Inequality is bad for (almost) everyone

Yves Smith, whose Naked Capitalism blog is essential reading, is guestblogging for Glenn Greenwald this week. Her latest post sums up a lot of evidence on the adverse effects of inequality, and includes a reference to a post of mine. In summary, the huge growth of inequality in the US has harmed everyone below the 90th percentile of the income distribution in the obvious way – they get a smaller share of a cake that isn’t growing very fast, and has been shrinking since the crisis began

But even people above that level, but outside the top 1 per cent are worse off in important ways. They’ve maintained or increased their share of national income, but they aren’t rich enough to insulate themselves fully from the adverse consequences of living in a highly unequal society. Yves sums up a bunch of the evidence on thsi.

Finally, there are those in the top 1 per cent of the income distribution, now pulling in 25 per cent of all income. Members of this group can, if they choose, ignore the collapse of the society outside their gated communities, and focus on enjoying the wealth they extract from it. On recent evidence, that’s what they (or at least their political representatives) are doing, while also managing a very effective set of divide and rule tactics for the rest of the population.

30 thoughts on “Inequality is bad for (almost) everyone

  1. To those one percent, the other ninety-nine don’t matter. They don’t have to worry about safety nets and have no allegiance to any country. What happens outside of their gated community is of little consequence. If things in one place get really bad they simply move to one of there other homes where things are more hospitable, and the natives less unruly.

  2. I notice that many of the 1% loudly decry the teaching of Darwinian evolution, even though it is the guiding principle for the health care policies they advocate.

  3. Seems to be a pretty standard theme throughout history; haves vs have-nots. Have we moved back to a feudal system because democracy has lost it potency? When will we see private armies emerge in the US, or have they already started to? I noticed there was recently a constitutional challenge to a law restricting the bulk sale of weapons in the US.

    I am trying to think of a historical period that saw a large-scale redistribution of wealth that did not involve war, famine or the plague. Hmmm, nope… sorry kids, not feeling optimistic today.

  4. I agree with your basic argument but note a qualification. Adam Smith pointed out that people on ordinary incomes greatly admire the rich. In the US today many poor people oppose redistributive measures that would advantage them – they see this as undue government intervention. Maybe a sensible rationale is that people attach a lot of value to the prospects of becoming very rich even if the probability of it happening is very low. It’s like risk-loving behavior in relation to the demand for unfair gambles.

  5. This involves the issue of perceived self interest versus enlightened self interest. The greatest interest of the greatest number is clearly not served by high levels of inequality in wealth distribution. If voting patterns followed enlightened self interest rather than perceived self interest then the parties of capital and privilege would receive only about 5% of the formal vote instead of routinely receiving 90% of the formal vote. In the US and Australia now, votes for Republican and Democrat, Liberal and Labor are all votes for capital and privilege, hence my identification of up to 90% of votes going to the parties of capital and privilege.

    What we have to ask ourselves is this. Why does only 15% of the populace correctly perceive its self interest and why are the other 85% deluded or misled? This is a tough question and I have some ideas but no certain answers. Lack of education, lack of training in critical thinking, propaganda from the elites and false consciousness in the masses must all play a role. Given that every society since the beginning of recorded history has struggled (with only rare and limited successes) against oppression and inequality then we must ascribe it as a natural tendency or a natural law for all human societies to tend strongly to the oppressive and unequal. (A natural law or a natural tendency is not always good.)

  6. But the wealthy are reducing inequality- outsourcing to India, closing down American manufacturing for Chinese and Mexican imports, and mass immigration stops American workers from earning the unequally high wages they used to get.

  7. I would be interested in JQ’s take on why people (not just elites) routinely saw through the branches they are sitting on.

  8. A way the elite have managed to keep the rest down in the US is by having successfully sold them on the idea that they too can ‘make it’. Every talentless narcissist who considers themselves more attractive than average (and those who consider they are better than average is far more than fifty per cent) thinks they will make it big in Hollywood, and everyone else expects that immense wealth is just around the corner, if only in the form of a winning lottery ticket. Having brought the improbable ‘American Dream’ wholesale, they remain content to struggle as slaves, and to be relentlessly ‘nickel-and-dimed’, in a winner-take-all society. Has to be the ultimate triumph of spin over reality.

