more in taxes to feel even this subtle peace-of-mind (i.e, individual security) through life. In other words, the narrow breed of self-interest (i.e., selfishness) that exists in American culture as a common trait among individuals is not even in the individual’s own interest. Such individualism is thus faulty.

I have not come across many rich Americans who recognize that they too may need such services (ignoring the stock market crashes of 1873, 1929 and others); such people thus view sustenance-oriented taxes as paying for lazy people to play or do drugs. Should such people therefore die? As disgusted as I am with the American inner-city “ghetto” mentality that potential employers justifiably eschew, I believe that to say people with such entrenched mentalities should therefore die for want of sustenance violates human rights, which are not conditional. Too many Americans may be guilty of an entrenched selfishness whose greed knows no bounds even at high levels of wealth. The selfishness that sees narrowly only that earning or amassing more wealth is possible at any level is utterly blind to the foundational peace of mind that comes with having confidence that a safety net even for oneself exists.

Together, callousness toward others less fortunate and selfishness concerning wealth are, I submit, just as ugly as a “fuck society, the rules don’t apply to me” ghetto mentality. A bad odor surrounds both even if some noses are immune to their own smell. In contrast, imagine a society in which the fear stemming from a recognition that survival itself is conditional even out of the state of nature, in “advanced” societies, is absent. The psychological effects even from the removal of such a subtle, subterranean fear, can be significant. My dad used to refer to “quality of life” as being an important attribute of reaching an old age. Yet the importance of obviating a sustenance-conditional fear in a person’s quality of life even when the quality is otherwise good tends to be missed by most Americans in their prime. The Titanic can’t sink!

---

[1] Barak Obama, “Text of Obama Speech on Deficit,” The Wall Street Journal, April 13, 2011.

Increasing Income Inequality in the U.S.: Deregulation to Blame?

Most Americans have no idea how unequal wealth as well as income is in the United States. This is the thesis of Les Leopold, who wrote How to Make a Million Dollars an Hour. In an essay, he points out that the economic inequality increased through the twentieth century. His explanation hinges on financial deregulation. I submit that reducing the answer to deregulation does not work, for it does not go far enough.
In 1928, the top one percent of Americans earned more than 23% of all income. By the 1970’s the share had fallen to less than 9 percent. Leopold attributes this enabling of a middle class to the financial regulation erected as part of the New Deal in the context of the Great Depression. In 1970 the top 100 CEOs made $40 for every dollar earned by the average worker. By 2006, the CEOs were receiving $1,723 for every worker dollar. In the meantime was a period of deregulation beginning with Carter’s deregulation of the airline industry in the late 1970s and Reagan’s more widespread deregulation. Even Clinton got into the act, agreeing to shelve the Glass-Steagall Act, which since 1933 had kept commercial banking from the excesses of investment banking. The upshot of Leopold’s argument is that financial regulation strengthens the middle class and reduces inequality by tempering the wealth and income of those “on the top.” Deregulation has the reverse effect.

The increasing role of the financial sector in the second half of the 1900s means that finance itself could claim an increasing share of compensation.  

Leopold misses the increasing proportion of the financial sector in GDP from the end of World War II to 2002. The ending of the Glass-Steagall act in 1998 does not translate into more output on Wall Street relative to other sectors. Indeed, the trajectory of the increasing role of finance in the U.S. economy is independent of even the deregulatory period. Leopold’s explanation can be turned aside, moreover, by merely recognizing that the “young Turks” on Wall Street have generally been able to walk circles around the products of their regulators. Even though financial deregulation can open the floodgates to excessive risk-taking, such as in selling and trading sub-prime-mortgage-based derivatives and the related insurance swaps, I suspect that the rising compensation on Wall Street has had more to do with the increasing role of the financial sector in the American economy.
The larger question, which Leopold misses in his essay, is whether the “output” of Wall Street is as “real” as that of the manufacturing and retail sectors, for example. Is there any added value to brokering financial transactions, which in turn are means to investments in such things as plants and equipment used to “make real things”? Surely there is value to the function of intermediaries, but as that function takes on an increasing share of GDP, it is fair to ask whether the overall value of “production” is inferior.

