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(The following is a slightly extended version of my response to an op-ed by Vince Carroll,  Putting Fat Cats In Their Place, in today’s (10/30/11) Denver Post: http://www.denverpost.com/opinion/ci_19211159?source=bb.)

Vince Carroll is absolutely correct that we must consider not only the distribution of wealth, but also the absolute growth of wealth, when discussing issues of our economic well-being as a nation and a people. Certainly, if everyone is getting wealthier, then why should we worry if that is accomplished by means of a system in which the wealthiest get astronomically wealthier while the further down you go along the spectrum of income and wealth, the less robust the growth of wealth becomes (less robust even as a proportion of existing income and wealth, meaning a lower percentage of a lower base number)?

There are several reasons why:

1) The growth in household incomes that Carroll cites is due to an increase in two-worker families, and a decrease in stay-at-home moms. In reality, there has been a decrease in real individual average income in that same time period, an anomaly in the modern era of ever-expanding wealth which corresponds precisely with the rise of income-concentrating deregulation.

2) We have an economic system demonstrably less efficient than some others in existence (e.g., Germany, the Netherlands, etc.) at striking an optimal balance between absolute growth and distribution of the fruits of that growth, resulting in far greater levels of impoverishment, infant mortality, homelessness, violent crime, incarceration, mental health problems, and numerous related problems, than have been achieved by other nations that have struck a more sensible balance.

3) Extreme income inequality reduces economic vitality by constricting the breadth and depth of economic activity. The more concentrated wealth is, the less disposable income, in the hands of fewer people, is available to contribute to the consumer engine of our economic vitality.

4) Carroll disregards the role of deregulation (from the 1980s onward) in generating this economically debilitating concentration of wealth, how that deregulation has been implicated in every major economic crisis since its inception, how it has now undermined the consumer engine of our economy in dramatic and enduring ways, and how, as a result, our economy is in a period of stagnation following contraction, with a no-longer-growing pie still obscenely concentrated in far too few hands.

5) Carroll disregards the various costs not measured by traditional economic indicators, referred to in the economic literature as “externalities” (those costs and benefits of economic transactions that affect those who were not parties to the transaction, in either positive or negative ways), which, while helping to author the huge concentration of wealth in America over the past 30 years, also have helped to do so on the back of the population at large by reducing public health, safety, and welfare, and placing increasing burdens of accumulating and devastating negative externalities on future generations across the globe.

6) Extreme income inequality has many other socially destructive consequences, even aside from the ones listed above. It undermines national solidarity and cultivates inter-class resentments, creates subjective feelings of relative poverty, and undermines democracy by concentrating both the means of affecting public opinion (and thus determining the outcomes of elections) and the power to determine the economic well-being of the vast majority of the people of the nation into the hands of a small, corporation-beholden-and-embedded economic elite.

One must look not only at this “snapshot of reality,” but also at the trends revealed over time, and the consequences of such trends. Even if all of the present reasons for considering how equitably distributed wealth is did not exist, a trajectory of accelerating concentration of wealth is clearly untenable in the long run.

Today, 1% of the nation’s wealthiest command 40% of the nation’s wealth, while the bottom 80% command less than 15% of the nation’s wealth. In 2007 (see http://sociology.ucsc.edu/whorulesamerica/power/wealth.html for an overview of 2007 income distribution figures), the top 1% commanded slightly less than 35% of the nation’s wealth (already considered an indicator of astronomical inequity). The current growth trend in capital concentration has been underway since 1980, coinciding precisely with the Reagan-coined “government is the enemy” paradigm of the right; in 1979, the top 1% commanded just over 20% of the nation’s wealth, having fluctuated since WWII between 20% and, in a rare outlier in 1965, 34%.

The last time the concentration in wealth in the hands of the wealthiest 1% of the population exceeded 40% was in 1929, on the eve of The Great Depression, when policies similar to those advocated by the Libertarian Right today had been successfully championed under the Hoover Administration.

If the challenge is to “get it right,” all things considered, then our grotesque and accelerating concentration of wealth in America, accompanied by the highest-among-developed-nations rates of poverty, hunger, homelessness, violence, incarceration, and other social ills, is indeed an indicator of having failed to do so.

