Rising Inequality – Enough is Enough

Rising inequality is one of the most pressing issues of our time.

This is not a controversial statement. You can barely go a day without hearing about “the growing wealth gap” on the news, memes or someone talking about it in the office.

That’s because it’s true.

Families across the country are struggling to get by while the top earners are getting richer and richer. This widening wealth gap is not only “unfair” but perhaps more importantly it is unsustainable. At some point something’s gotta give.

From the New York Times, the spike shows that the very affluent, and only the very affluent, have received significant raises in recent decades.

Increasing inequality hurts everyone in society. When the gap between the rich and the poor gets too large, it creates instability and division. It makes it harder for people to get ahead and undermines our economy as a whole.

We need to find a way to address inequality head-on if there’s any hope of moving forward as a society.

This article begins with a definition of inequality and the wealth gap before digging into some of the reasons it’s such a problem. From there we’ll look at the main drivers of inequality. We’ll close with an exploration of ways to reduce inequality in America specifically as well as in the world more generally.

What is Inequality?

Inequality refers to the unequal distribution of wealth, income, or other benefits or opportunities. This includes an overall disparity between individuals or groups, disparities between different areas of a country, or inequality between countries and more.

In broad strokes, it means some barely get by, while others have more than they’ll ever need.

 

The Wealth Gap

The unequal distribution of wealth is commonly referred to as the “wealth gap.” It refers to the difference in wealth between the richest and poorest. The gap in income and/or assets between those considered to be rich and those considered to be poor. The term “wealth” can refer to many different things including money, property, stocks or other investments.

In short – some people have a lot more money than others.

Inequality in Society

Inequality has been a defining feature of human societies throughout history. A large body of research has shown that social inequality is linked to a number of negative outcomes, including poorer health and educational outcomes, lower levels of social mobility, and increased crime rates. Inequality in society is a problem that needs to be addressed. The huge disparity in income has ramifications for all of society.

Why is Income Inequality a Problem?

Researchers have proven that inequality is bad for society as it “goes along with weaker social bonds between people, which in turn makes health and social problems more likely,” writes Dr. Jan Delhey, Chair for Macrosociology at the University of Magdeburg.

Researchers have found inequality goes hand in hand with social issues defined by The Index of Social Health. According to  Jan Delhey and Leonie C. Steckermeier, social problems linked to inequality include:

• General distrust
• Increased anger
• Mental illness
• Drug and alcohol addiction
• More crime
• Lower life expectancy
• Higher infant mortality
• Obesity
• Lower children’s educational performance
• Higher teenage birth rates
• More homicides
• Higher imprisonment rates
• Decreased social mobility

Because inequality causes the disadvantaged to experience lower levels of education and opportunity for upward mobility, inequality is often self-re-enforcing. Left alone, inequality creates more inequality.

Inequality matters because unequal opportunity makes it harder for people to get ahead and undermines our economy as a whole.

Power and Inequality

In a capitalist society, power and wealth are closely intertwined. Those with power and wealth have always been able to use their advantage to protect their interests. The wealthy have power over the political system, the media, and the economy. They can use their power to protect their wealth and increase their advantage over others.

• Power and the law – To ensure that power remains in the hands of the wealthy, the “powers that be” can write the rules in their favor. This includes tax laws, regulations, and laws that protect their wealth.  They can use their power to influence the government to make policies that protect their interests. For example, they can lobby for lower taxes on the wealthy, or for deregulation of industries that they own.
• Power and the media– Power also means control over the media, so that they can shape public opinion in their favor.
• Power and the economy – The wealthy can use their power to influence the economy in their favor. For example, they can invest in profitable companies in private markets, or they can use their power to get lower interest rates from banks. They can use their money to buy even more assets, such as stocks, land, and businesses, and make even more money. They can pursue anti-competitive market consolidation with impunity.

And of course, the more power (money) they have, the more they get. Another vicuous cycle.

Will Inequality Lead to Revolution?

When a large portion of the population is unable to get ahead, it is foten destabilizing. There are some who worry that inequality could lead to a violent revolution because it can lead to people feeling hopeless and desperate. If people feel like they have no chance of improving their life, they are more likely to take drastic measures, including taking up arms.

