Tuesday, February 22, 2011

Can the rich get too rich?

Patrick Chevanec recently posted about a blind spot in how China is dealing with income inequality. He quoted an anonymous author who is an economist at a Chinese university warning that resentment is rising, not because of income inequality, but the lack of opportunity. There seems to be a general perception that there is one set of rules for the privileged and another for everyone else.

Chevanec went on to state his opinion that the way that the Chinese government is dealing with the issue is all wrong. They are relying on local officials to police the problem when the local officals ARE the problem (i.e. privilege).
Anyone familiar with China’s chengguan (municipal police, who often serve as bully-boys and bribe-collectors for local officials) knows that nearly identical incidents – sometimes, but not always, minus the gruesome ending — take place on a daily basis all across China (the above link to a 2009 TIME magazine article by Austin Ramzy is well worth reading, and comparing to the Tunisian incident).

The main point of the the article in The Diplomat is that China’s leaders, along with many commentators, are misdiagnosing the source of people’s resentment over inequality — and that giving party bureaucrats a more active role in managing the economy will make the problem worse, not better.
This isn't a surprise because that's what happens in class based societies! Throughout most of Asia, societies are based on social stratifications. This sort of bullying happens (i.e. beatings, etc.) when you don't care about what happens to the lower classes and you don't think that their opinion matters. Long term, these attitudes inhibit economic dynamism (what would America be without the American Dream of social mobility?) and social tensions.

The class structure comes to America
Longer term, that's what I worry about with the American social fabric. I have written about the risks of social inequality before, consider these charts from Jeff Gundlach showing how the ultra-rich have gotten richer in America:

I know that everyone complains about taxes, but the top marginal rate isn't especially high in a historical context:

If you don't think that a class structure isn't forming in America, consider this story about a private equity banker starting a summer camp for privileged kids:

While many college kids work internships this summer, the sons and daughters from 20 of the world's richest families will head to New York to learn how to wield their money and power—the right way.

The $25,000, six-week program launching in June is designed to give the next generation of wealth clues to running a business and giving to charity. Participants will also take trips to "the most exquisite weekend get-a-ways," including the Hamptons, Cape Cod and the Berkshires, according to the program's brochure.
Down that road lies class warfare and could ultimately turn America into Argentina.


Eddie said...

That first chart confirms what I already believed to be true. But it is still rather shocking.

Michele said...

A class structure is forming in America? Haven't we always had one? Since the founders of our country made a big point of ditching the nobility-based class structure of England, that pretty much left us with only economics as a way to divvy up the teams (the Haves and the Have Nots).

In the Great Depression, there were plenty of folks who managed to stay out of the soup lines. The 19th century gave us the railroad tycoons and robber barons. There were well-off merchants and bankers in the 1700's along with dirt poor stable boys and servants.

What we're seeing now is simply the logical progression of the rich getting richer. How rich is too rich? You got me. Ask that baseball player who just signed a $30 million contract to chase a little white ball around a big grassy field a few times a week in the summer.