I finally watched one of the documentaries that has been on my Netflix queue for a while– Inequality For All. I had heard good things about it, and it lived up to the hype.
The main narrator of the documentary is Robert Reich, former U.S. Labor Secretary. The documentary tries to answer two questions about inequality:
- Has economic inequality increased over time in the US?
- Does economic inequality even matter?
Here were some of the most interesting things I learned from the documentary:
Income Inequality as Measured by the Percentage of National Income held by the Top 1% of Earners Peaked Twice in the Past Century–The Crash of 2007 and the Great Recession
Reich highlights this fascinating plot, where you see the peaks occurring in 1928 and 2007.
He also draws some parallels between the Great Recession and 2007:
- Both were followed by economic crashes
- Both were also followed by social unrest–anger against financiers after the Great Recession, and the Occupy Wall Street movement in 2007
The Middle Class, not Top Earners, Drives Economic Growth
Fox News and the Republican Party like to justify low taxes on the rich and lax business regulations by using the “trickle down” argument–namely, that the rich are job creators who create more wealth that then trickles down to the masses.
Reich argues that this is not the case. Yes, some of the rich do create new businesses, but on the whole they’ve amassed so much capital that they have to look for new ways to optimize their returns from assets. And these new ways typically involve investing in foreign markets and in exotic financial instruments and minerals (like gold) that they don’t even understand. Often this involves moving money around in clever new ways.
One multi-millionaire featured in the film admits that his investments in hedge funds probably aren’t creating many jobs, but they do get him nice capital returns.
The real job creator and economic driver is a growing middle class (which Reich defines as households in the $25,000 to $75,000 a year income range). The middle class buys stuff and services– a lot of stuff and services. A key point made in the film is that one rich person making $300 million a year only needs so many haircuts and iPhones. But $300 million a year spread across 4,000 middle class households creates jobs for a lot more barbers and smartphone manufacturers.
When asked “What Country Should We Emulate” As Our Model for Equality, Reich gives an unexpected answer: the USA post WWII
The USA in the two decades after WWII had high income equality (among white males, at least) because of 3 things:
- The GI bill promoted higher education to a large number of young people
- There was a huge expansion of low cost public universities
- Labor unions gave average workers bargaining power, thus keeping middle class wages high.
By the late 1950s, America had the best educated workforce in the world.
A major reason women entered the workforce en masse in the 1970s was because wages had stagnated
While the feminist movement was empowering women to be more economically independent, Reich argues that this wasn’t the main reason women entered the workforce. Instead, it was because wages were stagnating and women needed to work to make up for men’s wages.
Income inequality leads to the system benefitting the rich, creating a vicious cycle
Warren Buffet and Reich point out that rich generally people pay lower tax rates than the middle class because most of their income is taxed as capital gains (~15%). This became obvious during the 2012 election when Mitt Romney had to reveal that his annual tax rate was around 13%, while people in the middle class paid 18% or more.
Another interesting trend mentioned is that top tax rates go down in times when inequality is highest. The implied cause is that the top earners have more power to lobby and change the system to suit their needs.
Things I didn’t Like About the Documentary
Although Reich is a very personable narrator, spicing up economic concepts with vignettes from his own very inspiring life story, there were two things I found weak in the documentary.
- Reich doesn’t give many concrete proposals for reducing inequality, and the ones that he does are either too general (make education affordable) or controversial (create more labor unions) to satisfy me.
- Some of the “poor” people they profiled lacked credibility to me. For example, they profile several lower middle class families who mention how they have <$100 dollars in their bank accounts, and who wish they knew how to improve their savings and earnings. Then you see these same people owning expensive Macbook Pro laptops and driving new cars furnished with leather seats. Hmmm…
Did anyone else watch this documentary? Do you agree with Reich’s points? (especially his fondness for labor unions?). I always wonder if watching such documentaries is just reinforcing my beliefs rather than challenging my assumptions.