It’s the Stupid Economy

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In the late 1800s, income inequality had reached an all time high in most of the western world. What followed was fifty years of war and revolution. Did the first cause the second? It’s not certain but the evidence certainly points in that direction. The accumulation of wealth and power in the hands of the few was so great that America’s first populist President championed legislation to break up the largest corporations, notably in the oil industry but also in the beef and railroad industries. Perhaps that’s one reason the USA avoided many of the internal disruptions faced by many other countries in the 20th Century. In any case, for many countries, violence became the great leveler.

Income inequality began to fall in western nations from World War I until the 1980s when it began to rise again, slowly in much of Europe, more rapidly in the English-speaking countries and the developing world. While the USA has returned to economic divisions similar to what existed in Teddy Roosevelt’s time, countries in Latin America and parts of Africa and southeast Asia have even greater income disparities.

While at the extremes, inequality is almost unimaginable. The hundred richest people in the world have more wealth than the poorest billion. An “eat the rich” ideology now runs rampant among certain segments of the population. Personally, I suspect they’re not that tasty.

But income inequality runs deeper than that. If you are in the top 20% of the population, you have seen your wealth and income increase steadily if modestly over the last 40 years. You may not feel like Rockefeller and you may be worried about your kids’ future, but for the most part you feel secure and happy. As it turns out, money does buy happiness up to a point and beyond that point it mostly seems to buy you detachment from the real world.

For the rest of the population, things are not so rosy. Incomes have stagnated or even fell in real terms and the perceived gap between you and those ahead of you in the economic race has become magnified. And, once, we get to the bottom 20%, poverty levels have risen as incomes fall.

None of this should be surprising. The market system is specifically designed to produce winners and losers and its primary goal is the accumulation of wealth. While apologists for capitalism claim that a rising tide lifts all boats, most of them don’t seem to understand that a lot of people don’t own boats and many who do, have leaky dinghies always on the verge of capsizing and sinking.

And what does all this income inequality mean for us? Bad news for the most part. A definitive study of 23 countries suggested that increased income inequality leads to higher incarceration rates. That may seem unsurprising but it may also lead to higher rates of family breakdown, worse medical outcomes, shorter life spans, higher child mortality rates, greater social disruption and breakdown of governance systems. I suspect, since it apparently leads to more consumption, it also leads to greater environmental degradation including climate change. Just anecdotally, a single large yacht of the type owned by the super rich produces more greenhouse gases than 400 average-sized African villages. And the drive to accumulate wealth and then keep it almost certainly takes you directly through oil fields and rain forests.

It also explains the growing dislocation of most voters in western democracies. Faced with abundant evidence that the economy is failing them in both real and relative terms, they begin to distrust the politicians who lead their state—even when such distrust is clearly misplaced. The rise of populism on the left and right as well as the constant churn of single term governments comes from that distrust. Eventually, when no party seems able to solve their problems RIGHT NOW, they turn their back on democracy altogether. Which suits authoritarians (who ultimately prove to be supportive of the rich) just fine. Are there alternatives? I think so but that will have to wait because…

That’s ten minutes from Hayden Trenholm.

Photo by Raden Prasetya on Unsplash

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