There's a great passage in Niall Ferguson's latest book Civilization: The West and the Rest that's an excellent jumping off point for discussions about income inequality and the prospects for capitalism. I also see this in terms of my Peasant Theory, so this is an interesting and important area of my concern. My emphasis is bold.
If the Cold War had ever become hot, the Soviet Union would very likely have won it. With a political system far better able to absorb heavy war losses (the Second World War death rate as a percentage of the pre-war population had been fifty times higher than that for the United States), the Soviet Union also had an economic system that was ideally suited to the mass production of sophisticated weaponry. Indeed, by 1974 the Soviets had a substantially larger arsenal of strategic bombers and ballistic missiles. Scientifically, they lagged only a little way behind. They were also armed with an ideology that was a great deal more appealing than the American alternative in post-colonial societies all over what became known as the Third World, where poor peasantries contemplated a life of drudgery under the heel of corrupt elites who owned all the land and controlled the armed forces.82 Indeed, it could be argued that the Soviets actually won ‘the Third World’s War’. Where there was a meaningful class war, communism could prevail.83
Yet the Cold War turned out to be about butter more than guns, ballgames more than bombs. Societies living in perpetual fear of Armageddon nevertheless had to get on with civilian life, since even the large armies of the 1950s and 1960s were still much smaller than the armies of the 1940s. From a peak of 8.6 per cent of the population in 1945, the US armed forces were down below 1 per cent by 1948 and never rose above 2.2 per cent thereafter, even at the height of the American interventions in Korea and Vietnam. The USSR remained more militarized, but the military share of the population nevertheless declined from a post-war peak of 7.4 per cent in 1945 and remained consistently below 2 per cent after 1957.84The problem for the Soviet Union was simple: the United States offered a far more attractive version of civilian life than the Soviets could. And this was not just because of an inherent advantage in terms of resource endowment. It was because centralized economic planning, though indispensable to success in the nuclear arms race, was wholly unsuited to the satisfaction of consumer wants. The planner is best able to devise and deliver the ultimate weapon to a single client, the state. But the planner can never hope to meet the desires of millions of individual consumers, whose tastes are in any case in a state of constant flux. This was one of the many insights of Keynes’s arch-rival, the Austrian economist Friedrich von Hayek, whose Road to Serfdom (1945) had warned Western Europe to resist the chimera of peacetime planning. It was in meeting (and creating) consumer demands that the American market model, revitalized during the war by the biggest fiscal and monetary stimulus of all time, and sheltered by geography from the depredations of total war, proved to be unbeatable.
Ferguson, Niall (2011-11-01). Civilization: The West and the Rest (Kindle Locations 4245-4266). Penguin Group. Kindle Edition.
It really boils down to this. Income inequality is the consequence of the ability of individuals and their companies to get a better handle on what the consumer wants in a consumer economy. If you don't have a consumer economy, then the needs of human beings are very basic and entirely capable of being sustained by a central planning government bureacracy. This is how people survive in the Third World without consumer market economies. Human beings can and do adapt to living in relative poverty.
So I want to draw attention to the income inequality between the American middle class and the Soviet middle class. The parents of the Baby Boomers was the first generation of Americans to have access to consumer credit. I grew up in Los Angeles with no credit. My back to school clothes were bought on layaway at Orbachs on Wilshire Boulevard, and even that was a big deal. (Signal Wealth). Is the cost of this banking crisis in America is to take consumer credit back to that era? Could we survive without consumer credit? Of course we could, and the economy would shrink, but personal savings would increase. And it is precisely that formula of reduced spending in the household that people rail against when it is the rich household that is doing so. I believe that a good percentage of American employment is foo foo employment, which is to say 'nice to have' from the perspective of corporate employers who seem to be arbitrarily laying off. That is not to say that many corporations are not well managed and simply callous in their cost-cutting of rank and file employees rather than trimming management. But to say that there are new classes of consumer goods and employment deriving from that which can be considered expendable.
It seems to me that from the Occupy POV, which I interpret as socialist and anti-corporate (but also useful from some perspectives), the waste, fraud and abuse of capitalism comes from its ability to make extraordinarily wealthy people who have orders of magnitude more wealth than the rest of us. To the extent that they are not specific, the enemy is wealth itself. In otherwords they want class warfare. If they are to be specific, then they have to say what sort of wealth is bad. To attack the idea of the corporation itself is to attack equally the makers of baby food and the makers of chemical weapons. Dow Chemical is a corporation and so are the makers of Gerber, Nestle. Nestle is 5x larger than Dow, and why shouldn't they be? I am not able to differentiate Occupy's definition of good wealth vs bad, but if they have one principle with which I agree it is that there should be no public bailouts of private failure. This is an endorsement of private enterprise without industrial (central planning) policy. But the extent to which they may desire advanced and burdensome regulation could amount to the same thing. In any case, without being specific about which corporations are good and which are bad, their focus on banking may end up simply rolling back consumer credit. That doubles down the bet against the consumer economy.
I have always looked at the number of choices in the supermarket as an indicator of the health of the economy. I'm not alone in wondering what's wrong when I don't see fresh produce of the sort I want in that aisle. The connection to signal wealth consumer items, as foo foo as they may be is what gives the American (peasant) consumer his status and what makes his providers rich. Entertainment money is but a fraction of the American consumer's budget, but the connection is much clearer. U2 is rich because their audience pays them. Tom Cruise is rich because his audience pays him. The same is true for McDonalds, Nestle, Dow, Xerox, Ford, etc etc. Americans would not stand for their choices as consumers to be reduced to 'plain wrap' or GI supplies. That reeks of the Soviet system. But inevitably our extra wealth (a lot of which is foo foo signal wealth) comes exactly from that choice being made available in the market and all of the 'extra' business created by fashion. If there were only one style of sunglasses for the masses, then Ralph Lauren and Oakley would be flat on their asses.
Do you want there to be people who can afford a BMW, or should every car be 'the peoples car'? I want the connection to be clear. The more the government regulates, the fewer legal choices exist. The fewer that exist, the more you constrain the economy and make it more centrally planned, the more you increase income equality, the more it works for the Soviets, the more you approach as our good friend CNu terms it, 'warsocialism'. When a job is just a job, then a military job is just like any other.