The myth of the 1% – 99% split

https://www.youtube.com/watch?v=KxjW-HU1BCM

Peter Kopa, Prague, 5.01.2024 – The English version follows below

One of the most frequently used commonplaces in economic and social matters is the scandalous and supposedly unjust distribution of economic resources between the rich and the others, who prefer to be referred to as the poor.  We comment below on a German article that recently appeared in the Zurich NZZ on this myth of wealth distribution.

Barack Obama’s oracle

“Dangerous and growing inequality is the defining challenge of our time,” said former U.S. President Barack Obama in 2013. For more than two decades, the dominant narrative has been that the gap between rich and poor is widening and that the lower social segment of society is being left behind. With “Occupy Wall Street,” this narrative has inspired an entire movement that sustains the narrative of the 99% in increasing poverty versus the 1% of increasingly wealthy people.

This pseudo-scientific prejudice has its origins in the Frenchman Thomas Piketty who claimed that the richest 1% have been doubling their share of income in the USA. For years, researchers have repeatedly criticized his work, but now a carefully elaborated study by economists Gerald Auten and David Splinter claims that Piketty’s data are not correct.  https://www.youtube.com/watch?v=xj5ttrcVPyg

According to the latest Credit Suisse & UBS report on the global distribution of wealth, those who have more than a million dollars are part of the richest 1.1% of the planet, which are in the hands of 3.5 million people. Below is the corresponding graphical representation that indicates a distribution quite different from the demagogic simplism of 1%-99%:

Everyone should have enough

The supposed increase in inequality has so far been exploited by the left, demanding more taxes and more redistribution from the state. In addition, they want tariffs on imports and strict limits on immigration. The accusation is that the economy is being manipulated to the detriment of the majority.

However, the difference in the lives of the rich and the average citizen is no longer as great as it was a hundred years ago. The middle classes today have access to a good health care system, can afford vacations or sometimes eat out. For the recently deceased philosopher Harry Frankfurt, economic equality as such is of no particular moral significance: “From a moral point of view, the distribution of economic goods is not about everyone having the same, but about everyone having enough”.

Therefore, the focus should not be on whether those at the top have more than those at the bottom, but on whether poverty disappears. Philosopher John Rawls formulated a concrete application of this idea: “If a rich man’s entrepreneurship makes the poorest better off, then the entrepreneur’s higher income is justified,” he said. The founders of Walmart or Amazon, for example, fit this picture because they have revolutionized retailing, but so have the smartphone makers who have simplified our lives.

Revenues have tripled

Auten and Splinter show that the real per capita income of the lower, middle and upper social strata in the U.S. has tripled since 1960. Government transfers have also helped this result. However, poverty cannot be solved only by redistributing as much of the asset pie as possible. The goal must therefore be to provide everyone with basic education and health care so that everyone has a chance to move up the social ladder. The United States certainly has some catching up to do in this area, as international comparisons show. Incidentally, Switzerland is one of the leaders in social mobility, thanks to its education and apprenticeship system.

It is a mistake to over-prioritize higher education at the expense of the middle and craft level. During my eighteen-year stay in Zurich I could observe that often an academic professional has siblings working as welders, electricians etc. and no one thinks he/she is superior or inferior, partly because income does not differ that much either.

Additional considerations

History tells us that only the free economy has been able to ensure an economic growth that ensures the maximum possible satisfaction of all. In this sense, we must recognize the advantages of the capitalism inherent in it, which in the last 35 years has managed to lift a billion people out of poverty in Asia and other poor areas of the world.

When judging that 1.1% of the super-rich – who account for 3.5 million people – prejudices must be set aside: their wealth is invested in economic production infrastructures, ensuring employment for a large sector of the population. Yachts and other luxuries are owned by a small minority. And we must not forget that yachts, airplanes and mansions have at least generated many jobs. In addition, the large companies of the rich make possible scientific research and technological progress that requires an enormous financial and entrepreneurial capacity, only possible in part through the stock market and the financing of banks, etc. And all this feeds back into growth and the creation of new jobs.

In the economy not constrained by state control, everyone can start a company, thanks to the contributions of partners and shareholders. There is the story of so many people who have started from scratch, but with a good idea to meet a demand in the market, current or potential. Instead of looking at them with socialist prejudices, it is good to read their biographies to understand which paths economic activity should take. One example among many is Steve Jobs, who introduced the cell phone.

Then we must take into account that men are born with differences in intelligence, character and diverse capacities. It is true that good education in the family compensates for many things, but there are always innate differences in the background. The great mistake of the media is to want to see and judge equality on the level of achievements instead of looking at the most real and profound level of individual dignity with an eternal destiny, in which equality is undisputed and even more so among people of faith. Democracy should be thought of on this foundation and indeed this is the spirit of all constitutions when they invoke God in their preambles. What kills prosperity and welfare is state dirigisme that induces the cancer of corruption, which are the root cause of countries without open and free markets.