Yes, we do not want to seek “equality” in a vacuum, engaging in the folly of imposing an equality of impoverishment. But we as a nation are not teetering on the edge of that particular folly; rather, we are over the edge of the opposite folly, which we insanely avoid addressing by pretending that it doesn’t exist.

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The Denver Post published an AP story about Obama’s appointment of Elizabeth Warren, “an aggressive consumer advocate and Wall Street adversary,” as de facto head of the new Bureau of Consumer Financial Protection (http://www.denverpost.com/business/ci_16106784). This appointment is significant for two reasons: 1) It marks a continuation of the process of concentration of power in the White House to avoid increasingly difficult and lengthy senate confirmation processes associated with appointing regulatory agency directors, and 2) it is an expression of the Democratic Party’s wise commitment to preserve and continue to develop the sophisticated regulatory architecture necessary to manage the modern market economy.

David Brooks commented on the first aspect on The News Hour last night (http://www.pbs.org/newshour/bb/business/july-dec10/shieldsbrooks_09-17.html). According to Brooks, this is a trend that has been growing over the course of the last five administrations. For good and for ill, there has been a gradual concentration of political power in the executive over the course of American history. The rise of the administrative state since the New Deal had led to some limited dispersion of that power (since Congress created each administrative agencies and confirmed the director appointed by the President), but, if Brooks’ assessment is correct, even that small moderating influence on presidential power has been eroded by the executive reaction to contentious confirmation hearings (not only by removing Congressional oversight, but also by shifting the power from semi-autonomous agency secretaries to, in this case, a “special assistant to the president”).

However, while many pundits and politicos are most concerned about the distribution of power, I am most concerned with the efficacy of its use. As long as enough separationof powers exists to prevent any slide into dictatorship (and it does, despite the perennial overheated rhetoric on the Right), the distribution remains an issue of the means to our ends, and the salient question becomes whether the power thus exercised accomplishes goals which serve the public interest. Since neither our individual liberties are in any actual danger as a result of the concentration of power in the White House, nor, for the most part, is the functionality of distributed competences, the question really is whether increased regulatory oversight of financial markets serves the public interest.

And the answer is: Yes. The combination of the complexity of the modern market economy and the consequences of “information asymmetries” creates an indispensable need for an increasingly sophisticated regulatory architecture. The reason for this is that in information-intensive market sectors, where some minority of market actors are close to information that is remote and inaccessible to the majority of market actors, that minority of market actors will tend to manipulate markets to their advantage and to the public’s disadvantage, often with disastrous results. Examples of this abound, including the recent financial sector collapse, the Enron-fabricated California energy crisis of 2000-2001, and even Bernie Maddoff-like ponzi schemes (which exist in abundance). The challenge, indeed, is creating and running regulatory agencies capable of keeping up with those who are closest to the action.

This is not to say that there are not defects and downsides associated with the administrative state. Certainly, it is possible for market regulations to fail a cost-benefit analysis, and impose burdens on business more onerous than the benefits warrant, costing jobs and stifling wealth production. Agency rule-making processes, however, are highly attuned to this consideration, and make necessary  assessments that offend less pragmatic sensibilities, such as placing price tags on the value of human life (since regulations that consider individual human lives infinitely valuable would inevitably lead to the complete shut-down of the economy).

The bigger problem is the phenomenon known as “agency capture,” in which regulatory agencies become “captured” by the industries they are supposed to regulate, and make rules that serve the industry’s rather than the public’s interests. This happens both as a result of political ideology and allegiances (mostly conservative presidents sympathetic and beholden to particular industry interests appointing agencies heads who represent and advocate for those interests), and organic processes (finding individuals competent to regulate information-intensive  industries generally requires recruiting from the pool of people who have worked within those industries, and thus have friendships and loyalties tied to those industries).

But the challenge of effectively regulating our complex modern market economy does not counsel a retreat from the attempt to do so; rather, it counsels renewed vigor and assertiveness in the attempt to do so. The creation of this absolutely essential, and long overdue, new regulatory agency is a step in the right direction.

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