The myth that rising wealth inequality comes at the expense of the poor

In fact, the poor benefit from the economic growth led by the rich

The rich are getting richer. No doubt about it. The top 1% of Americans held 26% of America’s wealth in the fourth quarter of 2022 compared to 16.6% of America’s wealth in the third quarter of 1989.

For the middle and lower classes, who comprise 60% of Americans, their share of the wealth pie dropped from 22.8% in the third quarter of 1989 to 14.2% in the fourth quarter of 2022.

These data are from USA Facts, a site that presents percentages but omits the denominator. I ask “percentages of what, precisely?”

You have to do some digging to find out.

The total “wealth” of all Americans is an estimated $138 trillion and the top 20% own $98 trillion of that. In 1989, the total wealth of Americans was $33 trillion according to the Federal Reserve Bank of St. Louis.

Now let’s tumble a few numbers.

If the 60% of Americans described above owned 22.8% of the wealth of America in 1989, their holdings had a value of $7.5 trillion. Today their wealth is 14.2% of $138 trillion, or $19.6 trillion, a gain of 261% in the 35 year period, or an average annual rate of growth in their wealth of about 3% per year, more or less equal to economic growth over that period. Any complaint they have about “wealth inequality” amounts to little more than jealously.

Sure, Bill Gates, Jeff Bezos, Elon Musk, and Warren Buffet have enormous wealth. They have also created enormous opportunities for Americans and between them employ millions of people in jobs they have created. Without their innovation and leadership, most or possibly all of those jobs would not exist today.

Not only that, they are among the world’s largest philanthropists, supporting universities, hospitals, and (sadly) political parties (making the complaint of corruption in politics often all too real).

Economist Stephanie Kelton (author “The Deficit Myth”) labels wealth and income inequity a “democracy deficit”. Her argument is that wealth brings power, power brings political influence, and the abuses of wealth and power benefit the rich at the expense of the lower classes. Two out of three isn’t bad for a left wing economist. Wealth does bring power, power does bring political influence, but for the last 35 years the ordinary blokes in the bottom 60% of society have seen their wealth grow in lock-step with the economy, and the rich and powerful have been by and large the drivers of that economic growth, and certainly no government which if anything has gotten in the way of industrial expansion.

Don’t get the idea I believe in “trickle down” economic theory, a term coined by a leftist to pillory the rich. Creating jobs, paying most of the taxes collected by society, building world-scale competitive businesses that lead their fields in global businesses, are not insignificant accomplishments. Microsoft, Tesla, and Amazon are the brainchildren of their founders, not the result of giving money to indigent people and believing they will use it wisely and an economic boom will result.

America has hospitals, schools, roads, bridges, pipelines, and all sort of infrastructure as a result of the entrepreneurial spirit of business leaders, the economic growth they have made possible and the wise allocation of scarce capital in their hands. Governments have demonstrated again and again they are incapable of allocating capital efficiently or managing anything not led a leader with a profit motive. Canada’s recently completed TransMountain pipeline is a good example of government managing a basic industry project and spending at least five times what it would have cost in private hands, then calling it a success.

Milton Friedman had it right. Stephanie Kelton is misguided. Free markets work and when they work, two outcomes obtain. Some people become very rich and everyone else enjoys a better quality of life. When Kelton rails against the free market system and promotes “guaranteed well-paying jobs for everyone” since governments can simply apply Modern Monetary Theory magic and issue more money, she ignores basic facts about human behaviour. People given something for nothing don’t value what they are given, they just take it. People who strive, study, work, innovate, fail and fail again until they persist to finally achieve something worthwhile value their work and society benefits from their efforts.

There is no “magic money tree” in Washington or Ottawa. Issuing money to people who will only spend it may well add to demand and spur some economic growth, but it will also demean the work ethic and diminish the value of the currency with (as Kelton admits) inflation the likely outcome.