The Fairy Tale of Capitalism: Growth and Income Disparity

FTC is a dramatization and a comedy. 

FTC Ring: <Previous | Next>

“Income disparity is something we must address.” 
-- Nancy Pelosi, Speaker of the United States House of Representatives 

“The income disparity deal is real in our country, and the question is, 
‘What are we going to do about it?’” 
-- Bill Haslam, Governor of Tennessee 

“The rapid rise of oligarchy and wealth and income inequality 
is the great moral, economic, and political issue of our time.” 
-- Bernie Sanders, United States Senator

GDP approximates the income of the Society. The amount of GDP, average or per capita GDP, and  rate of increase of GDP tell us nothing about the disparity of income in the Society.

When we hear the news announcer say something like “GDP grew at an annual rate of 3.4% during the 3rd quarter of 2018”, it seems good news. The Professors sing “Growth of GDP”, a perennial hit. Politicians brag about it. GDP is “the economy”. GDP growth is good. 

GDP is Gross Domestic Product. People who measure GDP collaborated on the SNA System of National Accounts, 664 pages defining GDP and its components.

GDP equals GNI Gross National Income, all the income of a national subset of the Society, plus the depreciation of capital equipment, usually about 16% of GDP, plus all the stuff sold to foreigners, less all the stuff bought from foreigners (these foreign transactions adjustments net +/- 1% or 2% of GDP for the larger countries). When we consider the things that will make a big change in GDP or GNI, the main idea is

GDP = GNI + depreciation = the value of all the stuff produced in a country

GNI = GDP - depreciation = about 84% of GDP

The remaining value of a large asset is, for accountants, the purchase price less prior depreciation. Accountants deduct from income a fraction of the purchase price each year as depreciation. Accountants put appreciation in income when and if the owner sells the asset. But that’s another story.

GNP Gross National Product includes the worldwide income of citizens and excludes the local income of foreigners. GNP differs a little bit from GDP, but that’s another story.

The news announcer seldom mentions how we distribute GDP unevenly. According to the World Inequality Lab, in the United States, the average real after-tax income of the 50 Percent grew 21% during the 35-year period from 1980 to 2014. For the 40 Percent it grew 49%, for the Ten Percent it doubled, for the One Percent it tripled, and for the top 0.001 Percent, average real post-tax income increased 616%.

Some people get much more income than others. We call this “income disparity”. The OWS Occupy Wall Street movement circa 2011-2 called it “income inequality”, a phrase that caught on. Some dictionary definitions of “inequality” connote unfairness, leading to conversational confusion over small, insignificant differences. Both “income inequality” and “income disparity” mean about the same thing, that is, a possibly unfair difference in incomes, with “disparity” connoting a large difference and a disregard for fair insignificant differences. 

From birth, individuals have differing talents, life experiences, and desires. As adult participants in the Society, their incomes aren’t mathematically equal. 

The differences among incomes are consistent, we may suppose, with the condition of our ancestors when they descended from the trees. If we can imagine ourselves there with them, one member of the tribe is good at hunting antelope, while another is good at sharpening arrows. Then the sharpener trades some arrows to the hunter for antelope meat. The sharpener gets food, and the hunter gets good arrows with which to kill more antelope. Together, they have more food to eat, and they are better equipped, than before they traded, but they aren’t equally provisioned with meat and arrows. 

The motif of trade recurs ubiquitously in FTC. The participants in a trade each exchange something they have for something else they want more. After the trade, each has more of that they valued more highly. 

A trade changes the distribution of goods in the Society. The Society can’t maintain equality of incomes, if ever achieved. We haven’t good reason to expect mathematical equality. Individuals will find things to trade

GDP and GNI in the United States being roughly the same thing, we can map out fuzzily how GDP and GNI apportion disparately in the Society... 

…, figures +/-5%, depending on the year. Thus, we can see there are significant subdivisions of GDP by who receives it, and in FTC we call them GDP01, GDP10 (= GDP09 + GDP01), GDP90 (= GDP40 + GDP50), the 2-digit number indicating the income stratum that gets the subdivision of GDP. See “The Fairy Tale of Capitalism: Workers, GDP and Economists” for details.

When GDP grows, who gets the benefits? During the 38 years from 1980 to 2018, in the United States, about one-half of growth was captured by the Ten Percent, and the other half by the 40 Percent, together the half of the people with the higher incomes. The bottom 50 percent got about zero, and some less than that. In her book “The Divine Right of Capital”, journalist Ms. Marjorie Kelly calculated that some groups’ slow-growing slices of the pie enabled the corporate profits slice to grow three times as fast as GDP in the United States in the late 20th century. 