  9. There are inevitabilities about this issue. Growing levels of inequality must eventually lead to a shrinking economy and increasing social dysfunction. For a time the boiling frog syndrome operates to mask the problem together with what are now the many opiates of the masses, starting with the old one – religion – followed by the vast right wing propaganda machine, mind numbing TV shows, 15 second subjective news coverage of complex issues, attacks on education resulting (for a significant proportion of the population) in poor literacy levels, and more immediate distractions including the source of a next meal or money to pay the rent. Further diversions include appealing to patriotism with a war or two and fighting the enemy within (Government, taxation and Democrats, who are simultaneously labelled as liberals, communists, fascists, socialists and Nazis) with references to historical events – Tea Parties etc. But in the end the fundamentals will apply and the US will have to radically transform or apply for admission to the Third World club. Regardless of the outcome the process looks like being very long and painful.

  10. JQ,

    That is my conclusion as well.

    Freelander @ 8 highlights the main device that keeps Americans hooked, making this a form a gambling addiction…..but on a national scale. The Oprah Winfrey show epitomised the US psyche laying bare the ever present hope to gain something for free while believing themselves to be caring sharing people, each slightly above the other and yet ever ready to sieze the opportunity to amplify that separation and rise above others.

    That mindset makes Americans easy prey for the many obsessive enslavements that dominate US life. Religion, revved up sport, sex and glamour, tv consumerism, FoxNews, gun ownership,,.

    Very interesting though is the underlying drive that allows the obsessively greedy 1% to ignore the well being of their nation in favour of the desperate grasping of wealth.

    It is a very simple mind trick which can be summerised in a slogan,…”a billion is the new million”.

    There was a time when to become a millionaire was the national dream. However since the very public Bill Gates’ rise to multi billionaire status, the new badge of the wealthy is that of the “billionaire”. This means a 1000 fold higher target for these ultra motivated greedies to strive for.

    The problem is that the US economy, or even the world for that matter, cannot support that level of wealth. The only way to achieve it is to use the most extreme of multipliers, and this means maximum exploitation of human effort and that can only be achieved using the lowest paid (Asian) on the cost side while exploiting the wealthiest markets on the sales side.

    The current national crissese are clear proof that they world has exhausted its ability to serve that level of greed. All of the wealth of many countries has been siphoned off taking as Western productive incomes have been converted to Asian lower incomes, and western governments have finally exhausted their ability to support the progressively increasing number of under employed citizenry.

    Put simply and in human survival terms,…the (economic) fat has all been consumed and the ‘body’ has begun to break down muscle and organ tissue in order to survive.

  11. Ikonclast, the secret to elite dominance is psychological manipulation, I believe. First in their arsenal of tools is their total control of the brainwashing apparatus of the MSM. Chomsky and Herman, in ‘Manufacturing Consent’ laid it out pretty conclusively, but it’s plain enough for those with eyes to see. The US elites, threatened by the rise of socialism, decided to shape the public mind, and they have been stunningly successful. I work where you you meet hundreds of people every year, and conversation apropos of nothing in particular is easy. People are generally, on the surface, decent enough, but a little scratch and you find a bedrock of ignorance, and, often enough, fearfulness. It’s that existential unease that we repress in everyday life that, I believe, is the key to the Bosses mastery of indoctrination. It’s the reason that the MSM concentrates on stories of murder, child-death, paedophilia, serial killers, and negative stereotypes of various threatening villains, eg refugees, Moslems, ‘Greenies’ etc. Keep the public ever fearful, make their jobs and hence the life prospects, precarious and contingent. Destroy all collective political groups and unions and push a relentless image of life as relentless competition between atomised individuals. And make this competition increasingly one where the winner takes all, and the number of losers proliferates, adding to the social tension. Promote an atmosphere of social division (as you note) setting one group against another. The reaction to the riots in the UK is a textbook case. The Fundament’s Augean stable of hatemongers has been screeching its outrage and demands for vengeance. Anyone who dares speculate that decades of social exclusion, now rising to a fever-pitch under the ‘Red Tories’ might have any role, is shouted down. I believe Ken Livingston, Mayor of London when they elected politicians rather than buffoons, has been set upon by the braying media mob for this crime. Endless hate, fear and panic-mongering by the Rightwing MSM is not just ideological thugs venting their spleen and multifarious hatreds. It is a carefully calculated plan to divide society against itself, to sustain the ‘bellum omnium contra omnes’, that sustains elite rule.

