Some inequality is good, but history has shown that too much is bad. The present oligarchy of super wealth will profoundly alter our course of history and mankind.
Resolving this dilemma
is almost impossible. As the 17th century theologian Jacques-Benigne Bossuet said: “God laughs at men who complain of the consequences while cherishing the causes.”
The emergence and apparent permanence of economic inequality and how government intervention can deal with it are the two most important economic and political issues in capitalist societies. The rise and affirmation of political outsiders Bernie Sanders and Donald Trump show that their ideas are not only popular, but translate into votes.
The turbulent seas of American politics reflect a bewildered nation historically caught somewhere in between the New Deal and quantitative easing.
They now flourish as they give voice to growing concerns that not only is there an inequality problem, but that the problem with capitalism lies with politicians who are unable and unwilling to take the necessary steps to reset the system. Politics is unlikely to resolve it completely.
Inequality is not simply the result of politics or the wealthy colluding with politicians. The reasons for its prevalence are more pernicious than generally recognised. Capitalist activity yields inequality as both an intended and unintended outcome. Reforms that create equality of opportunity only worsen it. Some individuals and communities are better suited for the development and advancement that capitalism affords.
According to a University of California, Berkeley study, in 1915, the richest 1 per cent of Americans earned about 18 per cent of all national income. Their share declined significantly in the 1930s due to the Great Depression. It remained below 10 per cent through the 1970s, but by 2007, it had risen to 24 per cent. In 2011, the top 1 per cent of US households controlled 40 per cent of the America’s entire wealth. The US case reflects similar circumstances all over the world.
Despite what some of the wealthy believe, inequality represents a threat to all society, not just those who are poor or doing poorly. If left unaddressed, economic insecurity can disrupt social order. Moreover, the influence of the financial over the real economy is a direct result of the growing consolidation of technological and political power into an elite group.
There was a time when bankers were paid no more than doctors, accountants and lawyers. That began to change in the 1980s. Before the 2008 crash, bank executives were paid salaries equivalent to being business partners without taking any commensurate risk. Financial conduct reforms are still trying to rectify this lopsided situation.
Never before has wealth been so polarised. The 21st century has become the most unequal era in human history. Soaring inequality actually represents a financial opportunity to make money from the rest of us. Government policies have ensured that most of us are in some sort of debt, whether it be credit cards or being anchored to an onerous mortgage on overpriced property. This inequality wasn’t an accident. It was a natural conspiracy inherent in the forces of out-of-control or unbalanced capitalism.
Coincidentally, the two world wars and the Great Depression compelled governments to develop policies like the New Deal that redistributed income. Then, the post-war decades allowed rapid economic and financial developments to concentrate the power under the super wealthy. So now we are left with three classes: the haves, have nots and the have yachts.
The closest recent shock we experienced – the 2008 financial crisis – should have compelled another historical round of wealth redistribution. But, the benefits of quantitative easing weren’t properly directed at average people or small businesses. Rather, large corporations and financial institutions- and their senior management immensely profited from artificially low interest rates.
The post-war certainties of rising employment, increasing incomes and growing prosperity are long gone. By the 2000s our society was unrecognisable from the 1970s. Lifetime employment was derided and now is virtually extinct. Now we have a world without social safety nets, no minimum wages. Then, what do people need governments for?
If we refuse to allow inequality to spin the world out of control, society must cherish its lifelines into the past. Wealth and technology may have changed our society, but memory and tradition should be its foundation.
Peter Guy is a financial writer and former international banker