Friday, January 7, 2011

Why Do We Have Income Inequality? Part II

In Part I of this set of essays, I discuss four of the different - and I think, incorrect - ideas that people often use to explain why there is a growing income inequality in America. This second half is about the good arguments.

The usual disclaimers apply: Specifically that freedom is more valuable than "equality", and that most of the disparity is about nominal money, not adjusted for inflation or with the understanding that actual wealth is about stuff - which the market has consistently made more accessible and less expensive in all areas that aren't particularly government controlled. "Wealth" is most certainly not about Federal Reserve Notes. And wealth for everyone in the United States has unquestionably expanded consistently, and that means that most of the talk about income disparities actually fully miss the point.

However, there are multiple structural impediments on the improvement in conditions for the poorest in the US, and special benefits that go to the wealthiest among us. These issues are a problem. So... With all that in mind, I bring you...

Why Income Inequality is Growing: The Good Arguments

If it's not Capitalism (properly defined), greed, tax-cuts or de-regulation... What is the problem? 

Well... In my view, the real problems are actually a mixture of several different limitations on freedom in the economy which are designed primarily to work in favor of certain well-connected special interests - but which have been falsely advertised & packaged over the years as being in the general/public economic interest.

The first, more "local", aspect of this is all about the specific intertwining of government & "private" business; broadly defined in this case to include many corporate organizations, including for profit & non-profits corporations and various unions. But there are broader issues as well, going right down to the very essence of our financial/monetary system. I will be attempting to explain both issues.

The problem for people who wish to understand these things (and for those, like me, desperately trying to explain them) is, as I see it, two-fold.
1. Blaming stuff like "greed" and people who symbolize greed (i.e. virtually all rich people) is much easier to explain, and is a much more successful appeal to emotion than blaming the long-term, extremely complex and often counter-intuitive results of bad economic & political philosophy.
As an added bonus, rich people are always a great foil, and provide a guaranteed, easily-manufactured villain for our culture's story-tellers to write into TV, movies, books, magazines, and everything else we fill our brains with. It's clean, it's simple, and it plays to most people's prejudices and baser emotions like envy. It works... Well.

Whereas... Trying to discuss complex, systemic problems that arise from bad premises and economic fallacies with few or no obvious villains is not simple at all. Throughout the rest of this piece I will be discussing at length the consequences of political actions and economic interventions developed over a century by hundreds of different politicians, bureaucrats & intellectual supporters.

As a result, I don't get to tell a broad, sweeping Hollywood movie story of "In a world... One MAN's unspeakable greed..." in the voice of Don LaFontaine. Which means, that the story I have to tell is, at least in some ways... Well... A bit boring.

At least to normal humans (i.e... not me).

The face of Terminal Boneitis.
Hollywood gets to tell the story of Gordon Gekko and his private planes, piles of money, cocaine and unlimited sex with gold-diggers... I get to tell the story of 78,000 pages of regulation, the central control over money supplies & interest rates and the favoritism for some companies over others in an ever-more complex cluster**** of subsidies, tax-breaks, tariffs and bailouts.

Are we really surprised when the easy, sexy story is the one viewed as "true", and the one that actually makes sense isn't even really "viewed" by anyone at all?
2. Bad economic policies are extremely frequently in the specific, special interest of a small group of people, but in nobody's "general" interest.
People have a serious problem seeing the secondary & tertiary effects of economic policy. Take for example, the high tariffs placed on foreign steel. Anyone can see that this benefits the employers and workers in the American steel industry. CEOs and Steel-Worker's Union officials hold press conferences announcing how many American jobs these tariffs are saving, how wonderful it is for their industry and how we should all feel patriotic about  News reporters can run stories about all that stuff...

But what almost no one sees is how - as a result of these policies - every product that is made with steel is suddenly a little more expensive to produce.

Sometimes, this is only a few cents more per unit, sometimes a few dollars... but the net effect is that consumer products become more expensive for everyone, and there is less money available in all these industries that use steel with which to hire new employees, create new jobs and pay salaries.

On net, economic protectionism is highly damaging to the overall economy, but because the negative effects are dispersed over such a huge group in small, almost unnoticeable increments - and the "positive" effects come in large doses and concentrated within a small, often visible group - few people are able to accurately assess the value of the policies.

So with that in mind, I wish to highlight two reasons for the increased income disparity between rich & poor in America.

