Challenges Of Economic Inequality

It seems to me….

Economic inequality is a corrosive force that undermines economic growth, puts a brake on the fight against poverty, and sparks social unrest.” ~ Winnie Byanyima[1].

While limited societal inequality is necessary to serve as an incentive for pursuit of more challenging fields, the U.S. has the worst measure of equality of opportunity among all developed countries. While it prides itself on being the land of opportunity, numbers say otherwise[2]. And things appear to be getting worse partly resulting from forces such as technology and globalization, which seemingly beyond our control, actually are within our ability to significantly influence.

The economic gap between the wealthy and poor is severe and continues to grow impacting every aspect of human well-being from our personal health to the biosphere.

The U.S. has a child poverty rate considerably higher than in nearly all other comparable OECD nations in terms of per capita income. As many as 1.5 million families caring for three million children live on less than $2 of cash income a person per day. It is unfortunate that a young person’s prospects for future success can be best predicted by the zip code where they were born than by any other metric; one’s potential is more determined by the income and education of his or her parents than in almost any other advanced country.

Since the mid-1970s the rules of the economic game have been rewritten, both globally and nationally, in ways that advantage the rich and disadvantage everyone else. And they have been rewritten further in this perverse direction in the U.S. than in other developed countries.

The U.S. has long had a higher level of inequality than other nations but income differential has considerably widened in the past 40 years. Whereas the income share of the top 0.1 percent has more than quadrupled and that of the top 1 percent has almost doubled, that of the bottom 90 percent has declined. The ratio between a top CEO’s pay and the pay of a typical worker has increased from 30 to 1 in 1978 to 312 to 1 today. Without change, the wealthiest, who currently own 47 percent of the global wealth, will see their share rise to 64 percent by 2030.

Wages at the bottom, adjusted for inflation, are about the same as they were some 60 years ago. In fact, for those with a high school education or less, incomes have fallen over recent decades. Males have been particularly hard hit as the U.S. has moved away from manufacturing industries to a postindustrial services-based economy. Poorer people on average die 15 years younger than the rich and their overall life expectancy is declining.

In the U.S., the market power of large corporations, which was greater than in most other advanced countries to begin with, has increased even more than elsewhere. On the other hand, the market power of workers, which started out less than in most other advanced countries, has fallen further than in other countries. This is not only because of the shift to a service-sector economy, it is the result of the rigged rules of the game, rules set in a political system that is itself rigged through gerrymandering, voter suppression, and the influence of money. Political inequality has resulted in an increase in economic inequality as the rich use their political power to shape the rules of the game in ways that favor them such as by weakening antitrust laws and unions. A vicious spiral has formed: economic inequality translates into political inequality, which leads to rules that favor the wealthy, which in turn reinforces economic inequality.

Fundamental reforms to market capitalism are obviously necessary – reforms have become both a pragmatic and moral imperative to improve the lives of ordinary citizens. The ethical basis for capitalism is that it provides a better life for the majority of citizens. The impact of the current industrial revolution is likely to fall upon the weakest in the current economic order where insecurity meets inequality and society’s winners collide with declining work and reduced social cohesion.

Information technology has substantially changed what/how we do things directly affecting all of us to an extent difficult to envision just since the average person today was in college. Inequality has continued to increase partly as a result of the shift from a manufacturing to a service-based economy. In pure economic terms, the overall result has been increased income inequality primarily due to computerization and automation – and will be difficult to reverse.

Manufacturing automation eliminated about 8 million jobs just between 2000 and 2010 and artificial intelligence (AI) will potentially impact even greater numbers. AI is best understood as a general-purpose technology (GPT) similar to electricity or the steam engine capable of transforming every aspect of life.

The percentage of the U.S. population employed in agriculture in 1900 was 38 percent and 25 percent worked in factories. Today, only about 1.5 percent work in agriculture and 7.9 percent in manufacturing. These losses were absorbed by other sectors of the economy which only provided 24 million jobs in 1900 but has increased to about 150 million today. Given sufficient time, societies can adjust but the current speed and scale of change could exceed what people are willing to accept. A clear lesson of economic and political history is that society does not like uncertainty. The pace of societal change will continue to accelerate and society must prepare for those upcoming transformations.

