Robert A. Levine 3-15-17
Inequality is inherent in the capitalist system, where those who are smarter or were born into the right family or work harder or take more risks can accumulate wealth and enjoy its benefits. This seems fair and most people accept that individuals who have greater responsibility or perform at higher levels or are more valuable to society should receive more compensation than their peers. Yet there are limits to how much inequality is reasonable in any society. This is particularly so if some of the acquisition of wealth is perceived to have been accomplished in an inappropriate, unethical, or immoral fashion, or due to luck.
Those who “make it” should be cognizant of those who do not, and be as generous and helpful as possible towards those who were not as ‘lucky.’ The wealthy tend to be more politically active in most countries than the working and middle classes, and fight to keep taxes low, perhaps contributing less than their fair share to maintain a nurturing environment for all citizens. They should fight instead to advance their nation and its population, and to provide the maximum opportunities for others to enjoy success.
An important consideration in reducing inequality is how much generational conveyance of wealth should be and can be curbed. If this is not addressed, an escalating percentage of the nation’s (and the world’s) assets will be possessed by a smaller number of families, which can be passed on indefinitely and employed to amass greater power. For democratic societies to flourish, equality of opportunity and meritocracy must be maintained, rather than control of the state and its institutions by inherited wealth.
As Thomas Piketty wrote- “no matter how justified inequalities of wealth may be initially, fortunes can grow and perpetuate themselves beyond all reasonable limits and beyond any possible rational justification in terms of social utility.” In the last quarter of the 20th century and the decades afterwards, inequality has soared within democratic societies that have followed neoliberal policies. Neoliberalism as an abstract ideal may read well on paper, but the power of the free market has to be balanced by rules and regulations protecting the poor and middle-classes and allow them to lead decent lives.
Over the last half-century, with marginal tax rates lowered, the magnitude of difference between rich and poor has become greater than ever. Financial rewards from the performance of the American economy have not been dispersed through every level of society. The most affluent have benefited excessively, with little in the way of higher earnings filtering down to the middle- and lower-income strata.
Interestingly, Americans have no concept of the degree of inequality in their society, believing there is a more equitable distribution of wealth than there actually is. A scientific study several years ago showed that Americans thought the top quintile owned 59 percent of the wealth when it was actually more than 84 percent and believed the bottom two quintiles owned 9 percent of the wealth when it was actually 0.3 percent. The Walton family alone had more wealth than 42 percent of American families. In spite of these statistics, the American dream remains alive: that intelligence and effort can result in upward mobility and people can reach the top through hard work.
The continued growth of inequality has accelerated since the recovery from the recession of 2007-2008. Globalization and the loss of well-paying manufacturing jobs through automation have contributed greatly. As noted in the Harvard Business Review, the huge rise in economic inequality has been the result of technological changes and political decisions including financial market deregulation, free trade, tax code changes, and various other policy choices.
Another factor often overlooked in inequality has been assortive mating- the tendency for successful men and women to marry one another. Lawyers are more likely to marry other lawyers or other high-income professionals, as are physicians, business executives, and so forth. Thus, these families earn more and greater wealth is concentrated in their hands.
In the United States, the ultra-rich 0.01% of the populace was reported to have 11.1% of the nation’s wealth in 2014, with the top 1% having 39.8%, an astounding $32.6 trillion. These statistics do not consider assets in offshore accounts which would skew the percentages even further. The upper 1 percent earns nearly a quarter of the nation’s income annually. The richest 0.01% has quadrupled their share of America’s wealth since 1980, a time when they were already quite affluent. To a major degree, government policy which voters have allowed is responsible for the affluent being able to accumulate this immensely unequal share of assets, while the middle class stagnated financially and poverty appears to be intractable. A number of analysts believe income and wealth inequality in the U.S. is greater than in any nation in the developed world. Economist and Nobel Prize winner Joseph Stiglitz has said that “America’s inequality distorts our society in every conceivable way,” with globalization and technological advances designed to benefit the rich.
Stiglitz also believes that the degree of inequality in America has eroded trust in its institutions. And “trust is what makes contracts, plans and every day transactions possible; it facilitates the democratic process, from voting to law creation, and is necessary for social stability. It is essential for our lives. It is trust more than money that makes the world go round.” As inequality grows, the bonds of society are weakened, with citizens losing faith in a system “that’s seems inexorably stacked against them.” Stiglitz argues that the only way that trust will return is for government and its agencies to pass strong rules and regulations mandating proper behavior, with enforcement in the hands of tough and incorruptible regulators.
Many of the ultra-rich have achieved the status nobility were accorded in feudal societies, living in castles with servants and bodyguards, their every desire gratified. Thomas Piketty’s book Capital in the 21st Century noted- “When the rate of return on capital exceeds the rate of growth of output and income, as it did in the 19th century and seems quite likely to do again in the 21st, capitalism generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based. There are nevertheless ways democracy can regain control over capitalism and insure that the general interest takes precedence over private interests, while preserving economic openness and avoiding protectionist and nationalist reactions.”
Thus, one of the major objectives of democratic societies must be discovering how to lessen the concentration of wealth in only a few hands with continuous generational transfer, and achieving this end in a rational fashion. However, the likelihood of this occurring under the stewardship of President Trump and a Republican Congress is virtually nil. Whether it will ever happen depends on whether voters educate themselves as to their own interests and pressure their elected officials to truly work for them.
Photo by Shutterstock