Jamie Dimon wants you to know that he’s not a bad guy and wishes people would stop picking on him and people like him.
Speaking at an investors’ conference in New York recently, Dimon, CEO of JPMorgan Chase & Co., said: “Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it. Sometimes there’s a bad apple, yet we denigrate the whole.”
You’re right, Mr. Dimon, you don’t understand it. If you really think the rise of Occupy Wall Street and the rest of the “99 percent movement” is about demonizing individuals or denigrating the notion of success, then you really are missing the point.
The angst we see in the country today isn’t so much about “hatin’ the playas,” it’s about “hatin’ the game.” By “game,” I don’t mean capitalism, but the way capitalism has been used in recent years to further enrich people who were already wealthy, while the incomes of those in the middle class have stagnated or declined in real (after-inflation) terms. We see that not only in the Occupy movement, but in the Tea Party as well.
One does not have to be a Maoist, a follower of North Korea’s Kim Jong Un or some other kind or extreme egalitarian to be concerned about the rapidly growing income and wealth inequality in the United States. For a lot of people, there is a sense that the 2008 banking crisis was just a symptom of a bigger disease – some kind of cancer eating away at the ability of folks like them to get ahead and feel confident about their financial futures. They don’t want to seize the riches of the top 1 percent. They just want to be able to earn enough at work to provide a little comfort and security for their families – and maybe buy a new car every few years or take a trip to Disney World.
These kinds of modest aspirations get harder to achieve when wealth and income become more concentrated. That is because, despite everything that has been said about the rich being the job-creating class, a broader distribution of national income is better for an economy like ours.
In terms of generating current economic growth in the U.S., it’s better for 86 families to make about $70,000 per year each than it is for one family to take home the entire $6 million by themselves. Why’s that? Those 86 families are likely to buy 86 separate homes, at least 172 televisions, and probably 120 or more vehicles. Chances are good that all $6 million – and then some – will be spent every year.
Meanwhile, the family earning $6 million is likely to buy no more than a couple homes – the main house and maybe a vacation place – and a handful of nice cars. Most of their $6 million probably will be saved and invested. That can be a good thing in its own way. But, 70 percent of the U.S. economic activity is consumer spending and that one family simply cannot generate the same demand for goods and services as those 86 families making $70,000 each.
Does that mean nobody should bring home $6 million a year or that large incomes should be confiscated or redistributed? Of course it doesn’t.
In a lot of cases, that $6 million income actually will come from job-creating activity, like running a business. It’s also pretty clear to me that societies are better off in the long run if they can dangle the incentive of getting rich in front of its more ambitious, creative citizens. The reward of luxurious living can be a powerful incentive to work hard and take risks.
However, the thing about incentives is that, at some point, they become counter-productive. Consider JPMorgan’s Dimon. I am sure he works long hours and cares a lot about what he does. Suppose his board paid him $15 million instead of $23 million back in 2010, or his income taxes were increased by a few percentage points. Would he decide to quit banking and spend his time playing World of Warcraft full time? I doubt it.
At a macro level, the top 1 percent of Americans now controls 40 percent of our wealth. A decade ago, it was about 33 percent. For the 1 percent of the population with the highest incomes, average real after-tax household income grew by 275 percent between 1979 and 2007. In terms of distribution of family income, the U.S. is now in roughly the same league as Cameroon and Iran.
At levels of wealth distribution seen in 2001, the richest Americans had a level of affluence that would have been undreamed of by the pharaohs of ancient Egypt. If we could dial back to that level through some a combination of political decisions – new regulations on business, tighter trade policies, looser restrictions on union organizing, slightly higher taxes, etc. – would that destroy the incentive to be rich? Would industrialists fulfill the fantasy of writer Ayn Rand and go on strike? If they did, would they prove to be irreplaceable?
Those are the kinds of questions I have been asking myself lately. That so many of our leaders aren’t asking them has me worried.
I don’t know at what level wealth and income inequality leads to serious social instability. There is no exact “tipping point” at which people become more likely to pour into the streets to burn things down, or become susceptible to the appeals of nutty demagogues who offer up radical and destructive “solutions” to a desperate populace. But we’re now a closer to that point than I am comfortable with.
If we are going to stay away from the brink of real insanity, our policymakers are going to have to drop partisanship and ideological bantering and get down to a real, sober assessment of what it will take to maintain a large, healthy middle class in this country.
It also would help if the Jamie Dimons of the world stopped trying to make us feel sorry for them.