1. Over-Regulation & Economic Control: Mercantilism, Corporatism & Socialism

People often employ the word "Capitalism" as the label for America's economic system - however, as noted in the first section, I'm not a fan of this label because it frequently ties the concept of free markets in people's minds with problems caused specifically by central planning and un-free markets.

As I demonstrated in the other essay, America absolutely does not have anything approaching a free market, so it is a mistake to blame free market ideas for the economic problems facing the US - and since free markets are linked to Capitalism in the view of most people, it's a bad word to use. Besides - there are much better words. Three, in particular.


The first word I would use is: Mercantilism
1. economics  Also called: mercantile system  a theory prevalent in Europe during the 17th and 18th centuries asserting that the wealth of a nation depends on its possession of precious metals and therefore that the government of a nation must maximize the foreign trade surplus, and foster national commercial interests, a merchant marine, the establishment of colonies, etc
Now... Granted, we need to excerpt the "precious metals" aspect of this and modernize our concept of the monetary ideas, but the rest of it actually fits quite well.

Consider that the US government's relationship with business, and international trade, is one where it attempts (successfully or not) to protect its "national commercial interests" through imposing tariffs and restrictions on all manner of free market competition, particularly from foreign producers.

Moreover, governments regularly select specific businesses internally on which to lavish many special privileges and benefits. The Federal government does this on one scale; but each state, and even many cities do this at smaller, local scales!

Many different methods of "fostering interest" are employed by all levels of government.

Ograbme = "Embargo" backward... Get it? Participants in the
War of 1812 probably did.
First, there are "negative" ways to promote special interests. For example, there is the issue of tariffs & embargoes, which keep less-expensive goods from foreign countries out by artificially making those goods more costly to sell in American markets. There are also specific regulations which directly prevent foreign businesses from competing in America (i.e. we are limited and often disallowed from purchasing medicine produced in Europe, Canada or Mexico), and regulations which even limit American businesses from competing with each other state to state (i.e. insurance companies).

Secondly, there are "positive" ways to promote special interests. These include subsidies - such as the $20 Billion a year going to the United States agriculture industry; unevenly distributed tax-breaks for favored companies or industries - like the auto-manufacturers of Detroit or the movie business in Los Angeles; and then there are also regulatory schemes that heavily favor existing, well-connected "big" players - like the way the FDA favors the biggest drug companies, or the FCC favors major networks or media companies.

Behold! The power of
corporate subsidies.
Now... Thanks to documentaries like King Corn, some people are slowly becoming more aware of some of the tertiary consequences of tariffs & subsidies in agriculture, like America's ridiculous overuse of inefficient or low-quality goods like ethanol and high fructose corn syrup. But even still, few people have fully grasped the scope of the problem or the myriad ways all of these practices combine to help big, well-connected businesses & individuals at the expense of all consumers.

Since everyone is a consumer, these practices definitely drag on everyone's purchasing power and standard of living, including the rich - but since very few people are buddies with congressmen & presidents or are able to employ lobbyists in order to direct the creation of new regulations, tariffs, subsidies and other laws in their favor, it's just the average & poor who are exclusively effected negatively.

But it should be easy to understand how all of this requires government intervention - and thus, how it is most emphatically not a part of a free market, or a truly "capitalist" system. In fact, they are the very kinds of ideas that Adam Smith (1723-1790) - who is always regarded as the grand daddy of Capitalism - wrote the Wealth of Nations mainly to argue against.

Why a "Tea" Party? The East India TEA Company,
of course!
Why so? Because they were absolutely part of the Mercantilist system employed by the British Empire at the time of America's founding... The favoritism directed towards British, state-protected, enterprises like the East India Tea Company was a big part of why American revolutionaries went to war for independence in the first place.

Of course, the joke of all of this was that Thomas Jefferson fairly clearly saw the problems associated with mixtures of the state & business, but Alexander Hamilton - often revered as the early United States' pre-eminent economic mind - wanted to institute the British economic system here in America. Jefferson, the soft-spoken Virginia farmer was never in a great position to influence the economic ideas of this country as compared with the more bold New Yorker and first US Treasury Secretary, Alexander Hamilton... And thus began America's struggle between free markets & and government-support of favored industries.

Hamilton's views lost some favor throughout parts of the 19th Century; including during the greatest periods of economic expansion & improvements of living conditions for the poor and the development of the middle class. But his ideas - and then those of John Maynard Keynes - really dominated the 20th Century, and we know how that's gone.