The Staffs of the Ingenious Innovative Job Creators and the Aristocracy asserted that GDP growth brings a bright future. They urged lowering levels of taxes to cause growth of GDP, enabling the Downward Trickle (the waste stream of the Aristocracy) to distribute abundance to all. There were significant income tax reductions in the time of Reagan and thereafter through 2017. Moderate GDP growth occurred, though at gradually lower rates than earlier in the period that followed the Great Wars. Ordinary fluctuations accompanied the moderate growth, plus two booms and three big crashes. In the early period of the Great Wars, in the time of Harding, the United States Congress lowered taxes markedly. A boom ensued, then the Crash of 1929, and then the Great Depression.

In our enlightened modern era, GDP growth enlarges the pie, but about a fifth of the people get less pie ultimately, only half the people get any additional pie at all, only one tenth get significantly much, and one percent get abundance.

Professor Younkins didn’t mention Growth of GDP, nor its distribution, in his hymnbook “Commerce and Capitalism”, although FTC benefits from his many contributions. But that’s another story.

As evening turns to night, in our current Society, the Aristocracy lullabies their babies with “Competition among Workers makes certain that no one is underpaid” and other lines from the song “No One is Underpaid”, included in Professor Younkins’ hymnbook.  

FTC Ring: <Previous | Next>

I am indebted to my kind family members and friends who provided comments, guidance and critiques that shaped this article. 


“Cumulative Growth in Average Incomes” (Congressional Budget Office, https://www.cbo.gov/)

“Share of growth captured by income groups, 1980-2016” (WID.world 2017, World Inequality Lab, wir2018.wid.world

“Top 10% National Income Share across the world, 2016” (2018, World Inequality Report, https://wir2018.wid.world/files/download/wir2018-full-report-english.pdf)

“US GDP in billions of chained 2012 dollars” (US Dept of Commerce, bea.gov)

Notes and Sources

Definitions of “inequality” and “disparity”:

Daniel Brockman, “The Fairy Tale of Capitalism”, topics addressed in other articles:

Bureau of Economic Analysis, Department of Commerce, “Measuring the Economy” (2015, Public Domain, https://www.bea.gov/sites/default/files/methodologies/nipa_primer.pdf)

Bureau of Economic Analysis, Department of Commerce, “News Release, Gross Domestic Product” (Dec 21, 2018, Public Domain, https://www.bea.gov/system/files/2018-12/gdp3q18_3rd_1.pdf)

Jose DelReal, “Pelosi defends income equality push” (Jan 8, 2014, Politico, Fair Use, https://www.politico.com/story/2014/01/nancy-pelosi-income-inequality-101899, retrieved Mar 1, 2019) 

European Commission, et al, “System of National Accounts 2008” (2009, https://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf)

Marjorie Kelly, “The Divine Right of Capital” (2003, Berrett-Koehler, Fair Use, https://www.amazon.com/Divine-Right-Capital-Dethroning-Aristocracy/dp/1576752372)

Bernie Sanders, United States Senator (Mar 16, 2018, The Guardian, https://www.theguardian.com/commentisfree/2018/mar/16/corporate-media-oligarchy-bernie-sanders, retrieved Mar 1, 2019)

Shobhit Seth, "GDP vs. GNP: What's the Difference?" (Mar 10, 2019, Investopedia, https://www.investopedia.com/ask/answers/030415/what-functional-difference-between-gdp-and-gnp.asp)

Benjamin Wermund, “The red state that loves free college” (Jan 16, 2019, Politico, Fair Use, https://www.politico.com/agenda/story/2019/01/16/tennessee-free-college-000867, retrieved Mar 1, 2019)

The World Bank, GDP & GNI data series (retrieved Jan 28, 2019, https://databank.worldbank.org/data/reports.aspx?source=2&series=NY.GNS.ICTR.ZS#)

World Inequality Lab, “World Inequality Report 2018” (Non-commercial use by CC license  https://creativecommons.org/licenses/by-nc-sa/4.0/https://wir2018.wid.world/files/download/wir2018-full-report-english.pdf)

Edward Y. Younkins, “Capitalism and Commerce” (2002, Lexington Books, Fair Use, https://www.amazon.com/dp/0739103814)

Mt. Rainier, 2019, image: Daniel Brockman

No comments:

Post a Comment