Inequality Is Far Worse For Society Than We Think

Gains Of Very Top Earners Dwarf All Others

Inequality has been growing and it is far worse for society and the world than first thought or we might imagine. Sadly, the recently passed Republican tax bill will only add fuel to the fire. Like the issue of immigration how to address inequality tends to become a political football or a problem that politicians from different parties argue about and try to use in order to get an advantage for themselves by energizing their supporters. Unfortunately, the negative ramifications from inequality bore deep into the economic fabric but are also exacerbating the cost differences of living in different parts of the country.

In 1929, before the Great Depression, Marriner Eccles described a lack of “effective demand” by saying: “The United States economy is like a poker game where the chips have become concentrated in fewer and fewer hands, and where the other fellows can stay in the game only by borrowing. When their credit runs out the game will stop. The game stopped when players ran out of chips”. Eccles later became FDR’s man at the Fed and today the building in which the Federal Reserve resides carries his name, Eccles was appointed chairman (called “governor” before 1935) of the Federal Reserve Board on November 15, 1934. The important thing to take away from his statement that is still relevant today is that inequality is toxic.

CEO Compensation Has Grown Extreme

While equity bulls point to growing corporate profits as to the rationale for markets recent run-up.many other factors play into this. A great deal of growing profits flows directly from cutting back on the greatest expense businesses have to pay and that is labor. Since 2001 the amount companies spend on labor in general and many labor-related costs have not kept pace with other business expenses. Here, labor refers to wages paid to workers which reside outside the top echelon of CEO, CFO, and other corporate elite positions.

The reason for this rise in profits extends far beyond such things as advances in technology but to outsourcing, offshoring and even the cost of real estate and rents in different regions of the country. The historically low-interest rates of today that many people tout as our salvation also fuel inequality and mask many hidden costs that potentially will come back to haunt the economy. Adjusted for real-world inflation many households have seen their net incomes and wealth decline in the past decade. Despite the endless media propaganda about “growth” and “recovery,” it is self-evident to anyone who bothers to look closely that the “economic Pie” is shrinking and that the rich and powerful are increasing grabbing a larger slice. It should be noted these low-interest rates are not shared equally among society. Those with bad credit, low income or few connections pay much higher rates than those advertised, this again drives inequality.  

Inequality, Injustice, Exploitation, Corruption

It must be noted this is not just a national issue but one that rages across the world and is a large part of what drives people to immigrate in search of a better life. Whether it is inequality, injustice, exploitation, corruption or a thousand other forms of abuse the people of this world heap upon each other that lead to inequality nobody enjoys watching others move forward while they feel trapped and live in a state of anger and despair. Venezuela is a country that has recently fallen victim to this creeping malaise.

Inequality breeds resentment which is a large component of polarization and is often used as a weapon in class warfare. A good example of this is how former President Obama often energized his supporters by referring to “millionaires and billionaires” implying a similarity that often does not exist. By creating the image that anyone with money is in a class apart it becomes easier to demonize them as exploiters and the cause of the burdens and problems faced by so many people today. This also fans the fears held by so many Americans plagued by an uncertain future in a fast-changing world.

H/T: Bruce Wilds


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