I think we have to distinguish between caring about distributional equality (or inequality) and caring about the physical needs of the poor. I am concerned about the physical needs of the poor, but I am not particularly concered about distributional equality. That’s why I am concered about improving the purchasing power of the poor, but not about a widening income distribution.

My response to J. Salvati:

A) Salvati makes two points in #2- a )”While the increase in inequality is interesting and worth discussing, b) if you are concerned about the poor, you shouldn’t care about what happened to the rich.”-

The logic of Salvati’s argument in #2 is flawed because these two points directly contradict each other. Any increase in INEQUALITY is measured precisely by relative comparison, and helps to establish what makes it worth discussing- the fundamental unfairness of it. So if one wants to discuss an increase in inequality shown in a report, relative comparison of what happened with the poor in comparison to what happened with the rich is EXACTLY what one would want to discuss. One cannot discuss an increase in INEQUALITY without treating what happened with both. This is precisely what I did discuss here- the increase in income inequality- by showing that the poor and middle class fell behind the rich during the years of the CBO report.

B) Salvati writes in #3- ” you can’t buy food with relative wealth.”
On the face of it the point appears to be correct so lets discuss it. In terms of the real things that the middle class and the poor can buy, from 1979-2004, the data show that the poor and middle class fell further behind in this as well. This is clear from the economic data available. The CBO report shows that middle class income rose 18% from 1979-2004, while the Consumer Price Index rose 77% from 1984-2003. [http://qrc.depaul.edu/StudyGuide/Constant%20Dollars.htm) I didn’t include the latter in my argument because I wanted to deal with solely the information in the CBO report. A St. Louis Post-Dispatch editorial this month also noted that according to the CBO, income for the top 1% went up %176 in that same time. So it appears this relative decrease for the poor and middle class in relation to the top 20%, also had the effect of a real decrease in spending power. Thanks for bringing up this point.

C) Salvati writes in #1- “To claim that “the rich got richer,
while the middle class and the poor got poorer, with the poorest of
the poor and the middle class taking the hardest brunt” is just silly.”
And states in #3 that- It is useless to define welfare by relative wealth”.

Using relative comparison to determine economic welfare of a business, organization, family, or individual is hardly silly, (but thanks for the term of diminishment), and hardly useless. Relative variation comparison in income performance is one of the two fundamental metrics in our economy in evaluating any kind of income or unit performance variation, and is used by most- if not every- business owner, executive, manager, and investor in taking account of their respective economic positions, extending this to the evaluation of all their managers and all employees.

This is what it means for our economy to be fundamentally competitive- to compete against others for economic reward. The two questions we always ask first are: 1) How did we or our organization do in actual dollars compared to last year, and 2) how did we or our organization do in relation to the performance of others- i.e. in relation to direct competitors, to industry standards, and to businesses, investments, investors and organizations of other kinds.

Relative variation comparisons have fundamental impact on the industry perceptions and on the inner workings of both public and private companies, investors, and employees. If Toyota increases 53%(like the top 20% in the CBO report) in net income and units over a period of time, and in that same period of time, Ford increases 20% and GM 24%, Toyota stock will gain more value than Ford and GM in that time. If this variation persists for any length of time this will cause a reevaluation of strategy, processes and procedures at every level of company management at Ford and GM, from the board of directors down to dealership sales. If the variation persists Toyota will be seen as a better investment, and a percentage of investors of the other two will sell their stock and buy Toyota. The WSJ story will not be- “Toyota, Ford and GM all do well”, it will be “Toyota Gains Market Share- Ford and GM Slip”.

The same dynamic of relative variation comparison applies to every public company, private company, investment and investor in every industry. If there is negative variation in relative performance that persists in any form, there are “come to Jesus meetings” gnashing of teeth and recriminations, about what the organization is “doing wrong”, or “not doing” to accomplish the same increase as the competitor. The owner and investors feel left behind.

For the WSJ to equalize the differences in income increase between groups by stating that “everyone saw increases” from 1991 to 2005, is more than a bit hypocritical, given it’s own predilection for relative comparison, and when considering the top 1% – 3% of income earners are in business- so that they can be in the top 1% -3%!!

Relative comparison is the social instinct of power that drives competition- to be the best, and to be rewarded the best, which means to be rewarded better than others. As we saw above, companies, investments, employers and employees are compared relatively in every other facet of economic performance, yet when it comes to comparing income the WSJ and Salvati think the poorest 20% and the middle class shouldn’t be concerned with losing significant ground comparatively over 25 years.

Relative comparison and the anger from the loss of relative ground, was the crux of the argument made by banks and companies against the inflation of the Carter years- that they were losing wealth because inflation was favoring home owners and wage earners, because wages went up with inflation, while loan payments stayed the same, thereby diminishing the relative value of a loan as an investment for a Bank. (See secrets of the temple) It is the same fear of loss of position of the business and banking class that fuels the Feds fight against inflation today.

An opponent could make an argument stating that business owners are entitled to more income than employees because of entrepreneurial risk. The opponent would be correct. However this was already accomplished by leaps and bounds in 1979, yet to extend the right and theory of entrepreneurial risk to include not only greater compensation than employees in a given year, but that also each and every year owners should be compensated with an even greater increase, relative to what others receive, teeters on claiming the divine right of kings.

If the WSJ and Salvati wish to make the argument that individuals in the lower groups of the CBO study should not try to compete against companies and business owners, then this just embeds the contention and feeling among business owners- in this argument- that they should be treated differently, and that ownership gives them a right to make increasingly more each year at a more accelerated rate of increase. This is the embedding and assumption of a class argument, that business owners and rich investors are in a different class and should be treated differently, and again borders on resurrecting the ‘divine right of kings’.

D) Salvati writes in #2- “If you are concerned about the poor, you shouldn’t care about what happened to the rich.”
Salvati here attempts to separate what has happened to the poor (relative income decrease), from what has happened to the rich (relative income increase), and thus implicitly makes the claim that there is no connection between the two. The Data in the report support otherwise, that the fundamental increase in inequality over 25 years, was actually a fundamental change in structure- and thus a REDISTRIBUTION- of the flow of income from the poor and the middle class to the rich during the 25 years of the report. This suggests that the two flows of income are interconnected, that at least in part that the rate in increase of income for the top 20% was caused by the falling behind of the lower and middle classes.

E) “I would do some serious introspection and decide if your sympathies really lie with the poor.”
Thanks for the suggestion, maybe you can pitch your own “Dr. Phil” show to Oprah. It is the unfairness and impact of this fundamental change in the structural redistribution of the flow of income for the poor and middle class, after research and introspection, that my analysis and thus also my sympathies speak to.