Given the steady increase of the financial sector as a percent of GDP, one would expect a more steady divergence of these two lines. Reagan's deregulation fits the divergence pictured, though one would expect a further increase in divergence after the repeal of the Glass-Steagall Act in 1998.  Source: Les Leopold

As for the rising income and wealth of Wall Streeters, increasing risk, which is admittedly encouraged by deregulation, is likely only part of the story. If the financial products are premium goods as distinct from the goods sold at Walmart, for instance, then as the instruments are increasingly complex one would expect the compensation to increase as well.
Leopold is on firmest ground in his observation that Americans are largely oblivious to the extent of economic inequality in the United States. Few Americans have a sense of how much more economic inequality there is in the U.S. than in the E.U., where the ratio of CEO to average worker compensation is much lower. One question worth asking centers on what in American society, such as in what is valued in it, allows or even perpetuates such inequality, both in absolute and relative terms. The relative terms suggest that part of the explanation lies in cultural values having relative salience in American society. Possible candidates include property rights and the related notion of economic liberty, the value placed on wealth itself as a good thing, and the illusion of upward mobility that allows for sympathy for the rich from those “below.”
In short, beyond actual regulations, particular values esteemed in American society and the increasing role of the financial sector in the American GDP may provide us with a fuller explanation of why economic inequality increased so during the last quarter of the twentieth century and showed no signs of stopping during the first decade of the next century. Americans by in large were wholly unaware of the role of their values in facilitating the growing inequality, and even of the sheer extent of the inequality itself. In a culture where political equality has been so mythologized, the acceptance of so much economic inequality is perplexing. At the very least, the co-existence of the two seems like a highly unstable mixture from the standpoint of the viability of the American republics “for which we stand.” Yet absent a re-calibration of societal values, the mixture may be an enduring paradox of American society even if the democratic element succumbs.

Source:

Les Leopold, “Inequality Is Much Worse Than You Think,” The Huffington Post, February 7, 2013.

26 Billionaires = 3.8 Billion People

In 2018, 26 billionaires owned the same amount of wealth as the poorest 3.8 billion people, worldwide, according to a study by Oxfam, an anti-poverty non-profit organization. In 2017, the number of billionaires was 43, so the trajectory of wealth distribution was one of continued concentration.[1] Since the 2008 financial crisis, the number of billionaires doubled by 2019 whereas the poorest half of the world saw its wealth decline by 11 percent. The trajectory being clear, the questions can be said to be why? and  how will it turn out?  In this essay, I briefly attend to the first question by highlighting the intensifying contributions of enabling systems.

The Oxfam report points to enabling tax systems whereby the very rich along with corporations were paying lower taxes than they had in decades while 3.4 billion people were living on less than $5.5 a day. To say the tax regimes were unfair would be the conclusion of an ethical argument, whereas the report’s strongest point is simply that the structure of the regimes was contributing to the increasing disparity of global wealth. For example, the 2017 tax cut in the U.S. benefitted primarily the wealthiest 1 percent even though it was sold to the American people as a tax break for the middle class.

Accordingly, the monied interests, such as billionaires and large corporations, being able to manipulate voters via “their” representatives is another part of the answer. It could even be said that as governments—even democracies—become increasingly influenced by the wealthy, these de facto plutocracies also explain why the trajectory toward increasing economic inequality has occurred. In a plutocracy, the close legislative fights are between different corporate segments, which have spent roughly the same on campaign contributions and lobbying, whereas the no-contest battles are between a beguiled public and an industry or the business sector itself. Hence, the Obama Administration refused to prosecute those who engaged in fraud in the sub-prime mortgage business that came to a head in the financial crisis of 2008. Once sufficiently concentrated, wealth can manipulate and even rule even a de jure democratic government. So even though economic inequalities between people, such as effort at school and at work, can explain some economic inequality, the concentrating itself can take on a life of its own, with government-laid tracks to ease the way toward greater concentration. Perhaps the underlying mentality or value-system is that more is never enough, to invoke the film, Wall Street.

In short, there is human nature, which naturally develops social systems (including economic and political). The latter can gain a traction that can intensify the effects of human nature and individual differences between individuals. The part of the whole that is invested in those effects has the wherewithal and motivation to eclipse the good of the whole by distorting or manipulating the systems in ways that disproportionately benefit that part while the welfare of the other parts are not considered. Those other parts must put up with rigged, or tilted, systems as if the northern hemisphere in the winter season. Meanwhile, the part that benefits disproportionately from the tilt has no intent to use its power to redesign the system so that the Sun is directly above any part of the Earth for at least part of the year. Of course, the ice would melt so we would have that catastrophe to worry about, but where wealth is highly concentrated, the powers have little incentive to deal with rising oceans (and climate change) anyway because the 26 billionaires would have to pay disproportionately to fix the problem. The people without air-conditioning would suffer disproportionately should the wealthiest preempt governments from getting the money needed to obviate the problem. So the underlying culprits may not only be greed, but also a lack of consideration for others, Both can be stitched into political and economic systems, and even social systems whose values and norms are enabling.

---

[1] Laura Paddison, “26 Billionaires Own the Same Wealth as the Poorest 3.8 Billion People,” The Huffington Post, January 20, 2019.