Now... I like the word "Mercantilism" the best, because - aside from hoarding gold in the Treasury (which we don't do now thanks to a fiat-money system) - it seems to me to be the right fit, and I think it more accurately describes the origins of the American economic system. The ideas are mostly all there, but they have been influenced heavily by a few other ideas over the last 100 years, and we need to talk about them too.


The second word that applies to America is a little bit darker: Corporatism
: the organization of a society into industrial and professional corporations serving as organs of political representation and exercising control over persons and activities within their jurisdiction.
From an economic standpoint, this literally means that the state deals not with individuals as individuals (i.e. evenly protecting individual rights to property & association), but rather with special interests seeking favors for themselves, and often limitations imposed on their competitors. This doesn't just mean that the government would be used to benefit big businesses & industries, but also with big labor unions and other conglomerated interest groups as well. The problem is... Unlike the market, government actions are zero-sum... When one interest group wins, competing interests lose - and in general, consumers at large and the "little guys" almost always lose.

Usually, all big government does is produce big anti-competitive monopoly businesses and through our old friends: Rent-seeking and Regulatory Capture.

Il Duce
The reason this word is "darker" is because it is fundamentally associated with Fascism, specifically the kind favored by Benito Mussolini in Italy. Now, of course, we look back on Fascism in Europe as some kind of unique, and supremely evil concept - often (I think mistakenly in several ways) associated with "right wing" nationalism. So we forget that it was in fact a pro-nationalist offshoot of Socialism, once quite popular here in America. For instance, in 1933, Franklin Delano Roosevelt had this to say about Mussolini's economic policies:
"There seems to be no question that [Mussolini] is really interested in what we are doing and I am much interested and deeply impressed by what he has accomplished and by his evidenced honest purpose of restoring Italy."
Deeply impressed... Consider that. FDR also once remarked to his friend, John Lawrence;
"I don't mind telling you in confidence that I am keeping in fairly close touch with that admirable Italian gentleman."
...Referring to Mussolini.

Bailouts: NOT part of free-market Capitalism.
Fascism, contrary to the popular mythology as the great evil defeated by the US military, was once a favored idea among world leaders & academics right here in America - especially in the economic standpoint. It was viewed as a way to control the economy and push the egalitarian intentions of Socialism without entirely losing the economic growth or nominal "freedom" of private ownership. It was the "third way" between laissez-faire Capitalism and Socialism... But it's no secret that the results were expanding gigantic corporate interests with a stranglehold on government and which enjoy the "private" benefit when their businesses profit, but who are able to pass their losses onto the increasingly-squeezed taxpayers. And ultimately, as tax-payers became impoverished and economic unrest developed, Il Duce implemented a police state to hold down those individuals acting against the various interests of the powerful and connected corporations.

Pollution: A result of the
lack of property rights.
This isn't a good thing, and everyone seems to know that in hindsight... But yet, instead of blaming Franklin Delano Roosevelt and others who added "Corporatism" to our Hamiltonian Mercantilist tradition, and the ideas of Fascists like Benito Mussolini, people blame "free markets" that don't exist.

Too often people blame free markets for the crimes of big business, because they believe free markets and Capitalism result in big bad businesses... But this is simply not true. Big businesses are most benefited by a big government environment.

My favorite quote of all time from Milton Friedman was from a Reason Magazine interview in 1978:
"Business corporations in general are not defenders of free enterprise. On the contrary, they are one of the chief sources of danger....Every businessman is in favor of freedom for everybody else, but when it comes to himself that's a different question. We have to have that tariff to protect us against competition from abroad. We have to have that special provision in the tax code. We have to have that subsidy."
Surely this is an easy lesson to learn.

But Hamilton & Roosevelt didn't get it at all... And unfortunately, neither do most ordinary people who buy the common myth that powerful governments are an antidote to bad behavior by big businesses. It just isn't, and never has been.

Free markets actually are, however, because low barriers to entry; real competition; and an unsubsidized, un-protected playing field pressure businesses to compete for consumers' dollars on the merits of the products they produce and not on their ability to manipulate the law.


The last word I want to discuss is possibly even more emotionally charged: Socialism

I know. I know. "Socialism" is one of those words that everyone balks at. Either it's a Godwin-like word misused by opponents to invoke Stalin & Pol Pot or it's a magic, unicorn-creating solution to all the world's problems.