We’ve seen this in the past with the French and Russian Revolution and the Arab Spring revolutions. In each case, rising inequality led to protests that eventually turned into full-blown revolutions.

So, while it’s not guaranteed that inequality will lead to revolution, it is certainly a possibility. And it’s something we should all be concerned about.

What Causes Income Inequality?

Where does rising inequality come from?

There is no single answer to the question of what causes inequality. A variety of factors, including economic, social, and political conditions, contribute to disparities in wealth and opportunity. In recent years, globalization and technological change have also played a role in widening the gap between the rich and the poor.

Any efforts to reduce inequality will require a better understanding of its causes and effects.

The Engine of Inequality

The root of the problem is the engine of inequality – the system that generates and perpetuates inequality. It goes back to the success to the successful feedback loop. The top earners are getting richer while the rest of us are struggling to make ends meet.

In short, inequality itself causes more inequality.

Capitalism and Inequality

One of the key drivers is capitalism itself. Under capitalism, those who own capital make money from investments, while those who do actual work for a living (as opposed to putting money to work) are paid wages.

Wages are capped by how many hours you can work, as well as annual raises, but there is no cap on what wealth can produce.

Investing lets you make money while you sleep, something a wage earner can’t do. The wealth you can earn from investing is not capped by the number of hours in a way. Capital (money) creates more capital.

While capitalism has created wonderful benefits to society, it can benefit the few to the detriment of the whole. A better way forward is to align the goals of society with those of the private sector.

Wages

Wage inequality, the difference between what those at the top and those at the bottom of the income spectrum earn, has grown significantly. Wages for low- and middle-income workers have stagnated, while those at the top have seen their incomes skyrocket. According to Lawrence Mishel and Julia Wolfe writing for The Economic Policy Institute,

“From 1978 to 2018, CEO compensation grew by 1,007.5 percent […] far outstripping S&P stock market growth (706.7%) and the wage growth of very high earners (339.2%). In contrast, wages for the typical worker grew by just 11.9 percent […] Average pay of CEOs at the top 350 firms in 2018 was $17.2 million—or $14.0 million using a more conservative measure.”

And given the rising cost of living, those who make less can afford less.

The rate of what high-income earners bring home has increased at an astronomical rate compared to the average worker. When those at the top earn so much more, inequality is inevitable.

We need a system where hard work is rewarded, whether you are a CEO or a janitor. That doesn’t mean that they should make the same amount of money, but upward mobility shouldn’t be limited by how you grew up.

Will Inequality Always Exist?

Will inequality ever stop growing? Will it continue to get worse?

These are all valid questions and ones that don’t have easy answers. There is no definitive answer to whether or not increasing inequality will always exist.

As long as there are different levels of wealth and power, it is likely that there will always be some degree of inequality. However, this does not mean that it is inevitable.

There is also the question of degrees. Most of us understand and are fine with some people being wealthier than others. But the problem is in how much, and the circumstances of the less wealthy. If even the poorest workers had a good qulity of life (food, housing, access to upward mobility, etc) then the problems of inequality diminish.

While it’s unlikely that inequality will ever disappear entirely, there’s also no guarantee that it will continue to grow indefinitely. If we are committed to reducing inequality, there is certainly potential for progress.

How to Reduce Inequality in Society

If we want to move forward as a society, we need to find ways to reduce inequality. This means a more equal distribution of wealth, and more opportunities for everyone, regardless of their race or gender.

There are many ways to lower inequality.

Demand a Responsible Private Sector

A responsible private sector can help reduce inequality and create a more sustainable and equal society. The private sector has a responsibility to society at large. That means employees, customers, suppliers, shareholders – everyone. When businesses focus on profit at any cost, they can harm employees, exploit customers and suppliers, and destroy the environment.

A responsible business takes into account the needs of all its stakeholders when making decisions.

• Better jobs and higher wages – We should find ways to encourage businesses to create more meaningful full jobs that pay well. The private sector has a responsibility to create jobs that provide workers with fair pay and good working conditions. Too often, businesses focus only on maximizing profits, which can result in employees being paid low wages, working long hours, and being treated poorly.
• Employee stock ownership – In addition to paying employees more, giving workers a share of the profits they help create would also go a long way toward reducing inequality. For example Bernie Sanders has proposed that employees should own 20 percent of a company’s stock.
  • Not only will it lift the poorer up, but it would likely increase productivity. With “skin in the game” employees are more likely to be engaded in building a better company.  By giving employees a say in how the company is run, we can help to create a more sustainable and equal society.

