Winner Takes All - or - why the playing field is so slanted

As we are getting closer to the US election the question as to why characters like Trump and Biden the candidates of choice are pops up again.

A big part of the underlying cause of why politics in the US are moving more to extremes is the unrelenting, ever increasing wealth inequality – or, more accurately – the awareness of huge inequality in society. To take this one step further, it is not so much that We, The People, are equal (because we are not) but that we should have access to an equal opportunity set. And we don’t.

After the ’08 financial crises and subsequent bailouts of the financial system, the Occupy Wall Street movement fomented. It was a general protest against the corrosive power of moneyed interests over democracy itself. Eventually it somewhat fizzled out but the notion that when there is a crises Wall Street gets bailed out while Main Street does not was a bit more obvious and has lingered since. Occupy Wall Street also made the 1%/99% part of our everyday language and in a way has created a shorthand to express inequality in a way that everybody understands.

The more recent Black Life Matters movement is different in cause but touches on the same underlying issues – the unequal treatment, unequal access to opportunity sets for people who in theory should be treated equally.

There is a real sense of general injustice, and that the system is rigged. The internet makes it easier to follow and catalogue these injustices and also, often through selective reporting, shows injustices where there aren’t any while creating social tension in the process.

Thomas Pickety, in his book Capital in the 21^st Century, points out that because the growth rate of capital (assets) is greater than the growth rate of the economy as a whole, those who have assets have an almost unsurmountable advantage over those who do not. In the meanwhile, the Federal Reserve intentionally pursues an inflation target which hurts those who either don’t have asset, and helps those who have debts.

Unequal starting points (for example, being a member of the lucky sperm club [LSK], vs being born to a high schooler in Collinwood, TN) creates an unlevel playing field. If the LSK member has any assets in his name, it will create an almost insurmountable advantage in life over the kid from TN. If the LSK was gifted 25k at birth, by the time he turned 20 (assuming the start point was in 2000), that 25k would have grown to 84k by just investing it in the S&P. The kid from TN has close to zero at age 20, no matter how many side jobs he has.

There are plenty of studies that point out the persistence of the echo that parental financial success has on the kids – and that is luck, not skill or hard work.

It is important to understand the LSK concept is not US-centric. What if you were born in rural Cambodia, or Burundi?. Where would you be now? Luck, or, more accurately, randomness, has many dimensions.

As the LSK kid grows up, he will inherit whatever the parents have squirreled away over their lifetime. The TN kid will too, but as income goes up the marginal propensity to consume (MPC) tends to go down, so that even more is left for the next generation. According to a Federal Reserve of Boston study, the MPC of lower income households is up to 10X greater than that of higher income households. When you think about that, it makes complete sense. When you are earning minimum wage, you will need every penny to just pay day-to-day expenses. It is called “minimum wage” for a reason. When you are making 10x minimum wage, there is much more room to save. And those savings will passively grow by investing them, adding to wealth gap, and to the income gap as well.

Between these various factors, none of which are related to skill, hard work or any of those factors that are sometimes thrown around, how is the kid from TN supposed to catch up with this? The more generations pass, the greater the gap becomes.

In 2001 the number of US taxable estate returns was around 50,000, with a liability of roughly 23bn (36bn in today’s dollars). Laws changed over the various regimes (guess to whose benefit?) and in 2019 the number of taxable estate returns dwindled to 1,900 with a tax liability of 16bn. In other words, more and more wealth is passed on to the next generation without paying taxes. Less Earth to Earth. Less Ashes to Ashes.

The head start of the 1% - to use an Occupy Wall Street term - is getting bigger and bigger. Even if there is no explicit illegality to this, on an intuitive level it is clear that something is wrong.

In theory, the opportunity set is the same for everybody but, somebody who goes to private school, gets tutored and goes to a private college, somehow seems to do better in life than a kid who went to public schools. They somehow do worse. And so will their kids.

