Rising economic inequality is threatening not only economic progress but also the democratic political system in the U.S.
Emerging from the 2008-09 financial crisis, the global economy is strengthening. Yet around the world, prosperity evades most people. Increasingly the biggest benefits of economic prosperity are being accrued by a tiny elite. We live in a world where small number of the richest people own the wealth of half of the world’s wealth.
In the United States, the increase in the income share of the top one per cent is at its highest level since the eve of the Great Depression. In India, the number of billionaires has increased tenfold in the past decade. In Europe, poor people struggle with post-recovery austerity policies while moneyed investors benefit from bank bailouts. Africa has had a resource boom in the last decade but most people there still struggle daily for food, clean water and health care.
Let’s take a look at the evidence for increasing income inequality and its negative impact:
- The poorest half of the Earth’s population owns 1% of the Earth’s wealth. The richest 1% of the Earth’s population owns 46%; The poorest half of the U.S. population owns 2.5% of the country’s wealth. The top 1% owns 40% of it.
- The United States is the most economically stratified society in the western world. As The Wall Street Journal reported, a recent study found that the top .01% or 14,000 American families hold 22.2% of wealth, and the bottom 90%, or over 133 million families, just 4% of the nation’s wealth.
- The amount of money that was given out in bonuses on Wall Street last year is twice the amount workers earned in the country combined.
- The wealthiest 85 people on the planet have more money that the poorest 3.5 billion people combined
- Since 1990, CEO compensation has increased by 300%. Larry Ellison, chief executive of Oracle Corp. received US$1.84-billion and Barry Diller, chief executive of Interactive/Expedia.com received US$1.14-billion, and the next six received at least US$500-million in total pay. The average pay of chief executives at major corporations in the United States was US$15.7million in 2018.
- Corporate profits have doubled. The average worker’s salary has increased 4%. Adjusted for inflation, the minimum wage has actually decreased.
- In a study of 34 developed countries, the United States had the second highest level of income inequality, ahead of only Chile.
- Some hedge fund mangers made $4 billion annually, enough to pay the salaries of every public school teacher in New York City.
Dominic Barton, Managing Director of McKinsey and Co., argues “ Few would disagree that unchecked increases in inequality will be costly for capitalism in the long-run–due to the divisions that it creates within society and the strain that it puts on social safety nets.”
The Pew Foundation study, reported in the New York Times , concluded, “The chance that children of the poor or middle class will climb up the income ladder, has not changed significantly over the last three decades.” The Economist’s special report, Inequality in America, concluded, “The fruits of productivity gains have been skewed towards the highest earners and towards companies whose profits have reached record levels as a share of GDP.”
A joint effort by the Russell Sage Foundation, the Carnegie Corporation and the Lyle Spencer Foundation has released several reports based on research on the issue of income inequality. They have concluded that over the past three decades, the U.S. has experienced a slow rise in economic inequality and as a result, the fruits of economic growth have gone largely to the wealthy; median incomes have stagnated; and the poor have increasingly been left behind.
In their book, Winner-Take-All Politics: How Washington Made The Rich Richer-And Turned Its Back On The Middle Class , Jacob Hacker and Paul Pearson argue that since the late 1970’s, an intense campaign of anti-democracy policy changes have resulted in an intense concentration of wealth and income to the very few individuals and corporations in the U.S.
According to Richard Wolff , professor of Economics at the University of Massachusetts, U.S. corporations, particularly the large ones, “have avoided taxes as effectively as they have controlled government expenditures to benefit them.” Wolff points out that during the Depression and WWII, federal income tax receipts from individuals and corporations were fairly equal, but by 1980, individual income taxes were four times higher than corporate taxes. “Since WWII, corporations have shifted much of the federal tax burden for themselves to the public-and especially onto the middle class,” Wolff says.
The most comprehensive recent study of corporate taxes by professors at Duke, MIT and the University of California concluded “we find a significant percent of firms that appear to be successfully avoiding large portions of the corporate income over a sustained period of time.” For example, The New York Times reported that GE’s total tax was 14.3% over the last 5 years, while in 2009 receiving a $140 billion bailout guarantee of its debt from the federal government.