The only way this will happen is if the state, corporations, and individuals work together to build a more flexible and enhanced support network providing lifelong education and training. Declining equality of opportunity stems in large part from the soaring cost of higher education coupled with spiraling economic inequality. It will be difficult for a government controlled by the wealthy and powerful to change but the alternative is increased populism and social unrest.

There is much that we can – and must – do to insure fairness to all, both rich and poor, living in our country.

Inequality, both social and economic, will not remedy itself but requires government intervention in the form of taxation along with wealth and income distribution. We need more progressive taxation and high-quality federally funded public education, including affordable access to universities for all qualified without incurring Sisyphean debt.

We need modern competition laws to deal with problems posed by 21st-century market power and stronger enforcement of the laws we now have. The U.S. government has failed to enforce meaningful antitrust and competition laws resulting in oligopolistic or even monopolistic concentration across numerous corporate categories.

We need corporate governance laws that curb exorbitant salaries bestowed on chief executives. Corporate profits have surged, wages have stagnated, and ordinary workers feel increasingly disenfranchised and alienated.

We need stronger financial regulations that will prevent banks from engaging in the exploitative practices that have become their hallmark. The mortgage system is an Achilles’ heel in need of overhaul. With such a large fraction of Americans living in cities, urban housing policies are needed ensuring affordable housing for all.

We need labor laws that protect workers and their rights to organize.

We need better enforcement of antidiscrimination laws. It is unconscionable that women and minorities get paid a mere fraction of that received by their white male counterparts.

We need more sensible inheritance laws that reduce the intergenerational transmission of advantage and disadvantage.

We need to guaranteed access to healthcare.

We need to strengthen and reform retirement programs which have put an increasing burden of risk management on workers (who are expected to manage their portfolios to guard simultaneously against the risks of inflation and market collapse) and exposing them to financial sector exploitation (which sells them products designed to maximize bank fees rather than retirement security). The basic perquisites of a middleclass life, including a secure old age, are no longer attainable for most Americans.

Economies with greater equality perform better, with higher growth, better average standards of living, and greater stability. Inequality in the extremes observed in the U.S. and in the manner generated actually damages the economy. The exploitation of market power and the variety of other distortions makes markets less efficient leading to underproduction of valuable goods such as basic research and overproduction of others such as exploitative financial products.

Change will not come easy – but the alternatives are unacceptable.

That’s what I think, what about you?

[1] Winifred Byanyima is a Ugandan aeronautical engineer, politician, and diplomat.

[2] Stigiltz, Joseph E. The American Economy Is Rigged, Scientific American,, November 2018, pp 57-61.

About lewbornmann

Lewis J. Bornmann has his doctorate in Computer Science. He became a volunteer for the American Red Cross following his retirement from teaching Computer Science, Mathematics, and Information Systems, at Mesa State College in Grand Junction, CO. He previously was on the staff at the University of Wisconsin-Madison campus, Stanford University, and several other universities. Dr. Bornmann has provided emergency assistance in areas devastated by hurricanes, floods, and wildfires. He has responded to emergencies on local Disaster Action Teams (DAT), assisted with Services to Armed Forces (SAF), and taught Disaster Services classes and Health & Safety classes. He and his wife, Barb, are certified operators of the American Red Cross Emergency Communications Response Vehicle (ECRV), a self-contained unit capable of providing satellite-based communications and technology-related assistance at disaster sites. He served on the governing board of a large international professional organization (ACM), was chair of a committee overseeing several hundred worldwide volunteer chapters, helped organize large international conferences, served on numerous technical committees, and presented technical papers at numerous symposiums and conferences. He has numerous Who’s Who citations for his technical and professional contributions and many years of management experience with major corporations including General Electric, Boeing, and as an independent contractor. He was a principal contributor on numerous large technology-related development projects, including having written the Systems Concepts for NASA’s largest supercomputing system at the Ames Research Center in Silicon Valley. With over 40 years of experience in scientific and commercial computer systems management and development, he worked on a wide variety of computer-related systems from small single embedded microprocessor based applications to some of the largest distributed heterogeneous supercomputing systems ever planned.
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