The next slanting of the playing field then occurs on the governance level. In the US, you are legally allowed to buy your own legislator, and given how little it costs to buy one, and how big the return on investment is, one would be crazy to not buy one – or many.

It does not matter from which party the politician hails, what matters is that you, the person who has a horse in the race, has access to those who make decisions with respect to the shape, size and slant of the track you race on.

The donor/purchaser is generally the subject matter expert, and if you have the chance to educate the politician on the subject matter (and your point of view) it stands to reason that s/he on average is going see things your way. No illegal bribe required, just donations to get onto the calendar for lunches and dinners – time to get your point of view across. Try to have dinner with the senator from your state if you do not “give” anything to his/her campaign. My guess is the chance of your state’s senator sitting down with you to have a bite are close to zero. And because you do not get to have dinner, s/he won’t hear your point of view, and therefore you won’t get to influence the decision-making process. De facto, “donations” are the price you pay to get a seat at the table and to get your voice heard. Is a democratic republic like the US supposed to work this way? It is no surprise then that the moneyed interests (the few) have an outsized influence on legislative issues that impact the many.

None of the previous paragraphs are particularly unique. At worst you already know all of that, at best it is summary of what you already know or at least intuit. So why aren’t these issues poking the many to stand up and say “enough is enough” and demand real change, not some minor tweaks but change in how the system itself is configured (by the monied interests that have made the rules)? 

A big part of the answer lies in what we treasure so much - in our ability to choose, combined with widespread access to information of all stripes and colors.

Pre-internet, news most people received came from just a few sources. A couple of newspapers (at most), a couple of news channels and a few radio stations. We, The People, used to have common sources of information. Some sources were slightly left, some slightly right of center but there was enough overlap in our common information sources and experiences. In 1965 CEOs made 20x that of a guy on the floor but now that ratio is more like 278x. How much does somebody who has to camp for vacation in common with somebody who takes the corporate jet to Bali to relax for a few days? There even were laws on the books that news channels had to give time to opposing viewpoints. 

However, the FCC Fairnessdoctrine went off the books in 1987 and died in 2011, and we were off to the races – double meaning intended. The reasoning behind removing the notion that opposing viewpoints both should be heard was:

The intrusion by government into the content of programming occasioned by the enforcement of [the Fairness Doctrine] restricts the journalistic freedom of broadcasters ... [and] actually inhibits the presentation of controversial issues of public importance to the detriment of the public and the degradation of the editorial prerogative of broadcast journalists.

 

It is interesting to see how a ruling that may have very well been well intended – allow people to have their own viewpoint on an issue – has caused an entire country to become more and more divided. The removal of the FCC Fairness Doctrine has removed the guardrails on anyone who is in a position to influence the public. It has become OK to yell “fire” in a crowded movie theater (as long as it is in writing) because they should be able to express their point of view. Slanting stories by omitting certain facts has become the order of the day. Lying by omission has become the standard tool of reader manipulation.

Enter the internet. One can choose to have a steady diet of left-wing news – Huff post, CNN all, MSNBC or gems like Breitbart, infoWars, or OAN on the other side. And all are free, which means that you are the product. Add to that the various blogs, subreddits, and other outlets out there, and you can truly pick where you want the information you receive to be on the political spectrum. The notion of “fair and balanced”, at least with respect to the information one is exposed to, has been completely thrown out of the window.

The scary thing is that we are biologically hardwired for this. We all have confirmation bias, and tend to only look at that for which we are looking for, rather than be exposed to hard data (boring) or (shudder) opposing viewpoints. The latter especially is not cognitively pleasant. Why would one intentionally read a viewpoint that a priori I know I will disagree with? My ventral tegmental area would not trigger the release of dopamine that I like so much, so to hell with that. In the battle between our brain and our emotions, emotions win all day long, every day.

 And in a way, this is THE Paradox of choice, although somewhat different from Barry Schwartz’s. 

This paradox can get us all killed – literally – but not by too many choices in the store. The abundance of information choice and virtual friends – bots or real – is huge and it is human nature to pick the viewpoints and people that are most comfortable. Dopamine rules.