Food as a Human Right: A Basis in Rousseau

The natural right to food unconditionally in society is based, I contend, on the assumption that it is because a person without food is in society that he or she is going without. In other words, were he or she in the state of nature, acquiring enough food would not be a problem. Rousseau makes this point in his Discourse on Inequality[1].

Jean-Jacques Rousseau (1712-1778)  Source: Wikimedia Commons.

Basing a human right to food on Rousseau’s philosophy risks the criticism that rights cannot possibly exist in the philosopher’s beloved state of nature, as rights depend on there being a government. However, Rousseau adopts wise Locke’s notion that one’s labor added to land makes it one’s property as a matter of right even without the institution of government. For my purpose here, it is enough to claim that a food-sustenance is a human right in political society. It is precisely on account of how that society differs from the state of nature than the human right is necessary only in society.

“As long as men remained satisfied with their rustic cabins; as long as they confined themselves to the use of clothes made of the skins of other animals, . . . ; in a word, as long as they undertook such works only as a single person could finish, and stuck to such arts as did not require the joint endeavours of several hands, they lived free, healthy, honest and happy, as much as their nature would admit, and continued to enjoy with each other all the pleasures of an independent intercourse.” In other words, with people being limited in production or collection to their own needs, there is likely to be enough for all. From “the moment one man began to stand in need of another's assistance; from the moment it appeared an advantage for one man to possess the quantity of provisions requisite for two, all equality vanished.” From natural differences between people even in the state of nature, as soon as some people of superior strength and industriousness desire food enough for many, perhaps to sell or give away the surplus for money or power, more scarcity than is due to nature is apt to set in for other people not so constituted.

With more labor necessary to produce or collect a surplus beyond one person’s own needs, “boundless forests became smiling fields, which it was found necessary to water with human sweat, and in which slavery and misery were soon seen to sprout out and grow with the fruits of the earth.” With artifice being superimposed on nature’s provisions that otherwise are open to all, the output is skewed in distribution toward some.

Furthermore, with the economic interdependence that comes with society and an economy of different sectors and specialization of labor, the connection that everyone has to nature’s fruits is broken for many and fewer hands remain to work the land even though everyone must eat. “The more hands were employed in manufactures, the fewer hands were left to provide subsistence for all, though the number of mouths to be supplied with food continued the same.” The natural right to food as unconditional kicks in, and is due to, the fact that the must eat continues, being based on nature, even as instituting an economy puts the supply of food at risk for some. Hence, the right is natural because we must eat on a regular basis, even if people establish and superimpose an economy on nature’s fruits, distorting their relatively equal distribution. The right is a right because it is only necessary once society, including an economy and government, has taken people out of the state of nature.

On Securing the Human Right, See: "Should Charities Replace Government?"

---

1. Rousseau, Jean-Jacques, Discourse on the Origins of Inequality, Harvard Classics, Charles W. Eliot, ed., Vol. 34 (Cambridge: Harvard University Press,1910).

Questioning Universal Basic Income

The gist of basic income is that a government “distributes cash universally. As the logic runs, if everyone gets money—rich and poor, the employed and the jobless—it removes the stigma of traditional welfare schemes while ensuring sustenance for all.”[1] The “logic,” I submit, is flawed even if the basic idea is solid.

The notion of a basic income sprung from the desire to “reimagine capitalism to more justly distribute its gains.”[2] Justice here translates into the ideological belief that sustenance itself is a basic human right, and thus should be guaranteed to everyone. The obligation of government follows from this right. Interestingly, the laissez-faire economist, Milton Friedman, “embraced the idea of negative income taxes that put cash in the hands of the poorest people.”[3] But as the poorest may not fill out tax returns, cash payments by governments may more fully realize the objective of a basic income-floor (i.e., no one gets less than the floor-amount).

I submit that just as making sure that every adult has the basic, or floor, income, the notion of such a floor does not justify a government giving cash to everyone—rich or poor, employed or jobless. Adults whose income already exceeds the income-floor do not need additional income to get up to the floor, for such people are already above it. As for the stigma of welfare, which is very real in states like Arizona, the notion of a basic income can appeal to people whose income is above the floor, for they would be free of the anxiety of possibly falling through the cracks of a checkered social net should even a high income end amid continued high expenses. In the wake of the financial crisis of 2008, for instance, many people whose income exceeded a basic floor oriented to sustenance lost their homes when they went under water as real estate markets collapsed—especially in Florida and California.

Orienting the give-out of cash only to adults whose existing income is zero or otherwise below an established floor (i.e., a floor sufficient that sustenance can be achieved) would render such a program more fiscally stable. Whereas Stockton, California, began a test program in 2018 whereby 100 families would get only $500 a month—an amount clearly below sustenance—the requirement of a full-fledged program wherein only adults below the floor would get cash could more easily afford to set a floor that truly allows for substance.  Then nobody, rich or poor, would have to fear not being able to survive.

