Democracy in America Revisited—Income Inequality, Hedge Funds, and Re-Regulation [Third of a Series]




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The Progressive Era vs the Internet Era– What Straw Will Break This Camel’s Back?

The Progressive Era in America was an era of social reform to address the gaps between the rich and the poor. Many State and Federal laws were passed, such as the minimum wage, the progressive income tax, and amendments to the U.S. Constitution, due to growing concerns regarding social and economic inequalities created by new industries and new technologies. The hope behind these new laws was that they would create a new sense of shared citizenship in America by forging a sense of common citizenship and shared values.

This was partly a response to economic inequality, but it was also designed to create a shared narrative that would become common ground between different socio-economic groups.

Are we at such an inflection point again today? On April 16 a front-page New York Times article by Jenny anderson, “Wall Street Winners Get Billion-Dollar Pay Days” reported:

Hedge fund managers have redefined notions of wealth in recent years. And the richest among them are redefining those notions once again. Their unprecedented and growing affluence underscores the gaping inequality between the millions of Americans facing stagnating wages and rising home foreclosures and an agile financial elite that seems to thrive in good times and bad. Such profits may also prompt more calls for regulation of the industry. Even on Wall Street, where money is the ultimate measure of success, the size of the winnings makes some uneasy. …The richest hedge fund managers keep getting richer — fast. To make it into the top 25 of Alpha’s list, the industry standard for hedge fund pay, a manager needed to earn at least $360 million last year, more than 18 times the amount in 2002. The median American family, by contrast, earned $60,500 last year. Combined, the top 50 hedge fund managers last year earned $29 billion. That figure represents the managers’ own pay and excludes the compensation of their employees.

A key question that we face today, beyond that of the economic divide created by massive private wealth, is– How do you create a sense of political community in an environment that has shattered all forms of political community? In our relentless pursuit of life, liberty, and happiness, America and Americans have become so involved in the instant gratification of the ‘Me’ and the ‘Now’ that any sense of the greater good of the community has been thrown under the bus of ‘Self’.

ADDENDUM: I’ve received a number of private comments about this post with regard to my views about regulation, taxation, and income inequality. In my view, the best way to deal with income inequality in America is to promote continued upward economic mobility, not to punish the ‘winners’ through higher taxes and other government mandates designed to achieve social engineering. Recent Pew Center demographic research also shows that upward mobility in the U.S. has declined considerably– Germany has greater upward mobility than the United States today, according to this Pew research. America’s central problem, in my view, is that regulations meant to correct excesses in the capitalist financial system are having unintended consequences in terms of stifling innovation, chilling entrepreneurs, and gutting the middle market for emerging public companies. This is not the case in India and China, and let’s not forget that intellectual capital and risk capital are mobile….

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