OXFAM has just released its annual study of inequality. Looking at wealth, OXFAM estimates that the 26 richest in the world now own as much as the poorest 3.8 million. They own as much as half the world owns! It’s getting worse. 82% of the wealth creation last year went to the top 1%, and none went to the bottom 50%.
This is tragic, bad for everyone on the planet. More tragic is that many tools exist to moderate inequality, but they’re not being used.. If high inequality is the invisible hand of the market working, we need a strong visible hand of government to restrain the market forces, and redirect them to both profitable and also sustainable and equitable outcomes.
I have been studying inequality for the last 7 years, first at SOAS in London in 2012, at Harvard in 2017, and on my own. I have continually argued in this blog that inequality is the worst problem for the world, and certainly for the US, where inequality is higher than in other developed countries.
The tragedy of inequality for the poor involves forced focus on survival only, on nothing but food and shelter, meanwhile getting the worst effects of climate change, pollution, and poor health care. Without adequate food, shelter, safety and education, what chance can they have?
Critics argue a version of “fairness,” that those who earn or own these rewards are entitled to 100% of them. Of the 26 in Forbes’ list of 400 billionaires, some earned their fortunes–Gates, Bezos, Buffet, Ellison and others. Some inherited theirs–Waltons, Bettencourt-Meyerrs, Ambani, the Kochs. There have been questionable practices along the way for some, but this blog post is not about finding and arguing the case on that basis. For these purposes, I’ll stipulate that every dollar was legally obtained. The case is strong without disputing legal rights.
“Fairness:” Leaving legality undisputed, I condemn the system on two major points. First, this is morally wrong. The 3.8 million did not have equivalent opportunity. Some of the billionaires, such as Gates and Buffet, started with little and built their fortunes. But, they were born in circumstances which offered enormous educational and other supportive benefits to leverage–safety, rule of law, institutions, and more. They didn’t have to scrap for food on a day to day basis. Most of them are American, and that in itself is a huge advantage. 9 of 10 are men, regrettably another huge advantage..
Where is the fairness for the 3.8 million? The vast majority of them are hard working and intelligent–intelligent enough to produce much greater results for themselves, if given the opportunity. But, the opportunity is not there for most of them. This is my message to those who say the underprivileged just need to get out and show some gumption, and they can all be millionaires or even billionaires. The point is that the opportunity is not the same. Opportunity is critical. Gumption is necessary, but not sufficient if you’re in the bottom 50%.
Second, It isn’t particularly painful to the 400 for us to fix it–just to moderate inequality–ratchet slowly back to where we were before Reagan. It is actually to the advantage. of the wealthy. Academic studies show that high levels of inequality restrain economic growth. Economic growth is critical to wealth creation, so even the wealthy will be more successful in a somewhat more moderate climate of inequality.
And, fixing it doesn’t have to be dramatic. A modest wealth tax, as proposed by Philippe Paillart in his famous book, and as recently endorsed by Elizabeth Warren, would do wonders, with little impact on existing wealth. A much more progressive estate tax would help. Many studies have shown a higher income tax on the highest incomes (for the amounts above say $1million) would not dampen investor or entrepreneur motivation, or economic growth. See Saez and Diamond for one such study.
Government revenues (taxes) are not the only opportunity for reducing inequality. Government expenditures are another opportunity–e.g., less on military or bloated inefficient government agencies, more on education. And, numerous studies have shown that non-tax policies across the last 40 years of advancing neo-liberal economics, have provided thousands of benefits to the wealthy, at the expense of rising inequality. Remaking America by Soss, et., al. is one such recent compilation. The rise in inequality since Reagan is not a simple natural occurrence. It’s not inevitable. It is the result of a steady progression of policies advantaging the privileged. Rolling back some of these will open up opportunity for the 3.8 million, or the US share of those. The US Census Bureau reports that we had 39.7 million Americans living in poverty in 2017.
The Financial Times this week highlights the policies of the S. African government to stimulate and support opportunities for entrepreneurs. S. Africa has the world’s worst inequality. Government programs seem to be working there. Do we have to wait until we are at that level to do something?
I have been insisting for years that inequality is the world’s worst problem. It continues amaze me that it is not recognized as such. Lately, the press and the Trump administration claims the American Southern border is the biggest problem for the US. The Washington Post chided Trump this week by providing their list of bigger problems: climate, guns, opioids, debt, populism, China and Russia.
I argue that the world’s inequality is strongly evident in all of these, and we’d better start to address it. I say again–if you don’t have food, shelter, education, and basic institutions, you don’t have opportunity. The Yellow Jacket protests have French inequality at the center of their demands.
Revolution is the end state of rising inequality.