---

1. Peter S. Goodman, “Inequality? California City Is First in U.S. to Try,” The New York Times, May 30, 2018.

2. Ibid.

3. Ibid.

Being Partisan in the Pulpit: Going the Extra Mile

The Johnson Amendment, which became law in the U.S. in 1954 and was named for Lyndon Johnson, then a U.S. Senator, “is a provision in the tax code that prohibits tax-exempt organizations from openly supporting political candidates. In the words of the tax code, ‘all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.”[1] I submit that it is in a cleric’s interest to expand this prohibition to include advocating for (or opposing) particular public policies. This general principle would of course be subject to exceptions in which a proposed or enacted policy is strongly anathema to the religious principles of the given religious organization or religion.

The full essay is at "Being Partisan in the Pulpit."

---

1. Randall Balmer, “The Peril of Being Partisan at the Pulpit,” Stars and Stripes, February 7, 2017.

The French Socialist Party’s Proposal of a Universal Income Amended: An Economic Floor Providing Economic Security to the Poor

Benoit Hamon, “riding to victory” from political obscurity on a proposal to “pay all adults a monthly basic income,” defeated the recent Prime Minister, Manuel Valls, in a presidential primary runoff election of the Socialist Party in the E.U. state of France.[1] Although “Hamon wasn’t as tainted as Valls by Hollande’s unpopularity” because Hamon had “rebelled and quit the government in 2014,” whereas Valls served more than two years as Hollande’s prime minister in the state legislature, Hamon’s “proposal for a 750 euros ($800) ‘universal income’ that would be gradually granted to all adults also proved a campaign masterstroke. It grabbed headlines and underpinned his surprise success in the primary’s two rounds of voting.”[2] I submit that the proposal, although flawed from the standpoint of economic security, fits well with the industrial world of global capitalism.

Under Hamon’s proposal, the no-strings-attached payments could be made to more than 50 million adults in the state. The “no-strings-attached” aspect is crucial to the provision of economic security, which is itself of significant psychological and financial value to people who are either unemployed or live from paycheck to paycheck. Put another way, the lack of conditionality can give such people a more stable peace of mind that could not but improve the quality of life generally in the daily life of a town or city in interpersonal dynamics. The temptation would be to begin to insist that the money be used for A, B, and C, but not on X, Y, and Z. Even such salubrious conditionality would undercut the stability afforded by the faith that the money would be come every month necessary—come hell or high water. I submit that Western peoples tend to discount the value of financial assurance or stability—essentially the provision of a floor or net that can be relied on—just in terms of the foregone anxiety alone.

The problem is that Hamon meant the payments to go to every adult, irrespective of income and wealth. A wealth person with a good income already has financial security, so adding a floor of 700 euros would be a waste of money from the standpoint of providing economic security. So the cost of the program, which Hamon reckoned to be at least 300 billion euros ($320 billion), can be reckoned as excessive, given the purpose of the program. In other words, taxpayers need not pay so much to make sure that every person has at least an adequate amount of economic security. Lest it be said that the middle- and upper- economic "classes" would then have little self-interest in supporting the proposal, I would simply point to value of the peace-of-mind in knowing that should financial ruin, such as from an economic recession (or depression), injury, or illness hit, economic security would be maintained. Simply knowing this can lighten the step of even a wealthy person, since none of us can say with complete certainty that tomorrow will be like today.


Given the destructive competition that is a part of life in advanced industrial states, the rationale for the claim that every person should be financially secure from hardship is valid. That Hamon proposed a tax on robots to help finance “the measure’s huge costs” points to his rationale for why a modern society cannot simply rely on jobs and even unemployment insurance to provide economic security.[3] Automation has permanently removed many manufacturing jobs, both in the E.U. and U.S. Additionally, the financial incentive of companies to move factories to low-wage, non-developed and newly-developed/industrialized countries like Mexico and China, respectively, means that employment in industrial countries can no longer be relied on to provide economic security to a significant segment of populations, for not everyone is going to go to law- or business-school and graduate—even if education were tuition-free.

Abstractly put, the logic of global capital is not in sync with the fact that in any society, a portion of the adult population is oriented to blue-collar rather than white-collar work. Even if the E.U. were to become a manufacturing utopia, some people, such as the disabled, would still lack economic security, and thus stability, were jobs the exclusive means of providing it. 

