Here’s some more on what is wrong with Steve Roth’s article “Why Welfare and Redistribution Saves Capitalism from Itself.”[i]
Roth’s next burst of brilliance is this:
Market capitalism — especially modern “holding-company capitalism,” in which corporations own corporations which own corporations, ad infinitum — inevitably concentrates wealth and income into fewer and fewer hands. It’s just the nature of the beast. Along with its immense, world-changing, manifest benefits, market capitalism labors under that inescapable burden.
So far Roth is batting a thousand on blatant falsehoods.
According to Forbes Magazine, “The 1996 annual ranking of the 400 wealthiest Americans by Forbes magazine includes a record 121 billionaires, 27 more than last year.”[ii]
According to Forbes Magazine in 2016, “America boasts 540 billionaires, more than any other country on the planet and more than all of Europe combined.”[iii]
Mr. Roth, how’s that “fewer and fewer hands” comment working out for you so far?
The number of newly minted millionaires between 1996 and 2016 (3.5 million[iv] compared to 10.8 million[v]) is massively greater than the number of newly minted billionaires, but more of the difference in millionaires can be attributed to changes in the value of the dollar between the two dates. Nevertheless, these numbers reveal that, rather than “concentrate[ing] wealth and income in fewer and fewer hands” (as Roth claims), the numbers of hands filled with income and wealth grows dramatically in America over time (to say nothing of the astonishing quality and utility improvements and the lowering of real costs of the things that can be purchased with that money).
Consider also that America is considered one of the most “market capitalist” countries among the OECD members; that is, America’s massive redistribution programs are less proportionately massive than the others’. Nevertheless, “of the 1.8M net increase in global millionaires [in 2012], more than 9 out of 10 were Americans.”[vi] Clearly the approach of one of the least redistributive country (America) is concentrating wealth in relatively[vii] more hands than those who attempt to more massively redistribute wealth.
Consider these facts:[viii]
- “Using a panel of tax returns from 1999 through 2007, this report[ix] finds that nearly 60 percent of households in the bottom quintile in 1999 are in a higher quintile in 2007 (and more than 16 percent are in one of the top two quintiles in 2007). Roughly 40 percent of tax returns in the top quintile in 1999 are in a lower quintile in 2007 (and more than 14 percent moved down by two or more quintiles by 2007).
- The report also examines the persistence/transience of millionaires and finds that this group of taxpayers, which has been the focus of millionaire surtaxes among some states and some tax policy proposals at the federal level, is highly transient. Roughly 50 percent of those taxpayers who were millionaires at some point during the 1999 through 2007 period attained this status just once. In contrast, only 6 percent of this group of taxpayers were millionaires in all nine years. . . .
- “Millionaires are a highly transient group of taxpayers, and it appears that the realization of capital gains is at least one explanation. This income source tends to be lumpy and periodic and is a major explanation for why taxpayers reach millionaire status.”
Contrary to what Roth would have you believe, market capitalism neither reduces the number of hands into which wealth flows nor creates perpetual dynasties of riches. Trust-fund babies have at their disposal only what is left over after estate and inheritance taxes are collected (and presumably spent for the good of society at large). Trust-fund fools and their money are soon parted. (And this represents many trust fund babies if “only 6 percent” of millionaires remain millionaires for as little as nine years.) Wise trust-fund babies tend to give away much of their money (the guilt—which is no fun—of having unearned riches is no doubt a significant factor) and invest what is left over wisely. Wise investments create businesses that efficiently create jobs and serve the wants and needs of people. All in all, many people getting rich ain’t all bad.[x]
All of this assumes that America’s economy is “market capitalism” and that market capitalism is what causes a greater concentration of wealth than Roth would prefer. I’ll address the fallacy of that assumption in the next post.
[i] If you haven’t already done so, please read the article, but please also suspend any belief that it makes a lick of sense until you’ve read my several posts about the article.
[vii] Currently America’s population is approximately half of Europe’s.
[ix] “The Tax Foundation, “Income Mobility and the Persistence Of Millionaires, 1999 to 2007.”