Building toward serfdom’s return - by Paul Heise

America idealizes the middle class and denies the validity of an upper or governing class. Yet we have so structured our economy that all the increase in income since 1980 has gone to the already wealthy, undermining the idea of a governing middle class. The resulting inequality of income and wealth commits future generations to be divided into the wealthy and the workers, nobles and serfs.

Maldistribution of income is bad. It leads to a lack of opportunity and a pauperized middle class, to political corruption and for-sale politicians, to lower economic growth and to economic and political instability.

Using either income or wealth, the rich are getting richer, and the poor remain poor. The result has been great inequality and a disappearing middle class. The top 5 percent of families own 50 percent of American wealth. The top 20 percent owns 80 percent. The middle 40 percent share that last 20 percent. The bottom 20 percent has zero wealth, and everyone below the top 20 is going into debt.

It isn't just the CEOs hogging the income. The financial sector far outdoes them. From 1930 through the 1970s income became more equally distributed, but the trend has been in reverse since then. As recently as 1979, the top 1 percent of earners in the U. S. earned about 33 times what the lowest 20 percent earned. By 2000, this disparity had grown to more than 88 times as much. No other industrial country is as bad as the United States. The CIA reports that measures of income distribution in America put us in a class with Turkmenistan, Nepal, Mexico and China.

The closest we get to redistribution of income are the entitlement programs such as Social Security, Medicare and veterans benefits. But that is not where the problem is. Unequal income distribution ends up a more serious problem than the safety nets.

The word "entitlement" spells out the problem. Originally a "titled" person had a right to the income from some asset. The noble was entitled to it. Similarly, today a person can have a right or title to some income because of who they are rather than what they have produced. That is what a pension, trust fund or any other wealth really is — the right to an income stream.

As we concentrate ever-more wealth in the hands of an ever-smaller group, we also allocate to that group an ever larger share of our children and grandchildren's output. We are establishing a new, hereditary nobility.

The question is, how much of our children's income do we have a right to allocate? We commit future income to specific groups when we borrow and spend for any war or social programs or when we shift enormous wealth to Wall Streeters and to Silicon Valley and away from farmers and steelworkers. The offspring of the rich will have a legal right to a substantial portion of the output of our descendants.

Imagine a future world where a substantial portion of GDP is allocated not on the basis of productive capacity or other merit but on the basis of entitlements set generations before. That is where we are heading.

A serf is someone whose output is allocated in part to someone else as a property right. The serf gets what is left. Those with no entitlement, the serfs, will be condemned to glean the leftovers. These nobles of tomorrow will wallow in their entitled abundance.

It isn't just the money. Much wealth is passed on in the form of human capital that the wealthy are able to give their children through the superior schooling and enhanced opportunities that come with money. To overcome the unfairness of this, we have to find a way to give everyone an equal access to educational opportunity.

The Congress has just passed, with veto-proof majorities, a bill that grants World War II-type education benefits to present-day veterans. That would be a real start.

The GI Bill educational benefits were among the best investments this country ever made. It gave me a ticket to Georgetown University. We should again invest in our youth to meet the challenge of this new economy and new century. It is the only way I see to bridge the divide of income and wealth we have created over the past 30 years.

Unless we do, our vibrant capitalism will turn into a stagnant serfdom. We have to invest serious money in education. I mean like the amounts we spend on war — if we are to save our democracy and our capitalism.

 

A resident of Mt. Gretna, Heise holds a Ph.D. in economics and is professor emeritus of economics at Lebanon Valley College.

~ Source: Lebanon Daily News ~