  12. Problem is the great unwashed have gotten more and more sophisticated. Spin ain’t spin any more, or at least recorded messages telling you”how important your phone call is” to them, don’t work like they used to. People eventually cottoned on to the likes of Tony ‘Poodle’ Blair, and the New improved politicians with extra vim. Even Obama who can write a good speech delivers it as though he is sleep walking. The old problem once again, that you can’t fool all of the people all of the time. What really broke the spell was the elite becoming far to lazy to even keep up the pretence that they have any morals or have any concern for anyone but themselves. Now they can’t even bother putting in the effort to attempt to tell convincing lies.

    How ironic Cameron castigating rioters for their lack of morals. The British austerity measures have not been directed at those who mucked things up and who gained extraordinarily during the good times. No, they have been directed at those who suffered by getting poorer during the good times, and suffered worse when the bad times, not of their making, came. If budgets in the UK needed to be balanced, there is plenty of scope to tax those who created the mess and benefited from the cowboy economy before the bust.

    Cameron is talking in Britian about responsibility. What about making those who gained responsible for the budget problems created when the boom that made them rich finally went bust?

  13. @Freelander

    How ironic Cameron castigating rioters for their lack of morals. The British austerity measures have not been directed at those who mucked things up and who gained extraordinarily during the good times.

    Along these lines:

    An interesting article in the (British) Daily Telegraph, notwithstanding the use of the term “moral decay”

    Peter Oborne

    Somthing from Marx that seems apt here too:

    Since the finance aristocracy made the laws, was at the head of the administration of the state, had command of all the organized public authorities, dominated public opinion through the actual state of affairs and through the press, the same prostitution, the same shameless cheating, the same mania to get rich was repeated in every sphere, from the court to the Café Borgne to get rich not by production, but by pocketing the already available wealth of others, Clashing every moment with the bourgeois laws themselves, an unbridled assertion of unhealthy and dissolute appetites manifested itself, particularly at the top of bourgeois society – lusts wherein wealth derived from gambling naturally seeks its satisfaction, where pleasure becomes crapuleux, where money, filth, and blood commingle. The finance aristocracy, in its mode of acquisition as well as in its pleasures, is nothing but the rebirth of the lumpenproletariat on the heights of bourgeois society.

    The Class Struggles in France, 1848 to 1850 (Part 1)

    Love the word, crapuleux!

  14. My comment above went straight to moderation — too many links? (only 1!), no barred words AFAIK …

  15. I think one of the changes in the last thirty years that has allowed income capture on the scale that we now see by the extremely wealthy is the financialisation of our economy. Increasingly return or profits are not related to production but to the accounting practices of the fire (finance, insurance and real estate) sectors.

    A target on the profitability of these sectors (a super tax, with commensurate lowering of taxes on business and personal income) would slow this capture down. It would also probably mean reduced investment return for median income people through their super fund returns or primary dwelling value, but that is no measure of the true wealth of a society. In fact, the need to produce real returns would probably spur productivity, and the ‘real’ value of reduced returns may be more than the artificial returns of the FIRE economy.

    It appears obvious that the US is getting poorer even as it ramps up its resource depletion. There is currently no incentive for the majority to rectify this as they know any income generated will be captured by the wealthiest few. It may even be rational to see the only solution as being to join that elite (and hence not wanting to change the system) even if it is highly improbable.

    How this could be achieved politically is not clear. It certainly can’t be sold as a ‘redistribution’, and the venom of media like the ‘Fox’ propaganda machine for the reactionary is legendary. I am constantly amazed at US comments on news items (the Salon piece is no exception); at first I thought it may be trolling (and some certainly is) but in the main I now see it is as profound ignorance. This probably calls for true leadership, a person or group capable of bringing about change without sparking off a tyranny.

  16. Yt nthr xmpl f th brthtkng hypcrsy f mdcr cdmcs wh prch tx ncrss n wlth crtrs whl grgng thmslvs n th pblc tt.

    Disemvowelled. The poster is banned troll and multiple sockpuppeteer dogz. Please, no further responses – JQ.

  17. One of the lines in the sand that defines this class war is inflation.

    Two percent of the world’s population own about half the wealth, and inflation is the only tax the wealthy feel right now, clawing away at that wealth. Hence all the media fog — owned by that same two percent — about the evil inflation ogre.

