I know this is a crazy question but why is the kind of economic inequality we have in America Today a bad thing?
That isn't a crazy question at all.
In the post-war period up to the 1970s, everyone benefited from the rise in prosperity. The standard of living for everyone improved.
This changed in the late 1970s, because the top 1-5% started capturing
all the gains. This means that everyone else's standard of living basically stagnated.
This was partly set off by the rise of readily available credit, and the 30 year fixed-rate mortgage (only made possible by government intervention, btw). Even these small gains were thwarted by making bankruptcy laws more punitive, and the effects of the housing bubble (exacerbated by the machinations of the financial sector). However, we are increasingly in a society where people are leveraged to the hilt, have minimal retirement savings, and have little or no cushion for emergencies. More important for the economy as a whole is that when everyone except the top 5% are stretched, they can't afford to spend, and that hurts the economy. This is one of many reasons why growth is slowing -- people can't afford to buy enough goods and services to make 3% growth sustainable.
Another major issue is that as the top earners stockpile more capital, they can spend it on lobbying elected officials, and twisting the system to their own benefit. As a result, we've seen taxes for top earners fall almost every year since the 80s. This increasingly alienates the public from the political process, because elected officials ignore them, and only pay attention to the handful of wealthy contributors.
It also tilts government action towards the wealthy. We had a massive financial crisis largely caused by the financial sector and irresponsible lending, and the government bails out... most of the financial sector and irresponsible lenders, while doing almost nothing for the ordinary citizens who lost their homes because of those manipulations.
As these striations solidify, it becomes harder for people to improve their economic condition based on merit. In a perfectly meritocratic society, someone born in a family in the bottom income quintile should have a 20% chance of ending up in any income group; and the same would happen to someone in the top income group. That doesn't happen. Instead, people born in the bottom quintile are highly likely to stay there; people born in the top are also highly likely to stay in the top.
We should note that numerous societies with better safety nets and higher taxes on the super-wealthy do
better than the US when it comes to economic mobility.
I.e. the American Dream, that you can get ahead if you work hard, is basically a lie. People born into a poor family face substantial headwinds, while people born into affluent families have a huge tailwind.
Why should I as an investor be punished with higher than market labour costs when my company is doing less well?
Why should the CEO be paid 350 times more than the rank and file employees? Why aren't you complaining to the board that the CEO is overpaid? Would they listen to you if you complained about CEO pay?
In a business of 100 people - sure great idea as it reflects the realities of a small to midsized businesses. In a business of 100s of thousands - that is only going to worsen the problems of short term thinking over long term gains….a cultural issue. Not to mention bankrupt a lot more companies.
The opposite is the case. Having a Board in thrall to top executives is what has gotten us into this pattern of short-term boost-the-stock-price-at-all-costs mentality.
It's been proven time and again, free voting is not an effective way of electing representation in terms of efficient direction of large organizations ….look at the federal governments books…
By law, German companies with more than 2000 workers must let the employees choose 40% of the Board. It works pretty well.
Federal spending is not remotely comparable to selecting a Board of Directors.
Now if "economic class mobility" is our objective we can make gains taking idea from both the left and right…economic inquality though is a non starter...at least until someone proves there is a way to avoid it without making the whole signifgantly poorer and less innovative. And that is what the data suggests.
When you increase economic inequality, you also reduce economic mobility.
