The Rich Get Richer and the Poor Get Poorer

Percy Bryce Shelley

I’ve not read a lot of Shelley, but that which I have, I’ve loved. Not only for its language and its cadence, but for its philosophical underpinnings. Shelley, of course, is famous for his poetry, but also his unfinished essay, A Defence of Poetry. He considered poets as both creators and defenders of moral codes. As philosophers. The overseers of the norms and mores of human society. The “unacknowledged legislators of the world”. That essay is not the topic of this blog, though I recommend it. His views of poetry coincide with my own so I have a horse in that race. And of course he co-wrote the pamphlet, The Necessity of Atheism, so I have a certain predisposition to rate him. But in the essay he wrote something that IS definitely a theme of this post.

"To him that hath, more shall be given; and from him that hath not, the little that he hath shall be taken away. The rich have become richer, and the poor have become poorer; and the vessel of the State is driven between the Scylla and Charybdis of anarchy and despotism."

If anyone doubts Shelley’s genius or the validity of his assertion of the important role of poets, they need only read this section of his celebrated essay. He’s paraphrasing Matthew (25:29) of course, but using it to project the fate of societies by reference to Greek legend. Which evil do we choose then? We know Ulysses chose Scylla ahead of Charybdis, but do we really have to choose between anarchy and despotism? Because both it seems lead inexorably to the egregious maldistribution of wealth, if nothing worse. The rich keep getting richer and the poor keep getting poorer. And now is the time that despotism is banging down our door.

Old Mates

I have an old mate with whom I seem to find myself in occasional economic debates these days. He’s rather sanguine about the distribution of spoils in Western nations like Australia. Is it uncharitable to point out that with holiday properties on both the northern and southern coast lines of NSW and a harbour view residence in Sydney, the system has worked rather well for him? To a lesser but still considerable degree it has for me too. We and, I suspect, most readers of these blogs sit comfortably in the top 5% of wealth owners across the globe. He’s always citing the Productivity Commission’s review of the wage share of national income and declaring there is no problem. I’m always arguing that I don’t care about a metric that in no way represents the distortion of national wealth distribution. Superannuation, tax and housing policies, inheritance and rent seeking all play significant roles in the maldistribution of wealth. And I think it matters. A lot. So, like many arguments, it’s being had at cross purposes. I just think mine is a little less self-interested and somewhat more objective. But I would say that.

The Rich List

Every year the business gossip rag known otherwise as the Australian Financial Review (really, does anyone of any discernment, with any pretensions to intellectual attainment, really read this dross … oh, yeah, my economic debating opponent does) publishes the “Rich List”. This year’s list revealed that the country is now home to some 161 billionaires. Back in 1984 the list contained just two billionaires in equivalent inflation adjusted dollars. So, it’s hard to argue that we’ve not seen a dramatic concentration of wealth in the last forty odd years. Despite what the Productivity Commission might say about the wage share. Some analysts have dived into the detail of successive rich lists and determined that the wealth of the wealthiest top 200 has grown almost 8 percent faster than per capita wealth over those four decades.

Inheritance

Not so long ago, I was in conversation with some old friends. By my estimation they have a net worth around our own. Perhaps a little higher. The question of fixing gross inequalities in society came up. And, yep, that might have been my prompting. Anyway, the question of an inheritance tax got discussed (again, almost certainly me). I’m a fan. Removing the incentive to work hard and, instead, entrenching privilege seems like a poor policy outcome to me. I met with disagreement. We’ve worked so hard, so why shouldn’t our kids benefit came the response? Where do you start on that one? Nurses work hard, mining labourers work hard, delivery drivers work long hours, aged care staff work multiple shifts often at multiple facilities. Poor us. The professional classes. Many working in that most parasitical of modern industries – finance. Have we really worked harder than others? And does this somehow validate our great wealth?

The maligned (by me, at least) Productivity Commission has reported that some $1.4 trillion (!!) has been passed onto Australians via inheritances over the last 20 years. It is estimated that a further $224 billion will be transferred each year until at least 2050. And here’s the killer … around a quarter of those on the AFR’s current Rich List either inherited a business from their parents, owe a sizeable proportion of their wealth to inheritance or had a parent on earlier editions of the Rich List. And, let me add, Australia’s richest are dominated by those whose wealth was built on the government bestowal of scarce licences. For the most part, their businesses benefited from legislation and government licence to create monopolies - in the form of mining rights, broadcast rights or property rights. Very, very few from innovation, either new products and services or radical improvements in processes. Most made nauseating amounts of money from the pricing power that comes with the absence of competition. Despite their endless ill-informed or disingenuous promotion of “markets”.

The American Portent

If we want to get a foretaste of the long term effects of wealth concentration, we need only glance across the Pacific. Just 800 families in the US hold $7 trillion in wealth, more than the aggregate wealth of the bottom half. The tax system buttresses this wealth to an almost unimaginable degree. More than half of the income available to the top 0.1% of wealth holders is entirely untaxed. That’s right, zero tax. And when you consider that tax policy is being run by a moron whose own wealth is almost entirely inherited the outlook is bleak for that bastion of free market enterprise that was America. It has been widely publicized (and the numbers are comparatively easy to run) that had Trump simply invested his inheritance in an index fund he would have been considerably wealthier at the start of his first term than he was. He is a failed businessman, after all. Of course, he has enriched himself since in an egregious exploitation of the Presidency for personal gain. But that’s graft and nothing to do with the “free” market.

Should We Care?

There are any number of reasons why we should care about wealth inequality, quite aside from notions of fairness and compassion, of the duty we owe to each other in any community striving to be cohesive. As inequality grows it imposes a brake on economic growth (as Thomas Piketty has convincingly shown) and it enables those with concentrated wealth to exert a disproportionate influence on our politics and public policy. It has the effect of excluding many of the brightest kids from the best education. It entrenches privilege and preferences power. It creates resentment and a sense that the dice are loaded. It encourages tribalism and destroys faith in institutions.

Wealth and Inheritance Taxes

If we are to have any chance of restoring balance and forestalling the descent into US style inequality, with all the societal and political pressures that inevitably ensue, our national tax code needs to be fundamentally reformed. Tax avoidance available to the already wealthy via mechanisms like family trusts, capital gain concessions, negative gearing and superannuation needs to be addressed. And some new taxes – wealth and inheritance taxes – need to be instituted. It is surely not hyperbolic to say that fascism awaits our continuing neglect.

Everybody knows that the dice are loaded,
Everybody rolls with their fingers crossed,
Everybody knows that the war is over,
Everybody knows that the good guys lost,
Everybody knows that the fight was fixed,
The poor stay poor, the rich get rich,
That’s how it goes,
Everybody knows.

- Leonard Cohen