We need to move away from the winner takes all mentality and start working together for the common good.

Align the private sector with the common good >>

How do we encourage corporations to be more responsible?

It’s all well and good to say we want businesses to be more responsible, but how do we do that? How can we encourage corporate behavior that helps society at large?

Impact Consumerism

Perhaps the most powerful way is to use the power in our wallets to demand corporations help address rising inequality, in short, Impact Consumerism. Impact Consumerism means putting our money where our values are and supporting businesses that are making an effort to reduce inequality. This includes everything from the products we buy, to the investments we make.

When more people start doing this, it will create a domino effect of change throughout the entire economy.

#DemandMoreforYourDollar >>

Responsible Investing

Impact investing is a type of investment that aims to create positive social or environmental impact while also generating financial returns. Also known as social investing or ESG investing (or woke capitalism to detractors), responsible investing has gained a lot of attention in recent years.

Many of the world’s biggest money managers have at least paid lip service to responsible investing. Many 401k funds and other retirement vehicles include socially responsible investing options.

By investing in companies that working to reduce inequality, we can help support their efforts and ensure that they have the resources they need to continue making a difference.

Lobby for Change

Another way we can help reduce rising inequality is by lobbying for change. This means contacting our representatives and voicing our opinion on the policies that impact us. It means reducing the influence of money in Washington so that the government represents us all, not just corporate interest and the wealthy.

We need to make sure that our tax system is more progressive so that the richest pay their fair share. And we need to crack down on the use of offshore tax havens, which allow the wealthiest to avoid paying their taxes.

One option to raise wages is to raise the minimum wage. I’d prefer not resorting to government mandates, but many feel a Federal minimum wage is a relatively quick and straightforward way to prop up wages at the bottom.

Support Strong Communities

But it’s not all just about take-home pay. In addition to higher wages, We need to make sure that everyone has access to quality education, healthcare and other essential services. We need to provide more support for families struggling to make ends meet. We need thriving communities across the country.

We need to invest in our infrastructure and provide opportunities for all. That means education, policing, health and mental services, childcare, public transportation, and more.

It means getting involved in your local community, whether it’s through volunteering, running for office, or just throwing a block party to mingle with your neighbors.

It means supporting small and local businesses that are investing in their employees and communities. These businesses are the backbone of our economy, and they deserve our support.

You can also support the hundreds of dedicated charities and non-profits working hard to strengthen communities around the country.

Align the Incentives

But we need to do more than just redistribute wealth – we need to change the way our economy and society work. We need to align corporate and social incentives so that we’re all working toward the same goals. When incentives are properly aligned, we create a system where everyone wins.

There are countless examples of misaligned incentives leading to disastrous results. The 2008 financial crisis is a perfect example. In that case, bankers were incentivized to take on more and more risk. They did so because they knew that if the gamble paid off, they would reap huge rewards. But if it went bad, the taxpayers would bail them out. So, they took on more and more risk, and eventually the system collapsed.

Aligning incentives is not always easy, but it’s essential if we want to create a sustainable future for all. The power of the private sector and the free market is to much to put aside.

We need to make sure that corporations are incentivized to do good, not just to make money. We need to find ways to align social and economic incentives so that we can all work together for the common good.

Can Inequality Really be Eliminated?

There is no easy answer when it comes to reversisg rising inequality. But certainly we can improve on the current situation.

At the very least, we can make it Less Bad.

Yes, We Can Reduce Inequality

It’s not going to happen overnight, but reducing inequality is essential if we want to avoid disaster and create a sustainable future for all.

We need to make sure that everyone has access to quality education and healthcare, we need to provide more support for families struggling to make ends meet, and we need to invest in our infrastructure. We need corporations to be involved. We need to change the way our economy and society work so that corporate and social incentives are properly aligned.

There is so much work to do!

But with cooperation and dedication, we can make progress toward eliminating inequality.

We can build a more prosperous, just, and sustainable future for all.

It’s time for a change.

We need to move away from an economy that increases inequality by rewarding those who already have money, and towards a more equal distribution of wealth.

It’s time to align our incentives and start working together for the common good.

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