The world is awash in personal wealth: $153.2 trillion in total, according to Allianz’s new Global Wealth Report 2015. That’s enough to pay three times the world’s sovereign debt, the debts of each nation. The report, which measured 2014 wealth, found 2014 was the third consecutive year in which global wealth grew more than 7%.
The jump was largely the result of households pumping up their personal savings efforts. The U.S.—with $63.5 trillion in total private wealth—holds the largest amount of any country in the world. But that wealth is unevenly distributed, and nowhere is that more evident than in the U.S., which also has the largest wealth inequality gap of 55 countries studied, according to the report. While America’s growing income inequality has been the source of much debate, this report examined the wealth—which includes not just salary, but also property and investments held by a family. The report found that America’s wealth inequality is even more gaping its income inequality. In fact, the report dubbed the U.S. the “Unequal States of America” due to the size of the gap.
What happens to societies where there are large and growing gaps in wealth? Significant social problems, and declining indicators of well being and happiness, recent research seems to suggest.
British epidemiologists Richard Wilkinson and Kate Pickett, authors of The Spirit Level: Why Greater Equality Makes Societies Stronger, argue that almost every indicator of social health in wealthy societies is related to its level of economic equality. The authors, using data from the U.S. and other developed nations, contend that GDP and overall wealth are less significant that the gap between the rich and the poor, which is the worst in the U.S. among developed nations. “In more unequal societies, people are more out for themselves, their involvement in community life drops away, “Wilkinson says. If you live in a state or country where level of income is more equal, “you will be less likely to have mental illness and other social problems,” he argues.
A University of Leicester psychologist, Adrian White, has produced the first ever “world map of happiness,” based on over 100 studies of more than 80,000 people and by analyzing data from the CIA, UNESCO, The New Economics Foundation, the World Health Organization and European databases. The well being index that was produced was based on the prediction variables of health, wealth and education. According to this study, Denmark was ranked first, Switzerland second, Canada 10th and the U.S. 23rd.
Linda McQuaig and Neil Brooks, authors of The Trouble with Billionaires, argue that increasing poverty due to economic inequality in the U.S. and Canada has detrimental effects on health and social conditions and undermines democracy. They cite the fact that while the U.S. has the most billionaires in the world; it ranks poorly in the Western world in terms of infant mortality, life expectancy, crime levels-particularly violent crime-and electoral participation.
Between 1983 and 1999, men’s life expectancy decreased in more than 50 U.S. counties, according to a study by Majid Ezzati, associate professor of international health at the Harvard School of Public Health. For women, the news was even worse: life expectancy decreased in more than 900 counties-more than a quarter of the total. The United States no longer boasts anywhere near the world’s longest life expectancy. It doesn’t even make the top 40. In this and many other ways, the richest nation on earth is not the healthiest.
Ezzati’s results are one example. There is also evidence that living in a society with wide disparities-in health, in wealth, in education-is worse for all the society’s members, even the well off. Life-expectancy statistics hint at this. People at the top of the U.S. income spectrum “live a very long time,” says Lisa Berkman, Director of Harvard University’s Center Population and Development Studies, “but people at the top in some other countries live a lot longer.”
A meta-analysis published by the British Medical Journal shows a link between income inequality and mortality and health. The researchers concluded that people living in regions with high-income inequality had an increased risk of premature death, independent of their individual socioeconomic status, age or gender. While it is logical to assume the lowest income citizens would be at grater health risk, the study concluded that income inequality is “detrimental to the more affluent members of society, since these citizens experience psychosocial stress from the inequality and loss of social cohesion.”
Often popular media portrays the image of everyone favoring and wanting to be wealthy, but that may be deceiving.