In short, the nearly “post” industrial world cannot simply become a world of lawyers, physicians, accountants, and business managers, whereas everyone needs food, shelter, and access to medical care. Providing even a very low floor would pay dividends for everyone as society would be a more civil place, and the cost need not be so much as would be needed to pay 700 euros to every adult, regardless of whether the security is needed. In fact, perhaps 1000 euros would then be an option. Life is too short to sweat the small stuff, yet some people must and their lives are painful for lack of financial security.

Financial worry is like an internal, perpetual war to the poor person, eviscerating life of its pleasure. Quality of life matters, and not just for the poor. How people you interact with are doing in terms of anxiety due to hardship—whether deserved or not—can easily ruin your day, whereas being around calm people can make your day. No man is an island, and in modern society economic interdependence has its drawbacks. Giving other people the psychological security of a financial floor each month can indeed pay dividends to the payers without the floor necessarily being raised so high that the beneficiaries can take advantage of the blessing of security made possible by others.

---

1. Associated Press, “Hard-left Candidate wins French Socialists’ Presidential primary,” Foxnews.com. January 29, 2017.

2. Ibid.

3. Ibid.

The Wealth of 8 People and 3.6 Billion People: Utilitarianism Applied

As of the end of 2016, eight people held as much wealth as the 3.6 billion people who make up the world’s poorest half. Just a year earlier, a similar study had “found that the world’s richest 62 people had as much wealth as the bottom half of the population.”[1] Part of the difference in these findings is due to new data gathered by Credit Suisse. Put another way, the richest of the rich were richer than had been thought. In this essay, I want to call attention to the sheer magnitude of the wealth involved, as it pertains to the richest.
Forbes’ 2016 list of billionaires has Bill Gates, the founder of Microsoft, with a net worth of $75 billion, followed by Amancio Gaona, the founder of Inditex, at $67 billion. Warren Buffett came in third with $60.8 billion.[2] I could go on, but these three figures are sufficient to raise the question of how much is enough. By the calculus of greed, which is the love of gain itself—as in more and more ad infinitum—this question can only be extrinsic. In terms of use, however, the question is ripe, for there is indeed a limit to how much a person can realistically consume.
In terms of declining marginal utility, wherein a person does not get as much pleasure out of the fourth or fifth ice-cream cone in a row as from the first, it takes a lot more money added to $67 billion to trigger pleasure than to $100. Add $1,000 to $100 and you have made the guy’s day, but add $1,000 to $67 billion and you might get a yawn. Pareto claimed that no such interpersonal comparisons of pleasure can be made, but I think Bentham was correct in making this point. Whereas Pareto relies on the valid point that pleasure itself is not quantifiable, Jeremy Bentham (whose 18^th century mummified body absent his head sits in an open closet in a university-building’s hallway in London) stressed the declining marginal utility as it pertains to very different quantities of wealth.
Bentham, whose utilitarian ethics gives primacy to the greatest good (i.e., pleasure, which he viewed as happiness) for the greatest number of people. Distribution from the rich to the poor is in line with this ethic, given the fact that a poor person would get more pleasure, or utility, from $1000 than the pain of the rich man who is now without the $1000.