Unlike Mercantilism, in which government regulates & controls market entry and supports favored businesses in the "national interest", and Corporatism which does even more of the same but which is more about competing groups and syndicates being helped or harmed by a serious intermingling of government & business, "Socialism" is the idea that government just simply takes over and the state owns all businesses.
"a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole."
It's most certainly not worth going down the entire road of explaining why this is an utterly untenable way to manage economic resources. Friedrich August von Hayek and Ludwig von Mises handled that issue quite well ages ago. The key issue I do want to bring up, however, is that Socialism really shouldn't be viewed quite so literally. Government control of the means of production is not necessarily something that has to be accomplished by fully nationalizing industries as Hugo Chavez is busy doing. Control can be accomplished through heavy-handed rules, regulations and controls.

Socialist. Douchebag. Possible Hitler-lover?
There are many aspects of our economy in which the means of production are in fact owned by the US Government. Over the past century, an increasingly large subset of the economy is in this position, and it invariably benefits those most closely attached to the state at the expense of most everyone else.

I won't go into all of the myriad socialist failures in America - such as the US Post Office, road & traffic production/management, fish & wildlife management, and government "safety net" Ponzi schemes like Social Security or Medicare. But in each case, we have a socialist program - you can be sure that the ordinary people are the ones who are most negatively effected by the loss of efficiency and decline in supply/higher prices of socialist-provided goods & services.

Madoff's Ponzi Scheme: $7.2 Billion
Social Security Ponzi Scheme: ~$620 Billion
Just sayin...
But of course, the unseen effects are difficult to measure and are naturally hard for most people who have been so ingrained in broken window fallacy thinking to grasp. But rest assured, like its cousin Corporatism, Socialism is a constant drag on our standards of living.

However... Above all else, there is one instance of central planning in the US economy that is by far worse than all the others combined. I'm talking about, of course... Money.

2. Centrally Planned Money

Depending on the words you want to use, we have "Socialist" or perhaps "Fascist" money. Shocking terms, I know... But, accurate.

Consider that our money is created and its value is defined by the decisions of a central bank.

In the United States, this bank has been called the "Federal Reserve" since 1913, but Alexander Hamilton had instituted the First Bank of the United States, which lost it's charter in 1811, and then we had a Second Bank of the United States from 1816 until 1832, when Andrew Jackson and others managed to get that central bank's charter revoked. The chief concern of the Federal Reserve -backed by a charter from the US government - is the planning, creation & control of money.

They have three primary methods to accomplish an expansion of the money supply:
  1. Lowering interest rates by fiat
  2. Adding money to the Monetary Base (M2)
  3. Decreasing bank reserve requirements
In each case, the Federal Reserve (central bank) is able to add money into general circulation through the central banking system. Some economists, like the late Milton Friedman, argue that the central bank can be used "for good" in order to slowly & steadily increase the money supply over time. The theory is that we want to keep prices stable, and therefore:
If the Federal Reserve Board were required to increase the money supply at the same rate as real GNP increased, he [Friedman] argued, inflation would disappear.
The problem is, the Federal Reserve has (almost) never done this. Instead of taking on the mission of keeping the money supply tied to increases in real GNP, they've taken on the mission of increasing the money supply in order to bailout or aid friendly member banks, or in order to buy Treasury Bills and inflate away the national debt at the request of politicians seeking a way to avoid the personal consequences brought on by decades of reckless deficit spending.

Side Note: Murray Rothbard and others have pointed out the more disturbing link between fiat money created by central banks as a way for the government to inflate away the cost of our numerous wars at the expense of all consumers without actually raising many taxes directly.

CPI Inflation: I mean... It's probably no big deal, right?
Now, it should be clear that it isn't at all a sustainable action, because as we devalue our currency in order to pay for our debts, we are all losing purchasing power and eventually all those other countries who have loaned the US money aren't going to be very happy if they're paid back in money just a worth a fraction of the original value.

This road ends in Zimbabwe - and I hope everyone is clear on that.

But the thing is, significant inflation produces a number of serious problems for consumers and, I'm arguing, is possibly the single biggest and most important factor in an increasing gap in income.

The problems for ordinary consumers include the rampant misallocation of resources, and by extension, the boom & bust cycle - but that's an issue for another essay. The important consideration here is to discuss exactly why an expansion of the money supply benefits primarily those first-level recipients over the middle class & the poor.

First - Understand the basics:

When new money is created, it's created within the banking system. It is not created - typically - in cash by the US Mint and dropped out of the sky onto the masses. No, no... It's created in the form of credit on the books of the Federal Reserve banks, and then is loaned out to the major investment banks - who subsequently loan this money to businesses & other, much smaller, banks through various investment interests.

