Why Concentrated Wealth Hurts Society

Follow the link to a piece Robert Reich put up regarding an explanation for our current stagnant economy.

http://robertreich.org/post/24974761785

Reich basically states that the only way out of the current stagnation is for U.S. consumers to spend us out.  Unfortunately, as Reich notes, median income has been stagnant for years and actually dropped after the housing crisis.  The housing crisis also tightened the credit market for most U.S. consumers so they could no longer borrow to increase their spending power.  Hence, we currently cannot spend our way out of economic stagnation.

Reich points out that one of the reasons that incomes have become stagnant (and even decreased) is that the distribution of wealth has been flowing upwards for some time.  Reich specifically notes that the upper 1% of earners only spend about 50% of their economic gains, which makes sense because they have so much to spend.  I have also thought for some time that the increasing concentration of wealth hurts the economy in other subtle ways tied to consumer spending.  Take, for example, the automobile market.  If we consider cars, it takes essentially the same manpower to make an $80,000 Mercedes as it does to make a $20,000 Kia.  Assume we have one person making $500,000.  That person can afford and likely will purchase a luxury automobile such as the $80,000 Mercedes.  Now assume that the wealth is distributed between eight persons making about $62,000.  No person will be able to purchase the Mercedes, but all six will be able to purchase the Kia.  Again, assuming the manpower necessary to make each car is similar, a more equal distribution of wealth would up to six times the manufacturing labor than an unequal distribution of wealth.  This also does not address the other economic benefits of multiple transactions, which include more labor for transporting the vehicles, more commissions for the sale of the vehicle, more mechanics to service the vehicles, etc.

I do not have an answer to how we ought to achieve more equal income distribution.  Obviously the government will have to play some role as we know individuals will not donate or redistribute as much of their income voluntarily as they will when the laws force redistribution or create incentives to redistribute.  It seems logical that the government will have to have a greater role to achieve income redistribution, but other avenues are important also.  Increased collective bargaining might help as would the creation of a skilled workforce that could demand decent wages for their work.  The bottom line is that a Wal-Mart economy, unionized or not, is unlikely to change the current distribution of wealth.  A skilled economy, with technological experts and skilled laborers, however, would generate greater income equality simply because such workers would naturally be able to command higher wages.