Even just the gigantic sums of accumulated wealth themselves, such as Warren Buffett’s $60.8 billion—holding aside the question of added utility/pleasure from adding more wealth to the base—are not efficient, so to speak, in terms of utility/pleasure. “In my entire lifetime,” Warren Buffett said, “everything that I’ve spent will be quite a bit less than 1 percent of everything I make. The other 99 percent plus will go to others because it has no utility to me. So it’s silly for me to not transfer that utility to people who can use it.”[3] Because other people could use the money to derive more pleasure/utility, there is indeed an opportunity cost in the rich holding such vast sums. In other words, the retention of billions of dollars does represent a harm in that people who could really use it are deprived of it.
Admittedly, Buffett’s invested funds have led to pleasure from added productive enterprise and even innovation. The assumption of added productive uses can be questioned, however, as presumably alternative means of raising capital exist. An enterprise strategically oriented to expanding could go to a bank, for example, were Buffett’s invested funds depleted by voluntary or involuntary redistribution. In fact, banks would presumably have more money to lend to the extent that people receiving the redistributed funds deposit some portion (even the added consumption would go to existing businesses, thus giving them more retained earnings to invest in expansion and innovation). Furthermore, Buffett could have redistributed some wealth to the poor in the form of stocks and bonds, which would give the poor more economic security given the dividends and bond payments are on a base of wealth. In general, such means of increasing productive enterprise and innovation would be more in line with the greatest good for the greatest number of people, given declining marginal utility.
To be sure, Bentham warns that if redistribution crosses a threshold, the rich will not be motivated to create more wealth by work or investing more funds. The total “pie” would thus decrease; other things equal, there would be less pleasure/utility all around. We humans react more to losing $1,000 than to gaining $1,000, Bentham points out. Additionally, a rich person may be emotionally agitated if he or she feels that the redistribution is unfair—even stealing. This is in spite of Buffett’s point that very little utility relative to billions of dollars accrues to a rich person. However, Buffett’s statement suggests that losing a lot of money to redistribution—admittedly voluntary in his case—need not trigger the pain of loss. Even considering such pain to exist and be material, it must surely be less than the pleasure on the other side of the redistribution, given declining marginal utility. In Buffett’s words, other people can get more use out of the funds, and this added pleasure (which was not in Buffett’s holding of the wealth) is more than any pain in losing the wealth (given the pleasure that Buffett would still have from even just 1 percent of his wealth!).
From another perspective, owning tens of billions of dollars can be deemed to be excessive in not being justified in terms of property-rights theory. I have in mind John Locke’s labor theory of wealth. A person gains a natural right of ownership by “mixing” his or her labor with the asset, such as land. If you till the ground and plant the corn, you have earned a property right, or exclusive claim, on that land and its corn. It would be unethical for other people to trespass and consume from the corn.
Applied to founders such as Gates, Gaona, and Buffett, the question is whether having wealth of tens of billions of dollars is proportioned to the labor (and even risk of loss) put into the respective foundings. This question pertains to executive compensation—are CEOs who are also founders paid inordinately because of their power and status in their respective organizations?—and to stock ownership—is there a public interest in limiting the amount of stock-value one person holds in a company?  The public interest, if one exists, would presumably borrow from the Bentham’s point that billions of poor people would get more pleasure, or utility, from the redistributed surpluses than all the pain (if any) inflicted on the richest of the rich from the loss of some of their stock-wealth. Given that only so much wealth can be consumed by any single person, there would presumably be more than enough wealth remaining such that the richest would not suffer.
In conclusion, sound theoretical reasons support the claim that the eight richest people in the world should not have as much wealth as 3.6 billion of the poorest. Just as it is difficult for the human mind to conceive of billions of people, the same applies to billions of monetary units. Accordingly, it is difficult to grasp the sheer vastness of the imbalance. From this basis alone, the inequality can be deemed problematic. As this point is itself in dispute—perhaps in part because some people simply hate government—I have not gone on to prescriptions on how the problem can or should be solved. In other words, just establishing that there is a problem is a task in need of theoretical justification and argumentation. My essay here is a flawed (e.g., too limited) attempt to fortify the position that the massive inequality of wealth is indeed a serious problem, ethically speaking. That is to say, the holding of such huge sums as I’ve cited above is not justified by the efforts expended to “get the ball rolling.”

---

[1] Gerry Mullany, “World’s 8 Richest Have as Much Wealth as Bottom Half of Global Population,” The New York Times, January 16, 2017.

[2] Ibid.

[3] Jonathan Stempel, “Gates Charity to Sell 60 Million Berkshire Shares, as Buffett Urged,” Reuters, January 18, 2017.

Wall Street CEOs Suffering with Lower Pay: Self-Preservation or Greed?

As much as the titans on Wall Street pull in during a year, they still want more. It must be human nature. If so, nature may be at odds with narrowing economic inequality. Even as 2014's compensation figures show such a narrowing, I suspect that such a case is an exception rather than being indicative of a fundamental shift.

The CEOs of the five largest U.S. banks made on average 124 times the average worker at the banks in 2014. The corresponding figure for 2006 is 273 times. The CEOs were not hurting in 2014, however; collectively, they got $92.5 million ($18.5 million per CEO on average). The collective figure for 2006 is $173.6 million.[1] Meanwhile, the banks’ employees saw their compensation rise by 17% to $148,740 from $127,379. According to The Wall Street Journal, the increased reserve requirements under the Dodd-Frank Financial Reform law of 2010 made it costlier for the banks to increase profits by taking on more debt (i.e., leverage), and the CEO pay suffered accordingly.

Suffering may not be the best term to describe a CEO’s average pay of roughly $18 million per year. How much of that figure can even a person awash in luxury spend in a year? Doubtless, a significant amount is invested. Were I among that elite cadre, I would lean toward investing as much as I could so that one day I could live comfortably and with security of mind off the investment income. A job cannot be relied on in perpetuity. Even investing in just one company (e.g. Enron) or even one industry entails some risk. Moreover, I would diversify my portfolio internationally with security of mind foremost in mind.

I mention “security of mind” because the economizing instinct does not turn off after a certain level of income or wealth has been achieved because the future is almost by definition uncertain. Put another way, you never know for sure whether what you have stored away in a savings account will be enough even for survival needs. So the bank CEOs were probably scrambling in 2014 to come up with non-leveraged ways of increasing earnings per share as if $18 million were not enough. This is an instinctual rather than a rational dynamic although reason does confirm that nothing in the future is absolutely certain.