Recent neuroscience search reveals that the brain rejects inequality and prefers equitable balance-physiological, emotional, social and psychological. E. Tricomi and colleagues advanced this argument, published in the journal, Nature. They contend the human brain dislikes inequality when it comes to money. And other behavioral and anthropological evidence shows that humans dislike social inequality and unfair distribution of outcomes. Researchers at the California Institute of Technology and Trinity College in Ireland have identified reward centers in the brain that are sensitive to inequality. This research shows a dislike of fairness and inequality is more than just a social convention. On a physiological level, people may not be as selfish as once believed. Other studies have shown that many wealthy people want to restore equality and balance by charitable donations to assuage their guilt and decrease their own discomfort over having more than other people.
Research indicates that high inequality reverberates through societies on multiple levels, correlating with, if not causing, more crime, less happiness, poorer mental and physical health, less racial harmony, and less civic and political participation. Tax policy and social-welfare programs, then, take on importance far beyond determining how much income people hold onto.
In their report, Building A Better America–One Wealth Quintile At A Time , Dan Ariely of Duke University and Michael I. Norton of Harvard Business School, showed that across ideological, economic and gender groups, Americans thought the richest 20% of American society controlled about 59% of the country’s wealth, while the real number is actually 84%. At the same time, the survey respondents believed that the top 20% should own only 32% of the wealth. In contrast, in Sweden, a country with significantly greater economic equality, 20% of the richest people there control only 36% of the wealth of the country. In the American survey, 92% of the respondents said they’d rather live in a country with Sweden’s wealth distribution. They concluded that a majority of Americans they surveyed “dramatically underestimated the current level of inequality,” and “respondents constructed ideal wealth distributions that were far more equitable even than their immensely low estimates of the actual distribution.” They contend that all demographic groups including conservatives like Republicans and the wealthy “desired more equal distribution of wealth than the status quo.”
Frederick Soft, writing in the American Journal of Political Science provides an analysis of economic inequality and democratic political engagement, concluding “higher levels of income inequality powerfully depress political interest, the frequency of political discussion and participation in elections among all but the most affluent citizens, providing compelling evidence that greater economic inequality yields greeter political inequality.”
So while income inequality is a growing serious problem for the economic and social health of the U.S. population, it’s fair to say it’s also a threat to its democratic system.
Research indicates that high inequality reverberates through societies on multiple levels, correlating with, if not causing, more crime, less happiness, poorer mental and physical health, less racial harmony, and less civic and political participation. Tax policy and social-welfare programs, then, take on importance far beyond determining how much income people hold onto. The level of inequality we allow represents our answer to “a very important question,” says Nancy Krieger, professor of society, human development, and health at Harvard “Whatkind of society do we want to live in?”
A new study, published in the latest issue of Psychological Science by Mike Morrison, Louis Tay andEd Diener, which is based on the Gallup World Poll of 128 countries and 130,000 people, found that the more satisfied people are with their country, the better the feel about themselves. Recent surveys in the U.S. show a significant percentage of Americans who are unhappy about their country. According to the World Values Survey of over 80 countries, the U.S. ranks only 16th , behind such countries such as Switzerland, the Netherlands, Sweden and Canada, with Denmark ranked first.
Reasons For Wanting Equality
First, inequality with respect to income and wealth undercuts equality of opportunity, which depends heavily on access to education. Poor people tend to have much worse access to educational resources, because they live in worse neighborhoods with worse schools. One of the reasons that the United States has less upward social mobility than other wealthy countries is that university education is much more expensive. So even with respect to what is supposedly a narrow right to equality of opportunity, income inequality is a serious concern. Second, equality before the law is severely challenged when people do not have access to good legal representation.
Wealthy people can hire expensive lawyers to ensure that they are more likely to benefit than lose when dealing with the legal system. Third, people need good health in order to function fully as human beings, and the negative impact of inequality on health has been well documented. The impact of inequality is partly that poor people often cannot afford medical treatments. In addition, people who are low in social hierarchies tend to have less control over their lives, which leads to more stress and resulting diseases and unhealthy behaviors. Fourth, inequality leads to bad social effects such as increased crime, lack of social cohesion, and lack of trust.
Numerous international comparisons find a strong correlation between equality and positive aspects of society such as happiness and human development. Inequality between countries contributes to illegal immigration, which is stressful both for the immigrants and for citizens whose precarious financial states are threatened by low-price immigrant labor.