Eventually, the money makes it into general circulation as ordinary people are using it to buy houses, cars, new factories, etc.

But it first goes into the hands of the biggest and richest banks in the nation. And this is a crucial point! See the following graphic:

Click HERE for Full-Resolution Version

It should, I think, come as no major surprise to learn that when a major investment bank like Goldman Sachs gets a new $100 Billion added to their balance sheets thanks to a brand new expansion of the money supply, that flush of cash allows the company to make decisions with that money that may displease the general public.

For instance, because of the incredibly large amount of money involved, a company like Goldman Sachs can offer positively immense salaries, bonuses and (more importantly) stock options to executives and managers... And they can do all this before any of the newly-created money makes it too far down the line and goes into investment accounts. The unique position some high-level bankers are in at the moment money is created provides an equally unique opportunity to siphon off increasingly large sums for personal gain. This is something that would be impossible if inflation was limited by stability in the money supply. Moreover, since the Federal Reserve is run, influenced and/or controlled by these very same bankers - we should not be surprised that the track-record of the Fed keeping inflation rates low and stable has been abysmal over the past 100 years.

A graphic I did a couple years ago, showing the value of the $US.
Note the red line. It shows exactly how abysmal the Fed's record really is...
So... We all need to recognize that in any hierarchical structure, those with the most responsibility and those who are in control of the overall hierarchy are going to be paid the most for their work. Don't be upset by this, it's a perfectly sensible way to divide pay-outs. It is not the problem by itself, but it can be a problem when the money coming in is fabricated out of thin air at staggering rates and when the hierarchy itself exists in a system that is almost diabolically structured purely to prevent such organizations from feeling the effects of losses.

Secondly, understand the moral hazard created by economic intervention:

When Government-sponsored Enterprises like Fannie Mae, Freddie Mac and the Federal Deposit Insurance Corporation (FDIC) exist, bankers no longer have to worry about the legitimate fear of losses which would otherwise keep greed in check within an actually free market.

In some respects, free markets are kind of like walking a tightrope without a net. How high off the ground you set the rope is going to be entirely dependent on your skill & success at walking across the chasm. Everybody's risk tolerance is different due to innumerable personal & professional factors, thus levels of debt exposure are radically different. But, much the same as adding a net under the tightrope, and people's perceived risk tolerance suddenly changes dramatically.

Artificial Risk-Negation: Good for beginning circus
performers, BAD for big business.
Just as the inexperienced tightrope walker can attempt to walk across his wire suspended 30 feet in the air with a net, so too can banks take far greater risks with the money available to them when they are guaranteed to have their losses bailed out by the American taxpayers. And so it is that in the hight of the bubble years, Lehman Brothers, and other major financial firms had leveraged their assets (i.e. loaned out and attempted to collect returns on) at a rate of over 30:1

Though I'm simplifying a bit, this means that if their investments had paid off, the bank would have stood to gain 30 times (or more) what they held in reserves. But, the flip side is, if their investments didn't pay off (and they didn't...), then they would owe 30 times more than they actually had available.

Since much of the funds they are playing with are not "their money" - in that they have stock & account holders who are funding their operations - if their bets are so bad and their leveraging so high that it threatens to bankrupt the entire company, a lot of people are seriously harmed. We all know this already...

The government's "solution" to this (at the urging of bankers themselves) was to create an environment of "too big to fail" which put up a giant net under the tight-rope walkers of high finance. And of course, far from solving the problem - it just encouraged our biggest banks to take EVEN MORE risks with other people's money!

So you ask, what's the free market solution? NO BAILOUTS. No centrally planned money or interest rates. Let banks & other businesses make their own market decisions and succeed or fail on the merits of their choices - as judged by profits & losses provided by satisfied (or dissatisfied) consumers.

No bailouts is preferable because in such an environment, the risks of greedy behavior and immense leveraging are borne by the people who made bad decisions and not by people (taxpayers) forced to socialize the losses incurred by the greedy people who overextended themselves.

Uh... Duh.
Again... Greed isn't going anywhere. It can either be "self-regulated" by fears of loss and thus channeled into productive uses by a free market, or it can become a gigantic problem for consumers & tax-payers in an un-free market where risk is negated by government-provided special privileges to the well-connected.

The market balances the greed for reward against the very real risk of failure. Governments which engage in all types of Corporatist, Mercantilist and Socialist schemes eliminate the reality of risk. Thus pushing all profits onto the small group of people managing/controlling/owning the system and all losses on the dispersed masses.

