Re-Thinking America’s Economic Inequality

It doesn’t take a rocket scientist to see where the hatred of rich people comes from.  While it is mostly unjustifiable (indeed, envy generally is), it does beg several questions.  For example, if 1% of Americans hold 40% of the nation’s wealth, we have to wonder why there isn’t more of it filtering down to the bottom.  The answer, of course, is Corporations.   

Now, for a number of people, “the corporation” is treated like the boogeyman from whom stems all evil.  A rather unfair observation, ultimately, because corporations (as nonhuman entities) can’t be evil scheming sources of evil… the board of directors, on the other hand…  anyway, different topic.  As a structure, corporations are uniquely architected to fit in the environment of competition envisioned within the competitive world of Capitalist economics.  As a gigantic behemoth of economic power, they can threaten others with an extreme loss of profit unless they get their way, and promise an extreme boon to those who play ball.  This, however, is not evil… it is simply reality.  The ironic part about corporations is that they thrive on consolidating power and profit into as few hands as possible while splitting possible consequences as many ways as possible.  Once again, this is not necessarily evil… but it is the reality.

What does this mean practically?  As corporations continue to grow and become profitable (as they are designed to do), they buy out their competitors and continually shrink the supply of income generators.  We talk about “the corporate ladder”… but corporations are designed to be continually reducing the number of ladders in the area.  Thus, there are fewer people sitting on the top rung of those ladders because there are fewer ladders to go around.

Thus, inequality is a natural conclusion to the competitive free market… even extreme inequality.  There are two ways to stave off this shrinking of the ladder supply.  The first is an invironment of innovation.  The second is outlawing the corporation.  Obviously the first of these would be far preferable.

Lets give a hypothetical scenario.  There are three companies (A, B and C) who make the same product.  For the sake of this discussion, the product is something that everybody needs… let’s go with space-heaters.  With three corporations, there are three CEO’s and three places for the money involved in this industry to go.  Product A is the cheapest, Product C is the most expensive (but highest quality) and Product B is a blend of the two.  Through the course of affairs–advertising, pricing, outside economy and whatnot– Corporation C is having trouble staying profitable.  Corporation B steps in to “rescue” Corporation C by buying them out and making them a “subsidiary company”.  Now there are two companies (A and B) making three products.  Because Corporation B can use it’s newfound muscle to negotiate better deals on materials, it makes Product C a profitable product again and begins to crowd Corporation A out of the market.  Since everyone is still buying space heaters regardless of how many individual companies there are, there are now two companies competing for the same pie that three had been after… and they aren’t likely to split it 50/50.  With two companies instead of three, Corporation B reports record-breaking profits, leading to a massive raise for Corporation B’s CEO.  Assuming Corporation A survives the new deathmatch for space heater supremacy, Corporation A’s CEO is also in line for a raise due to steering the company through dire straights.  Because Corporation C has been removed from the equation, there are now only two sources for the same amount of money to flow in to.  Then the conversation turns to how Corporation A and B could dare pay their CEO’s so much more than their average employee… disregarding the fact that Corporation B is paying out record amounts to its investors and Corporation A would have gone under without some good leadership–meaning all of Corporation A’s employees would be without work, their investors would be without money, and consumers would loose their “cheap option” in the space heater market.

Bearing this in mind, we have to remember that the limited liability corporation is the engine that drives the “new economy”.  In older days, it used to be that the only way to really make money was to earn it– sell something, build something, service something, etc.  Now, however, you can make millions without working a classical job a day in your life because of the stock market.  But what about those of us who work classical jobs?  The 9-5ers who make enough to just make it and put away a few nickles every week or so?  If you have an interest-bearing bank account, that interest is earned by the bank investing your deposits in the stock market.  If you have a retirement account, mutual fund or 401(k)… it bears interest because someone invests that money in the stock market.  For all the hatred that Corporations engender, most of us would be screwed without them.

So what are we to say then?  Is the current situation an ideal one?  Clearly not.  But I think it is safe to say that most of the apparent solutions are bad ones.  If you really want to lampoon the spectre of the “1%”, the first step would be decimating the power of the corporations.  The irony of saying that while using a computer is not lost on me, however.  There are a couple different ways of doing it–whether that be through the Government placing boundaries on interstate business or making it illegal to trade on a stock exchange– but there is really only one that “should be” palatable to the masses… innovation.

If Corporations are insisting on reducing the number of ladders to be climbed, the best answer for the populace is to continue to set up more ladders.  But the answer can’t simply be one of quantity.  Fifteen brands of crappy space-heaters aren’t going to make Corporation B all quivery.  The answer is to go to work to design a better space-heater.  Not just to design a better space heater, but then to resist the allure of rapid wealth that comes from selling the design to Corporation B.  The best way to limit the power of the corporations is for the populace to do what they do better than they do it.  Why waste your time griping about those among the 1% who have done perfectly fine work in a legal profession to make a lot of money when you can be in your basement coming up with the iPod killer?  Or the Xbox Obliterator?  or the Android Eviscerator?  You can waste an entire day complaining about Bill Gates’ fortune… or you can brainstorm a better way of computing.  I know which is more likely to accomplish something.

Ultimately, there are too many people complaining about the people winning instead of training to run the race.

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~ by xristosdomini on March 26, 2013.

2 Responses to “Re-Thinking America’s Economic Inequality”

  1. I like where this ended up. Complaining about the success of others is not a long run success strategy.

    Another fascinating phenomenon is government oversight and regulation, which in the name of protecting society (a) prevents innovation by enforcing the status quo, and (b) discourages any steps to obsolete or replace in the natural cycle.

  2. Assuming that you are referring to Small Business regulation, I heartily agree.

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