The Irreversible Trend of Growing Inequality?

For those on the political left, there are plenty of reasons to complain about current social trends. Principally, there are certain structural and institutional forces which are in place, which increase the level of income and wealth inequality within countries. A new Credit Suisse report makes it clear that inequality of wealth is bigger than in the past, and there is little hope that these trends will reverse themselves in the immediate future. The richest one per cent of the society owns 50.4% of all household net worth, and the bottom 71% of the world population owns less than $10,000 (Treanor 2015).

Economists like Thomas Piketty have argued that given the current trend of low economic growth and high rental income growth, it is inevitable that the few rental owners (Wall Street executives, hedge fund managers, real estate moguls etc.) have to move far ahead from their less well-endowed brethren, who are not capital owners and rely on labor market income (subject to economic growth constraints and investment decisions of the capitalist class) to make a living.

We know that Piketty’s explanation is somewhat static, as he is only interested in the long-term structural forces of growing inequality, thus neglecting similar other important factors like the strength of political lobbies of the rich to create government policies to benefit them even more. But he is putting his fingers on a highly important topic, which has not much been reflected upon in contemporary discourse.

Is this outcome of growing inequality such a big tragedy? For people like Joseph Stiglitz, growing inequality is harmful for social cohesion, sense of fairness in the economy, and further economic growth. There is absolutely no doubt that if we are interested to maintain social stability, we need to change the system such that more people can feel that they are part of the society rather than being marginalized.

I have the strong suspicion that growing inequality creates a political environment, where the needs of regular people gets neglected. One major area of application for that is labor. As the tremendous wealth of the very few at the top suggests, it should be very simply possible to take care of the needs of all our people, whether it is housing, health care, education or food. It should also be possible to provide everyone with the employment that they see fit, and live in dignity with good incomes. But for some reason (deindustrialization, more inequality) the good-paying jobs are simply disappearing, and the few high-paid jobs are in the consulting and finance industry, which involves plenty of busywork and crazy hours. For most of the rest of the workforce, work is associated not only with drudgery but with toil, low pay and no job security.

By transforming economies into winner-take-all systems, where only the rich can gain the upper hand with their successful wealth accumulation, working people have very few avenues to take advantage of the immense wealth that would otherwise be available if we found a better way to manage our resources.

Is there going to be an endpoint for growing inequality? There has to be. Human history tends to tell us that inequality is a very old problem, and has never been completely reduced. Governments can merely take steps to mitigate this problem, but can never solve it. On the other hand, if inequality becomes too huge, regular folks become aware of their exploitation, get active and realize that their activism can change the dynamic in the political process. There is no natural endpoint to inequality, but it is possible for people to manipulate seemingly inevitable social trends even if it takes a war or a great depression to produce action.

For those on the political left, which are skeptical of my predictions, I should remind them that hope is sometimes the only positive force that we possess. As Antonio Gramsci said, “Pessimism of the mind, optimism of the will.”

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One Response to The Irreversible Trend of Growing Inequality?

  1. buckman21 says:

    There are plenty of crony politicians on both sides of the isle. While I agree that money should not hold sway with politics to a large degree, it should still be allowed.

    I’m not understanding your issue with this. The view of poverty in America today is upper-middle class to half of the rest of the world. The welfare system in this country alone makes those that have little or no jobs living better than my own middle class family. I would assume you can agree that our welfare system has become far too generous and over burdened.

    I’ve asked this question before: what is your solution then? Do you demand a wage cap? No one is allowed to invest in stocks or real estate anymore? Is there a limit to how much one should be allowed to own in terms of property and wealth?

    Yes the rich have the possibility to help out everyone less fortunate. But there are two things wrong with this desire: 1. Just giving money to someone that doesn’t have it doesn’t incentivize them to get more. In fact they would just demand more free money. Why work when someone just gave you a handout? They’d expect it again (refer again to my welfare comment). 2. I believe it is in man kinds best interest that everyone rich or poor, should help their fellow humans in times of struggle and need. BUT NOT OBLIGATED TO. The government has no business dictating what is deemed as charity. That should be left to the individual and their own resources. In fact the wealthy already do give far more and pay 71% of the taxes. Why must the pay more just because they have more? The answer comes back to what you think is fair. I call it jealousy.

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