[this piece is a part of a work in progress on the topic of "Globalization for the Common Good: how the underlying features of globalization have made it incompatible with the common good"]
Trickle Down Economics:
A center-piece of the capitalist argument in favor of the pie principle is what is known as: Trickle Down Economy. It is argued that the main place of wealth increase (pie factory) is among the wealthier segments of the population. But then, the argument goes, it will start trickling down to the bottom of the pyramid and make everyone happier. As Stephen Pimpare points out in his epic work: A People’s Hisotry of Poverty in America, that in America, the “So-called trickle-down policies certainly started off in the right place—at the top. But the wealth didn’t go anywhere.” In the section entitled “inequality” under the Epilogue he provides shocking information on the inequality and how it has grown mainly since the early 1970s. In 1997, he writes, “The richest 1 percent of our [American] population owned more private wealth than the bottom 90 percent combined.” 1
During Obama’s fight for getting his administration’s stimulus package passed in early 2009, the proponents of his support for financial giants were using the trickle down economics as their main argument. They claimed that injecting cash into the top of the system will get the economy going and therefore will have direct impact on everyone’s life. It is yet to be observed how this strategy works (if any of the money survives the never-quenching greed of the CEOs and other bonus-receiving financiers).
Yes, economics, and in fact the history of capitalism, prove that the pie gets bigger in a capitalist society. U.S. economy’s growth during the twentieth century testifies to that. But the history of capitalism has also proved that the relative poverty grows drastically as the result of capitalist economic measures. The rich-poor gap, i.e. the inequality, is out of control in most capitalist societies and lack of remedial actions may soon trigger serious social disturbances. And this should not be surprising at all. Why? Because poverty is not an absolute, but a relative measure. "As has been said of power, perhaps poverty is a relationship, not a thing unto itself." 2 Therefore as the pie gets bigger (there is more money in the economy), even if the distribution of money does not change, there will still be a growing gap in terms of absolute amount of money in the society. Lets take unequalotopia with the population of ten people. The top ten percent of the society (1 person) possesses nine million dollars worth of assets and the bottom 90 percent (9 persons) possesse one million dollars worth of assets. A 10 percent growth of the total wealth in time т will bring the total wealth up to $11m. If the distribution is still the same, it means that the person at the top is gaining an additional $900k whereas all the other unequalotopians are only gaining about $11k (assuming that everyone takes equal share). In relation to the one on the top, the ones in the bottom will feel poor. This feeling holds even if the 9 people at the bottom manage to meet their basic necessities in life, i.e survive. This example was slightly exaggerated, but not a whole lot. In the U.S., “By 1992, the share of total wealth held by the top 10 percent was almost 72 percent.” This picture gets even grimmer when we realize that the distribution is also changing towards more for the rich and less for the poor. “By 2004, it [the share of total wealth held by the top 10 percent] was over 80 percent.” 3 Therefore, in our unequalotopia example, the 9 persons at the bottom will not even get $11k, but much less.
The incentive principle:
I often discuss my opinion about how the capitalist economy is an inherently flawed system with my friends. An issue that many of them point out to in response is the issues of incentives. Incentives, my friends argue, is the only thing that makes people move and act and incentives are the beauty of the capitalist economy. They often go as far as claiming that human being, by nature, are only motivated tangible incentives. I have asked them what incentives mean to them and got a unanimous response that incentives are strictly financial.
An anecdote that I use to respond to this argument is as follows: Lets imagine a gifted poet, or an extremely talented painter. In a capitalist system, if they manage to attract enough attention, they can make lots of money. Lets now assume that the monetary system gets abolished tomorrow and the poet and the painter are informed that from then on, they will not get a penny for what they produce. What is the possibility that these individuals stop producing their art works all together? If they do not stop, what is it that motivates them? Is there an internal incentive system to the production of art? Are there satisfactions associated with other activities and professions such as being a teacher, farmer, cattle herder, carpenter, architect and etc?
I believe there are satisfactions (and ipso facto internal incentives) associated with nearly all professions. I accept, however, that there are certain professions, which may be left with no volunteers and I do not have a practical, 21st century answer to this dilemma. However, I would like to refer the reader to how smaller communities have survived without necessarily having professionals in every field. In other words, removing the financial incentive mechanism from the society will not lead to a complete halt of societal functions.
Internal incentives, which are primarily in the form of satisfaction and pleasure, is exactly what capitalism has strived to remove from the society. The gap that has been created as the result has been filled by a substitute, uniform incentive system: money. And in fact, the capitalist economy has achieved this goal to a large extent.
Now lets examine the necessity of this change in incentive system for the survival of the capitalist system. If X is a good painter and enjoys painting and Y is a fast runner and enjoys running, they do not have any basis for competition. X will never claim that s/he runs faster or better than Z and visa versa, Z will never claim that s/he paints better than X. However, if one finds a way to make these two activities comparable, a basis for completion can be founded. This is what money has done; it has created a basis for comparing apples with oranges.
This brings me to another myth that requires deconstruction: the myth of human beings’ natural competitiveness. I am not going to go into a full-blown deconstruction of this myth, but I will mention a few points about it. 1. If my things are not comparable with yours, we don’t have any reason to compete. But money has rendered this fact obsolete. 2. If there is no limitation on resources, competition will be meaningless. The capitalist agenda of creating inequalities have created an illusion that the globe does not have enough for everyone. And 3. if resources are not scarce and greed is not in play, competition becomes pointless. But the capitalist notion of “more is better” has ensure a perpetual greed.
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1 Pimpare, Stephen. A People’s History of Poverty in America, New York Press, 2008, p. 240.
2 Pimpare, Stephen. A People's History of Poverty in America, p. 238.
3 Pimpare, Stephen. A People's History of Poverty in America, p. 240.
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