AND THE RICH GET RICHER

There is a lot of talk these days about “income inequality,” and the growing gap between the rich and the poor, and other bits of class-warfare dogma. Our president talks about it all the time, and it's an article of faith with Occupy demonstrators and other leftists. The rich are getting richer, we are told, and whatever income mobility once existed in America is gone. If you're poor, you're going to stay poor. If you're in that top 1% or top 5% or top whatever%, you're going to stay there.

The general point is hooey (as you may have guessed). Thomas Sowell and others have debunked the theory repeatedly. The problem, in a nutshell, is that the case for income inequality confuses statistical categories with actual people. Thus, though it may be true that the people in the highest 1% had more money in 2009 than the highest 1% had in 2004, they are different people. In fact, people move from income category to income category over time, and they may move to a higher or lower category. Whatever you may wish to believe, we are NOT Ghana. People are constantly moving up and down. Usually, they move up, as they age and acquire more experience.

This becomes clear when you look at specific individuals rather than groups of people in categories. It is possible to do this through data from the IRS, which tracks individuals via their social security numbers. When we look at individuals rather than categories, we find that the actual people who were in the bottom 20% of income in 1996 saw their incomes rise 91% by 2005. By contrast, people in the top 20% income level saw their income rise by only 10% by 2005, and the income of those in the top 5% and the top 1% actually fell. (Note: most of these numbers come from Intellectuals and Society by Thomas Sowell [Basic Books, 2009], a book I highly recommend.)

In other words, the class warfare argument is based in junk science. The germ of truth, however, is what makes it interesting. Over the years, it is true that the income level of the top 20% of earners has increased relative to the income of the bottom 20%. “The rich” this year are not the same people as “the rich” last year, and this year's poor are different from last year's poor, but the gap between the categories is, in fact, wider. The poor are not poorer, but the rich are definitely richer. Why? What is there about America that has made the filthy rich get filthy richer?

The answer is technology.

A friend mentioned the other day that Bob Vila (“This Old House”) not only tweets regularly, but actually has someone manage his Twitter account for him. He pays someone to tweet for him, to read messages he doesn't have time to read, and to answer them. “I hear there are a bunch of celebrities that do that,” my friend said. “It's a regular Hollywood job now---being a ghost tweeter and social media person.”

And of course, there's really only one reason for it. There's money in it.

Let's take Bob Vila, for example. First of all, he has fans. He probably doesn't have fans who stalk him or chase him down the street or fantasize about him (though he might), but there are people who will glance at a book at Home Depot because it has his name on it. There are people who, if they see Bob Vila while flipping through channels on the remote, will stop and watch for a while. There are women who, if they see a tool with Bob Vila's name on it, will buy it for their husband's birthday. If you want to replace a faucet, and there's a website with Bob Vila's name on it that explains how to change a faucet, you may go to that website and accidentally glance at the ads surrounding the copy.

All these things translate into cash, but they only do so because we know who Bob Vila is. He's a “brand” now, and a wealthy man. But it is only because of the explosion in communications over the past fifty years that his success is possible. In 1960, he might have had a little TV show and he might have sold a few books, but without cable and the new media and the internet, he would never have achieved the sort of fame that has turned him into a mini-industry. Fifty years ago, there was no way for a guy like Bob Vila to become what Bob Vila is today. Today, if Bob Vila did not have an employee who tweeted for him, he would be throwing money away.

There are thousands of examples. Mickey Mantle, Duke Snyder, Willie Mays and Richie Ashburn were the great centerfielders of the 1950's, and they are all in the Hall of Fame, but you can take the money they made, add it all up and adjust it for inflation, and it still won't be close to what Shane Victorino makes today.

Or consider Frank Sinatra, a man at the pinnacle of popular music for four decades. Frank was a huge success, and became a very rich man, but he never saw the sort of money Lady Gaga pulls in.

There are even people who could not have existed fifty years ago, whose “careers” are entirely a result, and a function of, modern communications. Kim Kardashian comes to mind. In 1960, there was no such person, or if there was, she lived in a shotgun shack somewhere in Louisiana, we never learned her name, and our lives were undiminished by her absence from them. Kato Kaelin might have lived down the road from her, in equal obscurity. Google him today and you get 282,000 results. He has a career, you see, just being good old Kato. There will apparently never come a time when he doesn't get invited to the next Celebrity Boxing extravaganza or get offered a cameo in an “original drama” on the USA Network.

In short, the rich today can get richer than the rich did in the past. The real cash value of an extraordinary talent, a great idea, or simply a recognizable name, is higher. This is a sign of economic progress because it means that human capital and new ideas are more easily rewarded than they were in the past. New forms of communication and new technologies facilitate the process by which the marketplace can give people what they want, and giving people what they want is the only “purpose” of the capitalist system.

Copyright2011MichaelKubacki