I believe that human societies naturally trend toward larger economic inequality because of obvious feedback mechanisms that favor higher income and wealthy families. Only revolution or other cataclysmic events seem to reverse this trend. And those events are a high price to pay.
Some of the feedback mechanisms that increase inequality are:
- The growth of investment value
- The double income multiplier (the wealthy marrying the wealthy)
- Education inequality (private schools, tutoring, college/exam prep)
- Legacy college admission
- Hiring through networks, friendships
- Investment opportunities through friendships, network
The wealthier one is, the more weight these feedback mechanisms have.
One school of thought argues that economic inequality is a necessary component of economic progress and is at least partly attributable to the differences in human nature and behavior – ambition, talent, intelligence, work ethic, addictions, delinquency, etc. The argument extends even to postulate that overall economic growth is accelerated (all boats rising . . .) by large income inequalities, as job and company creation, investment and innovation depend on large net-worth individuals or families. It theorizes that there is ultimately a net positive effect of large inequalities.
A strong counter argument to this school of thought can be seen in the poor economic development of developing countries in Latin America and Africa. Large inequalities exist and there are many high net-worth individuals, but economic woes persist and even worsen in many cases. These nations also often have rampant corruption and a lack of judicial and political stability, societal defects at least partially due to their history of colonial rule and exploitation. These problems assist in entrenching inequality.
The fact that something occurs naturally does not imply that it is good. The naturally occurring increase in inequality is certainly impacted by human behavioral traits of both the rich (self-interest, selfishness, opportunism, greed, vanity) and the poor (poor life choices, poor work ethic). But I would argue that the positive feedback mechanisms listed above accelerate and magnify the ‘natural’ tendencies. There will always be inequality based on differences in human behavior and potential, but the ever-growing, hyperbolic inequality we see today is a result of factors that have nothing to do with hard work and talent.
The Pew Charitable Trust conducted a survey in 2019 (pre-pandemic) to better understand the prevailing views on economic inequality. They found that a majority (61%) of Americans felt there was ‘too much economic inequality’. But as one might expect, there were significant differences between the left and the right – that figure of 61% was composed of 41% of the right and 78% of the left.
It is likely that the 39% who don’t believe there is too much inequality (and this includes 22% of those on the left!) think that a certain amount of inequality is inevitable and even desirable in an economy. There were also predictably variable views on what causes inequality, with right-leaning respondents choosing personal factors much more than left-leaning.
If one looks at the history of global economic inequality it is clear that it is a very stubborn and unyielding aspect of human development. Thomas Piketty, the French economist, has written two very well-researched (and long!) books on this topic. What I find particularly interesting in his data is that the last hundred and fifty years or so have seen the rise and then fairly sudden moderation of inequality in the industrial world over several different time periods.
Unfortunately, this moderation has generally come after cataclysmic events – world wars, revolution, or the depression. And it has at least partially been the result of major changes in the taxation of income and wealth that became necessary to pay off national debt. Other factors such as education, labor union strength, and social benefits play a role as well.
All of the above-mentioned factors rely on the political will to initiate changes to reduce inequality, a political will that is naturally weakened as more power and influence accrue to the wealthy.
The Pew survey found that 84% of respondents felt that taxes should be raised for the wealthy, including a surprising 65% of right-leaning ones. But only 14% felt that their taxes should be raised.
If these numbers are valid, then there is at least hope for some sort of future income and/or wealth tax that could impact economic inequality. But for this to happen there must be a much stronger groundswell of concern to overcome the reluctance of conservative legislators, who are probably part of that 16% that don’t believe in raising taxes on the wealthy (i.e. themselves).
We face a plethora of challenges in this world – climate change, immigration and refuge, regional and global conflicts, and political instability to name a few. Economic inequality is not generally at the top of that list for most people (the Pew survey says only 42% consider it a major priority), but to me it is a symptom of an increasingly sick society that will be less resilient in facing other crises. We neglect it at our peril.
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