Profit-seeking activity and accumulated wealth do not necessarily indicate the presence of greed, or love of economic gain.[2] So it is possible to go on with the economizing instinct without necessarily being greedy. Where the instinct is exaggerated or multiplied into an obsession, however, love of gain is very likely in the mix. For the 5 CEOs, reaching the point of being able to live off very well diversified investment income is quite possible. At that point, whether or not the CEO continues on with the instinct may give us a sense of whether greed has taken over.

From my own experience, I have struggled with whether to stockpile too much food in case I ever need it. For instance, I spent Easter 2015 volunteering at a Christian church’s meal for the impoverished and food pantry. I was selected for heavy labor on the tables since I was the youngest among the volunteers (which really says something). Before the meal, I could go through the pantry myself to get some food supplies. Even though the volunteer taking me through the pantry would not have curtailed my appetite to stockpile, I kept well within the allotment that anyone would get.[3] The following day, however, I could have returned to the church and helped myself to still more, but I asked myself, How much is enough, really? Sure, I could have used the additional food, but I could not shake that question, so I did not avail myself of the church’s generously-stocked outdoor cabinet that was always open; I would not abuse the church’s openness, which I had seen so little of when I had volunteered at food pantries in my rather sordid hometown. My point here is that I felt the instinct to stockpile and I could see its relation to food-security, yet I could not cleft the presence of the economizing urge from what greed might have been in me at the time. At any rate, a normative constraint can indeed be efficacious against the instinct and/or greed, though I don’t think a society can rely on such a check.

That even a Wall Street CEO cannot be absolutely certain that he or she would not want for necessities ever again leaves open the possibility that the economizing instinct—being inherently without a limit (i.e., a maximizing variable)—could still be operating rather than or more so than love of gain. Distinguishing the motive of self-preservation, which Thomas Hobbes emphasizes in Leviathan, from loving economic gain (not to mention taking it as an end in itself) is difficult. Whether a person seems to be obsessing on getting as much money out of other people as possible, especially if coupled with a willful disregard for related harm, however, can be taken as a good indicator of greed.

---

[1] Peter Rudegear, “Wall Street’s Pay Gap Slims,” The Wall Street Journal, April 6, 2015.

[2] Clement of Alexandria, a theologian in early Christianity, stressed that a person can be rich and yet cap his or her desire for more at the level of necessities. Augustine would disagree, and thus place limits on wealth before it can be taken as being indicative of underlying greed. See Skip Worden, God’s Gold: Beneath the Shifting Sands of Christian Thought on Profit-Seeking and Wealth,” ch.s 3 and 4.

[3] The ham supper was excellent, by the way. Just before the meal, people wanting food from the pantry were given tote bags with numbers attached, As they were called during the meal, the individuals would go to the pantry room and quickly return to their meal. I had the pleasure of sitting with a mix of low-income people and church members. I was impressed that everyone got into a discussion of the U.S. Civil War. We even had a confederate!  Our table was a microcosm of society re-integrated. In contrast, the Wall Street CEOs doubtless live in their own world, and sadly so do most poor people.

CEO/worker Pay: Perceptual Shortcomings

According to one study of people around the world, people of different cultures, incomes, religions, and other differences show “a universal desire for smaller gaps in pay between the rich and poor” than was the actual case at the time of the survey in 2014.[1] Interestingly, the respondents didn’t have a clue how much of a gap actually existed in their respective economies. The difficulty in estimation means that the public discourse on economic inequality has been rife with erroneous assumptions. Where the error lies in the direction of minimizing the gap, we can postulate that public policy allows for greater economic inequality than would otherwise be the case.

The United States, for example, surged past Peter Drucker’s wall of 20 to 1 (CEO compensation to average worker pay), hitting 40 to 1 in 1994 and then 400 to 1 in 2005. Why would America’s silent majority put up with such economic inequality? The short answer might lie with the power of corporations in using media corporations to lull television viewers into supposing that the difference in compensation is not very significant—significance involving not only perception, but judgment as well. That is to say, whether the gap is perceived to be significant is a value judgment that can be subtly manipulated.

In spite of an actual gap of 350 to 1 (CEO compensation to unskilled worker pay) in 2014, the Americans surveyed estimated the ratio to be 30 to 1.[2] Such a perceptual judgment could have been influenced by the lack of attention on the topic in the media. The ideologicalization of American broadcast journalism—the blurring of the lines between reporting and advocating—points to just how much estimates of significance can be subject to external influence.