Not centrally planning the money supply would require either a fixed commodity currency (i.e. a gold standard), a mathematical standard for monetary growth (like what Milton Friedman suggested), or no monetary growth at all - which would lead to slow price deflation.

Of course, Keynesians freak out about deflation, but the fact is that all we're talking about is having a currency that each year is worth more and has higher purchasing power than the year before. This is a good thing, in my opinion...

So... Let's recap:

Who benefits from massive credit expansions?
  • Bankers (who get massive salaries & bonuses)
  • Politicians (who get to fund every program imaginable and give away special favors to...)
  • Recipients of government contracts (such as defense contractors)
  • Companies & individuals with substantial lobbying power and major shareholdings in big investment banks
  • Recipients of government-funded pork that is only possible when no one cares about the debt
Who is hurt by massive credit expansions?
  • Everybody... In the form of rising prices and costs of living, misallocation of resources leading to comparative shortages of some goods and an overabundance of others consequent to the screwed up market signals presented by manipulating interest rates
  • Especially everybody who doesn't belong to any of the above-mentioned "benefiting" groups
So yeah... I get it... This kind of a discussion is boring, complex and to some may even seem "conspiratorial" - though I assure you it's not. I don't subscribe to any notion of the Iluminati or the Bilderbergs or any of that other nonsense and none is needed. 

I'm a big fan of Occam's Razor.

The system we have today is produced by a combination of economic ignorance and narrow-minded special interests of politicians - who wanted a way to fund everything they ever wanted to do without raising taxes (including paying for an awful lot of warfare, I should add!) - and of bankers who control the money supply to their extreme advantage.


Gini Coefficient measures income inequality... But it does
have significant limitations.
I've taken for granted that the gap between incomes of "the rich" and "the poor" in America is widening. I do have a few qualms about accepting that without qualification. While the charts make it clear that the gap between rich & poor earned income has grown over the last 30 years, the fact remains that - until recently, at least - everyone has seen substantial increases in real wealth. 

Relatively free markets (compared against the rest of the world) in most consumer goods have increased quality and reduced prices significantly, especially in areas which have been (actually) deregulated or which never experienced significant government intervention. Fortunately, this has included - again, until recently - most communications technology, such as internet, software, mobile communications & wireless, televisions and other areas.

One of the mistakes people make when they look at income in the US is
that they look only at wages, and not total compensation. People demand more compensation in "benefits" now, and less in direct wages.
Unfortunately, in areas where government intervention has increased and become substantial & burdensome, prices have risen and quality has declined. These areas include, for instance; health care, primary & secondary education as well as university education (due to subsidized tuition), and certain food crops.

Overall, real wealth has gone up substantially, and as Steve Horwitz pointed out in the video from Part I, the rate of increase in real wealth for the poor has actually exceeded that of the rich (and that, of course, only makes sense because poor people have farther to go). However, the shackles placed on the market have hindered progress and arguably resulted in far less prosperity, and thus far less of an improvement in living conditions for the poor, than are natural or necessary. It is quite clear that in all cases of more open trade and more free markets, the effect has been overwhelmingly positive - whereas the areas effected by government have become an increasingly heavy anchor around the legs of all consumers and most all producers.

Unfortunately, standards of living are beginning to stagnate in many ways and that is a problem. However, earned income divisions between the rich and poor in America are the consequence not a lack of regulation in a free market, capitalist, economy. Nor are they a consequence of "greed", which is constant, or of "tax-cuts" to the top marginal income rates - which can easily be shown to have a negligible effect on both government revenue and on poverty rates.

Instead, it is the mixture of government and business through regulations, subsidies, unevenly applied tax-breaks to favored industries, protectionist tariffs and special contracts which provide massively skewed and uneven benefits to favored recipients at the expense of consumers... And those "favored" are almost inevitably the richest people in America.

Most importantly of all... The monetary system itself produces incentives and opportunities for the wealthiest Americans to exploit the directional flow and velocity of money to their advantage. The benefits are concentrated in the hands of a very small group of well-connected bankers, political figures and their biggest allies.

The cost to everyone else is inflation, and rising consumer prices - in other words, continually growing stagnation in purchasing power. These costs are dispersed and borderline invisible.

So there it is.

If you want to blame something, blame our inflationary monetary policy and never-ending meddling into the American economy. 

And if you want to fix it... Then support free markets!

Not pro-industry Mercantilism, not pro-plutocracy Corporatism and not pro-ruling class Socialism.... But rather, actually free markets... There's your answer.

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