MONEY: Who Has How Much and Why
By Andrew Hacker
Scribner, 254 pages, $25
“Money,” Andrew Hacker’s contribution to the literature of economic inequality in the end-of-the-century United States, is an original and provocative examination of that most potent and sought after of all commodities, and its impact on the society in which we live.
As a backdrop, the base date for Hacker’s study is 1975, the beginning of the most extended and most powerful of the post-war bull markets in common stocks. The resulting increase in wealth has been enormous, and the consequences for society even more vast. The inflation-adjusted value of the average share of common stock has compounded by about 13 percent per annum, an in- crease in real value of more than 12 times. As Hacker points out, growth in real personal income has been much more modest, although the affluent have benefited significantly more than the poor.
The anomalies and distortions of this explosion of moneyand the possibilities for constructive appli- cation of itare the principal themes of “Money.” Hacker’s analysis clearly puts him on the side of “our better angels.” He writes lucidly, economically and with an admirable turn of phrase. One of Hacker’s great strengths is that he understands perfectly the metaphorical power of words and numbers, evoked in varied and imaginative combinations. These quite literal “figures of speech” point up the incongruities of wealth and income distribution in what we assert is an egalitarian, democratic society.
Hacker examines the impact of money in America on gender, age, race and ethnicity, all issues of con- temporary importance. Race, though, remains the primary focus (as it was in his previous study, “Two Nations: Black and White, Separate, Hostile, Unequal”), especially that segment of the black population that has been intractably submerged in the bottom half of an hourglass distribution of incomes. The percentage of blacks moving into the top quintile of income since 1975 has been higher than for whites, but blacks have not been successful as a population in moving from poverty to the economic mid-range. As a result, the percentage of blacks living in or close to poverty is twice that of whites.
Addressing these facts, Hacker, professor of political science at Queens College in New York City, notes that if white Americans would accept a transfer or redistribution of income of only 5.6 percent, a “level playing field” could be achieved in terms of the percentages of blacks moving up from the most depressed economic strata. Perhaps this is an appealing form of affirmative action, but Hacker’s statistics raise the difficulties of its realization. Although the percentage of poor blacks is twice that of whites, 45 million whites and 15 million blacks live at or close to the poverty level. These very simple numbers demonstrate the political and moral dilemma created by giving blacks opportunities at the expense of a much larger number of similarly situated whites. To assure a “level playing field” with some degree of fairness to all the poor in America would require several multiples of a 5.6 percent reduction in living stan-dards for those who can afford to pay. This is the great conundrum. It is unlikely in the present climate that such an overall attack on poverty would even be whispered in Congress. But the problem is there, and benign neglect will not make it go away.
If Hacker’s book has a weakness, it is that he pays too much attention to income and not enough to wealth creation. The biggest story in money over the past 20 years has been the phenomenal expansion of wealth. The greatest gain has been in institutional wealth, not the private net worths of the Bill Gateses and Sam Waltons of the world, astounding as they have been. Foundations, endowments, and public and private pension systems (excluding the Social Security trust fund) have been the main beneficiaries of the bull market, with the compounding of their asset growth powerfully assisted by freedom from income and capital-gains taxes. The potential impact of this phenomenon on economic and social change seems so profound that more emphasis by Hacker would have been desirable. As to Social Security, I must disagree with Hacker’s statement that it is a scheme to subsidize the middle class and the very rich. The post-war explosion in equity values began in the early 1950s at the same time the U.S. Treasury stopped supporting the price of government bonds. Interest rates climbed, the prices of bonds fell while stock values soared. The Social Security trust fund remained invested in Treasury obligations, an asset-allocation decision of catastrophic consequences. If the managers of Social Security had even conservatively mirrored private pension practice, the trust fund would be comfortably overfunded today. It has been a victim of political opportunism and inept investment. The basic Social Security problem is managerial rather than one of entitlement.
Hacker’s statistics are scrupulously accurate, and he uses them effectively to advance his argument. But as Disraeli pointed out, statistics are tricky. The same basic data, depending on format and emphasis, can often support very different views as to outcomes and policy. A major virtue of “Money” is that all of the essential numbers are there for a thorough debate of the issues. With a little effort, those who view the world differently can form their own conclusions.
Hacker’s study, although short on specific solutions, provides a needed and comprehensive frame of reference for examining issues of profound social and economic significance for the United States as it enters the 21st Century. It should be read thoughtfully by everyone who is concerned about the promise of America as we believe it ought to be.
