I'm not really kidding when I commonly say to radical Conservatives "good luck in your effort to repeal the 20th Century." I say that because disregarding the outstanding Liberal policies which created the most amazing economic miracle in human history...the rise of America as the world's greatest economy...exemplifies the saying "those who refuse to learn from history are doomed to repeat its mistakes."
In this case we're repeating the arguments of over 100 years ago, a time when America made a deliberate decision to not follow Europe into a stilted, aristocratic existence. Conservatives then as now argued against virtually all of the taxation, monetary, and individual rights policies and legislation which defined our nation up until the dawn of Reagan, and to an extent until now.
And they’re right. No true American would say this: “The absence of effective State, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power,” and follow that statement with a call for “a graduated inheritance tax on big fortunes ... increasing rapidly in amount with the size of the estate.”
Who was this left-winger? Theodore Roosevelt, in his famous 1910 New Nationalism speech.
The truth is that, in the early 20th century, many leading Americans warned about the dangers of extreme wealth concentration, and urged that tax policy be used to limit the growth of great fortunes. Here’s another example: In 1919, the great economist Irving Fisher — whose theory of “debt deflation,” by the way, is essential in understanding our current economic troubles — devoted his presidential address to the American Economic Association largely to warning against the effects of “an undemocratic distribution of wealth.” And he spoke favorably of proposals to limit inherited wealth through heavy taxation of estates.
That was a time which was much further along in the Gilded Age Conservatives have worked hard to recreate, And by Roosevelt's time Americans well understood that Trickle Down Economics (Laissez Faire or "Horse and Sparrow" as it was known in those days) wasn't helping anyone but the Robber Barons. The 19th Century Robber Barons hadn't spent the previous 35 years running a PR campaign to distort the intent of the Founders, either, and Progressive policies were well understood to be within their belief system.
And this invention (progressive taxation) had deep historical roots in the Jeffersonian vision of an egalitarian society of small farmers. Back when Teddy Roosevelt gave his speech, many thoughtful Americans realized not just that extreme inequality was making nonsense of that vision, but that America was in danger of turning into a society dominated by hereditary wealth — that the New World was at risk of turning into Old Europe. And they were forthright in arguing that public policy should seek to limit inequality for political as well as economic reasons, that great wealth posed a danger to democracy.
I keep pointing out that Economists are piling up huge amounts of evidence that economic inequality has reached levels which are damaging to the economy. Now researcher Thomas Piketty has published new work showing that our as inequality reaches levels not seen sine the time of Teddy Roosevelt we're once again at serious risk of developing into a stratified, calcified, aristocratic economy...and he's identified the mechanisms that would do so, consigning America to an also-ran economic status in the process.
French economist Thomas Piketty released into the English-speaking world last week his 700-page magnum opus titled “Capital in the 21st Century,” setting off a firestorm of media commentary. In the book, Piketty painstakingly reconstructs the last couple of centuries of wealth and income inequality in the world and provides cogent theories to explain their dynamics. He uses those theories and projections about future growth to predict what the next century of inequality will look like, and it’s not a pretty picture. Among other things, we could see the rise of inheritance as a major player in economic fortunes.
As it turns out the policies Conservatives claim are essential to a meritocratic society are actually moving us in the opposite direction, to a world where inherited wealth does more to determine economic outcome than ever before. Over time those at the top have to do less and less to stay there, and hard working Americans find it more and more difficult to get rewarded for their time and talent.
A 2011 study by Edward Wolff and Maury Gittleman found that the wealthiest 1 percent of families had inherited an average of $2.7 million from their parents. This was 447 times more money than the least wealthy group of people — those with wealth less than $25K — had inherited. In between the wealthiest and least wealthy groups, inheritance levels ran in exactly the direction you would expect: the wealthier a group of people was, the more they had inherited.
As outrageously lopsided as these inheritance disparities seem, they only reflect half of the inheritance problem. The funny thing about piles of wealth is that they deliver to their owners passive, unearned streams of income variously called rents, dividends, profits, capital gains, interest and so on. Those who get big inheritances can park those inheritances in investment accounts that just get bigger and bigger without them having to lift a finger. As a result, the gaping inheritance disparity actually grows even more gaping each year after the inheritances have been received.
Although the significance of this inheritance mechanism was rather muted in the past, Piketty argues that this muting may be coming to an end. We no longer have the rapid population and economic growth that kept the significance of inheritance at bay. Moreover, wealth is already increasingly concentrated in the hands of the few, with over 30 percent of it in the hands of the top 1 percent and over 70 percent of it in the hands of the top 10 percent. If the creation of new wealth slows down and old wealth continues its concentration upward, intergenerational transfers of wealth become a much bigger deal.
Children of the wealthy could wind up receiving increasingly larger shares of the national wealth bequeathed to them, wealth that will allow them to generate soaring incomes from capital income alone. If that happens, the meritocratic rhetoric that we use to justify America’s extraordinary levels of inequality will only become even more preposterous and delusional. Inheriting big piles of wealth and then using those piles to bring in even more unearned wealth is the exact opposite of meritocracy.