Considering the relatively wide actual gap being allowed to exist in the American States as of 2014, what would the public policy have looked like had the perceptions of the American public been adjusted up to 350 to 1? Would the decentralized individual voters forming majoritarian blocks demanding limits put enough pressure on their elected representatives to mitigate the power of wealth in the halls of legislatures as elections loom?  

---

[1] Gretchen Gavett, “CEOs Get Paid Too Much, According to Pretty Much Everyone in the World,” The Huffington Post, September 24, 2014.

[2] Ibid.

GDP and Poverty: Is Economic Growth the Answer?

From 1959 to 1973, the American economy grew 82 percent, per person. It is easy to assume this is why the poverty rate decreased from 22% to 11 percent.[1] From roughly 1985 to 1990 and then again from 1995 to 2000, heady growth rates are also correlated positively with declining poverty rates. But correlation is not causation. Indeed, had the correlation in the 1959-1973 period continued, the subsequent per capita growth would have ended poverty in 1986. What then are we to make of the relationship between GDP and poverty?

According to Heidi Shierholz, an economist at E.P.I., the “very tight relationship between overall growth and fewer and fewer Americans living in poverty” broke apart in the 1970s.[2] In spite of the OPEC oil cartel’s inflationary shocks in 1973 and 1979, the poverty rate remained relatively constant through the decade of “stagflation,” spiking only once Reagan took office—perhaps on account of David Stockman’s domestic budget cuts that hit the poor especially hard and Paul Volcker’s high interest rates at the Fed (to decrease the inflation rate) that increased the cost of borrowing money. To be sure, the recessions in the early 1980s and the early 1990s are associated with increases in the poverty rate, which even lags the subsequent recoveries, and the rate fell as the economy was humming along in the late 1980s and 1990s. Even so, eleven percent seems to be the rate’s floor. Perhaps this is why the relationship broke apart in the 1970s?

According to Thomas Piketty, the period from World War I to the 1970s is unusual economically because the shocks reduced returns on capital relative to the growth rates of income and GDP. The economist suggests that inequalities in income and even wealth narrow under this rather artificial arrangement; typically, returns on capital have outsized increases in income, thus increasing the inequalities. Perhaps the inverse relationship we are looking at holds only when the rate of return on capital is low relative to the GDP rate. However, as I indicate above, heady growth periods after the 1970s can be found in which the poverty rate is decreasing, and recessionary periods in which the rate is increasing.

So we are back to the 11 percent floor. When the relationship broke apart in the early 1970s, the poverty rate was indeed at 11 percent. Instead of continuing downward, the rate hovered, when up a bit, then slightly downward until just above 11 percent before heading starkly upward in 1981.[3] What might be behind the floor? It seems doubtful to me that 11 percent of the adults in America are simply unable to work for non-economic reasons. It seems more likely that the market mechanism, which can support wages at the minimum wage without any upward pressure (e.g., from labor shortages), functions at an equilibrium short not only of full employment, but rising wages (relative to returns on profits and stock appreciation) as well. In other words, we cannot look to the market to “grow” us out of poverty. While undoubtedly a help, the market is only part of the solution.

The question is thus how we can fill in the rest of the solution. What, outside of the economy, can make up the difference? As the source and enforcer of societal rules, government is not intrinsically the answer, for to be the “man in charge” does not in itself connote supplying materials (including jobs). Yet the government could direct that materials and or jobs be provided outside of private industry, such as by non-profit organizations receiving funds from tax revenues and thus directly under government oversight. Even now, the Full Employment Act of 1946 directs that everyone who wants a job should be able to have one—that this is a task of government to oversee. Lest employment be viewed as an end in itself rather than a means, we could stipulate that everyone has at least a minimum amount of money and wealth. Hence the unemployable veteran, for example, would not have to suffer in poverty. Lest breaking through the 11 percent floor make it more difficult for Walmart or McDonalds to pay cashiers the minimum wage of just over $7 an hour, we might remember that a part of the solution is not in itself more important than the solution itself.

That is to say, hits taken at the margins to part of the solution as the rest of the solution is added should not outweigh the solution itself, for the end is more important than any one of the means. Too often, I fear, the American public discourse obsesses on the downsides on the margins to a means, being all too willing to preempt a full solution just so the particular means is not slighted in any way. I suppose this is a sort of tunnel vision, with greed playing a supporting role. Death and taxes may be inevitable, but surely poverty is not. Indeed, it may be viewed as an artificial byproduct of human society and thus as fully within our powers and responsibility to eliminate rather than take as a given.

---

[1] Neil Irwin, “Growth Has Been Good for Decades. So Why Hasn’t Poverty Declined?” The New York Times, June 4, 2014.

[2] Ibid.

[3] Ibid.