    The rest of us need a reasonable amount of increased productivity and inflation because it makes our stuff (including our labor which is progressively better informed and more experienced) worth more.

    I know that an engine that provides half the pressurized oil to only two percent of the cylinders can not work — even though that two-percent of cylinders, being properly lubricated, might imagine they’re the only part of the engine working correctly.

    Free Market Capitalism = Fail. Engines do not work without governors. Engines without governors explode and explosions are bad. Stuff that is actually worth something gets obliterated by molten metal moving in unpredictable directions and goes away as something useful to do work.

    Money is imaginary, fiat, declared. Wall Street is a dream about money — when it falls ten percent industries don’t actually vanish, lakes don’t dry up and mountains disappear, ten percent of the country doesn’t slip into dust. We can print as much as we want and the very idea of a debt we can’t meet is … so abysmally stupid I can’t find a good word for it.

    I live in a moment when the workers of the world are better educated than ever, there are more resources to do important things than ever, there is more that needs to be done than ever (I’d hire a million people just in the USA to read stories to kids), there are more people that want to work and do these things than ever (I like bridges that aren’t going to fall down, transportation that runs on carbon-neutral fuels, etc). And the oil, okay the money, is mostly stuck in a casino where computers bet on the future likelihood that other operators will bet on or against the capitalization of some activity.

    That’s where 41 percent of our GNP is (in America)– not doing or building or researching or making stuff, but betting on the rise and fall of actually useful work done by people who are actually working.

    Let’s be clear. We’re so rich, almost half of our economy (the way we measure it) is not about doing anything useful, but betting about how useful the elements of the other half is.

    In a world in which it only takes a few percent to grow all the food we need, and manufacture all the products we use and consume, and a world in which computers and robots are taking over even more, it is utterly insane to image or act as if we are poor.

    I’m certain my numbers are arguable and could care less. I am not amused. Economists, get better and get cracking.

  18. Curt Doolittle :
    No one disagrees that equality is superior to inequality. They disagree over the means of achieving it.

    This is a platitude that blurs the real issue. Workers will naturally have different abilities and experiences, and different land will have different fertility. These inequalities are superior to any artificially imposed equality.

    The inequality that is increasing now is what happens when one class in society accumulates the wealth others have produced. This is a different form of inequality.

    There is no problem with inequality if each factor receives remuneration according to their productivity. But if this were the case the Commonwealth Bank would not be rolling in 6.394 billions worth of capitalist profit, plus obscene executive and management remunerations.

    For the Left (away from the anarchists and hippies) there will always exist a certain inequality in the conditions of life.

  19. Zero Hedge has an excellent post carving up the numbers on who holds stock in the US:

    It includes the amazing statistic that the top ten percent of Americans are responsible for fourty percent of all retail spending. With a huge chunk of US jobs in retail it would appear that most Americans have a client relationship to the uber-wealthy. i.e. they are serfs.

    I like this quote from one of the bad characters in David Ireland’s excellent Australian Novel ‘The Unknown Industrial Prisoner’: “There is in all civilisations a colour bar of the mind. The people you take so much though for are beyond education, they lack basic intelligence. Throughout the Greek and Roman civilisations it was universally assumed that a large slave population was required to perform services unworthy to engage the activities of a civilised man. In other words, a civilised society could not be self-sustaining. A comparatively barbarous substratum had to be interwoven into the social structure to sustain the civilised apex. Nothing has changed. The substratum is still required; a slave population is needed for supplying the mechanized manpower for the continual building and repetitive work. The submerged population is still submerged, modern conditions of industrial employment are not significantly different from those of ancient slavery. Why? Because the history we know is the history of kings and wars and movements of nations. Those slaves had a good life and engaged in diversions and were protected by the state. Bread and circuses the same as now. Show me the difference. The only efficient way to govern them is to actually reduce them to the status of a lower species. The ultimate aim is to make them animals – then ruling them is easy.”

  20. Freelander, ‘The birth of self-love is the beginning of a life-long romance’ (with apologies to O.W).

  21. Chris Warren, I’m all for the equality of ‘From each according to their abilities, to all according to their needs’. Greed is the poison.

  22. So what is the answer?

    I’d love to say it is to go back to the policies of the 1950s and 60s, tariffs, regulation, fixed exchange rates, higher marginal tax rates and the rest of them; but I fear I’d be laughed at.

    So what else is the answer?

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