The need for relatedness concerns feeling socially connected, including belonging to a social group, being cared for by others, and being treated as significant. Relatedness supports rights concerning being able to associate with various groups and being taken seriously rather than suffer discrimination because of sex, race, ethnicity, sexual orientation, or gender identity. Lack of money can diminish satisfaction of the need for relatedness, when it leads to stresses on individuals that make sustenance of good relationships difficult. For example, families suffer when parents lack sufficient income to look after their themselves and their children.
The third basic need is competence, which covers people’s needs to feel effectiveness, mastery, and effective operation within their important life contexts. People need to be able to strive and achieve. Competence is thwarted when challenges are too difficult or when feelings of mastery are diminished by excessive criticism. If people are unequal with respect to the satisfaction of the basic need for competence, then they cannot develop fully as human beings. Rigid social hierarchies in income and wealth make people highly insecure in their work relationships, preventing them from gaining the benefits of the achievements that signal competence. When inequality leads to substantial unemployment, people suffer from both the lack of money and the lack of work achievement.
“Income inequality is a public health concern,” says Hui Zheng, author of the study and assistant professor of sociology at Ohio State University. His study appears online in the journal Social Science and Medicine . Many other studies have examined the impact of income inequality on mortality and have come up with mixed results, according to Zheng. But he thinks that this study overcomes problems in previous research by using a different data structure and statistical model (called a discrete-time hazard model). These results also support findings from a 2009 study by Zheng that examined how income inequality affected Americans’ self-rated health. That study found that the dramatic increase in income inequality from 1972 to 2004 increased the odds of worse self-rated health by 9.4 percent. That study only looked at the instantaneous impact on self-rated health. The impact should be even larger if it had taken into account the long term impact, he said. “The evidence is growing clearer that income inequality has a long-term detrimental impact on individual health and mortality,” he said.
Surveys show that the more the income inequality in a given area, the less the members of that area trust each other. Related survey work shows people in communities with higher levels of inequality are more likely to think that their system is unfair and that those who are getting ahead are doing so underhandedly and that the less privileged are more envious of the more privileged in times of higher inequality. Experimental work, which manipulates relative monetary disadvantage in the lab, finds largely the same results.
Inequality may also reduce trust through more structural mechanisms. In more unequal countries, people from different social classes are less likely to interact with each other: they are more likely to live in different neighborhoods, send their children to different schools, read different newspapers; generally, they experience radically different social worlds. If people do not commingle with individuals from other social classes, they might be more likely to think of other groups as outgroups, leading them to essentialize class differences. Indeed, in more unequal societies, residents have stronger class identification, with the poor more likely to self‐identify as “lower class” , or as “have nots”. Among people living in U.S. states with higher income inequality or among people experimentally led to perceive that income inequality in their state was high, the rich were less likely to give to charity, perhaps because they have internalized or even biologized the differences between themselves and the poor. In more equal societies, the increased points of social overlap can lead to a sense of shared social fate, which can lead to higher generalized societal trust, and without the social overlap (as can occur in more
The higher the level of inequality in a society, the more unhappy residents are. Inequality may be the answer to the famous Easterlin Paradox, which asks why economic growth does not always translate to the increased happiness of residents. Oishi & Kesebir show that in low‐inequality countries, residents are indeed happier when the economy is growing, as Easterlin had originally predicted. However, in higher inequality countries, growth does not correlate as strongly with happiness, and, in a set of high‐inequality Central and South American countries, residents become unhappier as their economy grows. When economic growth is relatively evenly shared, the Easterlin Paradox tends to disappear; it is only when the gains go disproportionately to a small fragment of the population that growth does not lead to nation‐level increases in happiness.
Summary: Clearly, the U.S. is increasingly becoming a country with severe income inequality, amassing the majority of wealth in its economy, while the poor and middle class are suffering from a declining standard of living. The impact of this inequality goes far beyond traditional financial measurements and can be seen in deteriorating health and well being of more and more Americans. The cumulative trend will also clearly pose threat to democratic institutions and norms.
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