The squeaky wheel gets the grease (eyeballs, clicks) so anyone who operates a website/blog has a reason to be more extreme that the competition because that is where the eyeballs are (and the advertising revenue). And so, the slide to more and more extreme and sensationalist viewpoints start.

Add to this that we humans like, no, LOVE, drama, extreme stuff and especially violence, (Did he really sleep with HER? How many NFL football players are there without brain damage? How much did McGregor /Mayweather make in that lame fight?) and you have recipe for disaster.

The further out on the spectrum you are as an information source, the more lucrative both in a neurochemical sense as well as financially you are, so there is no incentive for the information to be balanced. That leads to audiences who almost literally are speaking different (coded) languages and the ability to “reach across the aisle” becomes a faint memory. If you compromise, you are a loser and a sellout, and losers don’t get reelected by the real believers.

The issue with the political choices in a 2-party system is that either party doesn’t really represent half the people. Voters are shoehorned into “supporting” many aspects of “their” party that they often don’t agree with. In theory, there could be more political parties, but the two parties currently in charge have created many hurdles to start viable alternatives. Neither democrats nor republicans have any interest in inviting competition to their duopoly – and neither do their owners.

Trump or Biden do not represent what their average party member wants, but that doesn’t matter.

Trump is a bully and we like bullies. The instinctive, chameleon-like nature of bullies allows them to relate to many people, even if those same people are revolted by other aspects of that same person. Bullies usually don’t stop until they meet an unmovable object.

On the other side of the spectrum, the democrats want to win even if it meant not having a candidate that represents what most of the party wants. And so, we are left with 2 parties for whom winning, and all the selling out that goes along with that, is what matters not ideas, ideology or principals.

There are 3 actors in the political process, the republicans, the democrats, and the public. The goal of either party is to get a majority of the people to buy into their message. That used to be something that could be accomplished by speeches, articles, and TV interviews. With the public’s ability to question and check all the information that they are fed by the 2 parties, getting elected has become more difficult,. and voting blocs have become less reliable, which is why absurd amounts of money need to be thrown at the public to convince them to vote for them.

To circle back to the first part of this post, just a few people (50 or so) own more than half the wealth in this country. That makes the “equal opportunity” spiel of both republicans and democrats a bit harder to sell and believe. The public is getting less and less comfortable with the extreme wealth and income distribution, and it is becoming harder and harder to defend by both 2 parties.

However, both parties are fed by those 50 people, and it seems to be the republican’s choice to go all-in on the “work hard and become successful” meme. The democrats on the other hand, have a problem. If they want to be the party of the working class, they have to make a hard left turn – you can’t a more reasonable wealth and income distribution by lowering the estate tax exemption from 11.58mm per person to (to pick a number) 10mm per person. Nor do you solve income inequality by increasing hourly wages from 7.25/hr. to 7.50/hr. To get back to something resembling a more just playing field, relatively extreme measures are needed, and the democrats aren’t willing or able to do so. First of all, they would be labeled “extreme” (which doesn’t work with the “reasonable” and “measured” projected image), and second of all (and probably more importantly), the main supporters (owners) of the party are exactly the ones whose donations, they live on, yet who need to be taken to the financial woodshed.

If Trump wins, it will be business as usual with likely a lurch to the extreme with some more racism and gratuitous violence thrown in. Inequality is likely to increase at an increasing rate helped by fiscal stimulus geared toward  capital, not labor.

If Biden wins, there may be a momentary sigh of relief of the seeming notion of return to normalcy, or at least to that what we are conditioned to view as normal. Once that relief wears off, it will become clear for those who look at facts and data that things that matter, like tax structures, income distributions and most people’s wallets, are unlikely to change meaningfully. That means that the rich will continue to get richer and the bottom 50% won’t go anywhere. And that is a bad thing, because if that doesn’t change, at some point Occupy Wall Street, BLM, and other like-minded organizations will spawn a baby which has the potential to end the American Experiment.