In a free market, capitalistic economy, some people are rich and some people are poor, but it’s possible (and it happens all the time) for members of the latter to become members of the former. In a mixed economy in which the government plays the dominant role, the rich use the government to both augment their power and wealth and keep the peasants down. From Charles Hugh Smith at oftwominds.com:
That this extreme inequality is itself the primary threat to both democracy and social stability is poorly understood.
Scraped of pleasantries, the ultimate purpose of any status quo is to 1) distribute most of the economy’s gains to the top tier and 2) offload the sacrifices this requires to the bottom tiers but in stealthy ways that aren’t noticeable enough to spark political revolt.
The basic stealth mechanisms deployed over the past 50 years to offload the sacrifices on the bottom 90% are:
1) Reduce the share of the national income going to wages so the share going to corporate profits and finance could soar. (see charts below)
2) Place the tax burden for entitlements (Social Security and Medicare) on the wage earners while reducing the taxes levied on unearned income from the ownership of assets / capital.
3) Understate official inflation.
4) Inflate credit-asset bubbles that enriched the owners of assets at rates far above inflation.
The first dollar of every wage is taxed at 15.3% for entitlements (both the employee and employer pay 7.65%), while numerous forms of capital gains are exempt from tax. Capital is lightly taxed, earned income is heavily taxed. Wage earners lose ground, asset owners get richer. That’s the net result of the taxation system.
Inflation is of course the hidden tax, but the status quo has relieved the wealthiest 10% who own most of the assets from the ravages of inflation by inflating asset bubbles which enrich the already rich at rates far above inflation. Those who own few assets absorb the losses of inflation via a slow-drip reduction in the purchasing power of their wages.
Borrowing money has always been the lowest-friction way to keep everyone happy–or at least onboard. The status quo needs enough money to fund both the gains from monopoly, tax havens, fraud and graft collected by the top few and the entitlements that keep everyone else onboard.
