The Great Inequality
eBook - ePub

The Great Inequality

Michael D Yates

Share book
  1. 200 pages
  2. English
  3. ePUB (mobile friendly)
  4. Available on iOS & Android
eBook - ePub

The Great Inequality

Michael D Yates

Book details
Book preview
Table of contents
Citations

About This Book

A growing inequality in income and wealth marks modern capitalism, and it negatively affects nearly every aspect of our lives, especially those of the working class. It is and will continue to be the central issue of politics in almost every nation on earth. In this book, the author explains inequality in clear, passionate, and intelligent prose: what it is, why it matters, how it affects us, what its underlying causes are, and what we might do about it. This book was written to encourage informed radical action by working people, the unemployed, and the poor, uniquely blending the author's own experiences with his ability to make complex issues comprehensible to a mass audience. This book will be excellent for courses in a variety of disciplines, and it will be useful to activists and the general reading public.

Frequently asked questions

How do I cancel my subscription?
Simply head over to the account section in settings and click on “Cancel Subscription” - it’s as simple as that. After you cancel, your membership will stay active for the remainder of the time you’ve paid for. Learn more here.
Can/how do I download books?
At the moment all of our mobile-responsive ePub books are available to download via the app. Most of our PDFs are also available to download and we're working on making the final remaining ones downloadable now. Learn more here.
What is the difference between the pricing plans?
Both plans give you full access to the library and all of Perlego’s features. The only differences are the price and subscription period: With the annual plan you’ll save around 30% compared to 12 months on the monthly plan.
What is Perlego?
We are an online textbook subscription service, where you can get access to an entire online library for less than the price of a single book per month. With over 1 million books across 1000+ topics, we’ve got you covered! Learn more here.
Do you support text-to-speech?
Look out for the read-aloud symbol on your next book to see if you can listen to it. The read-aloud tool reads text aloud for you, highlighting the text as it is being read. You can pause it, speed it up and slow it down. Learn more here.
Is The Great Inequality an online PDF/ePUB?
Yes, you can access The Great Inequality by Michael D Yates in PDF and/or ePUB format, as well as other popular books in Sozialwissenschaften & Soziale Klassen & wirtschaftliche Ungleichheit. We have over one million books available in our catalogue for you to explore.

Information

1
Inequality Casts a Long Shadow

A new park will soon be constructed along the shore of the Hudson River in Manhattan. Financed in large part by the billionaire couple Barry Diller and Diane von Furstenberg, who will contribute $130 million, it will be built on stilts above the water. It will feature “amphitheaters, footpaths, gardens,” a perfect place, Ms. Furstensberg said to “rest, watch a sunset or performance.”1 Given that the park is adjacent to a gentrifying neighborhood, with sky-high rents, expensive restaurants, and hordes of well-heeled tourists, we can reasonably assume that not many poor city residents will use it for family outings or exercise. It will be one more haven for those at the top of the income and wealth distributions in a city that has become a playground for the super-rich, with one of the largest gaps in the nation between its most and least prosperous citizens. Meanwhile, parks in poorer areas languish from neglect. No wealthy donors revitalize either these or the neighborhoods surrounding them.2
The Diller-Furstenberg park is not an anomaly in New York City or in the country as a whole. Central Park is now maintained and aggrandized largely with private money, managed by a private nonprofit organization. Philadelphia, Tulsa, Houston, Pittsburgh, are all reliant on the largesse of the 1 percent for parks and the development of public spaces.3 These are just one more example of the growing tendency in the United States and in most capitalist countries to privatize what were once public functions, subject at least minimally to democratic control. Public officials at all levels of government almost universally have applauded this development, pointing out that the strain on public finances has never been greater. They say that there is not enough money to pay for a host of what used to be public services, everything from parks to schools to hospitals. So we have no choice but to depend upon the generosity of those with the cash, and we should be grateful that they and their allies—Bill Gates and his billionaire brethren—are so civic-minded. Where would we be without them? Just as we would have missed out on all those great libraries without the philanthropy of Andrew Carnegie, we won’t have places to play, good healthcare, or decent schools without the munificence of today’s tycoons.
When I was a college teacher, I began to tell my students in the early 1980s that we were witnessing the beginning of a rise in inequality not seen since the 1920s. Every year I would show them charts illustrating the change in the distributions of income and wealth. The share of income going to the top 5 percent of income recipients grew nearly every year, and the wealth share grew steadily as well. I explained how the two distributions interacted to further increase inequality. A household with high income—the yearly sum of its wages, salaries, bonuses, dividends, interest, rents, profits from unincorporated businesses, and government transfer payments such as social security and subsidies to farmers—probably could not spend all of it. The remainder, the household’s savings, would be used to purchase assets, such as stocks, bonds, real estate, precious metals, and works of art. These assets are what we mean by wealth. Most of them will generate income, either in the form of regular payments like dividends from stock or as capital gains when assets are sold at a price higher than that at which they were purchased. In this way, the household’s income grows just because its wealth has risen. Those with low incomes will not be able to acquire assets and will not see their wealth rise. The more unequal incomes, the more unequal wealth will become.
If we begin with wealth, we get the same result. The Diller-von Furstenberg household has wealth of about $3.5 billion.4 Let’s suppose that the assets comprising their wealth yield a yearly return of 5 percent. Their household income will rise by $175 million simply because they own income-producing possessions. If we add this income to their yearly salaries and bonuses, we see that their total income is enormous. They won’t spend all of it, and therefore their wealth will grow. And on and on it will go. The rich will get richer, and the separation of them from the rest of us will widen. This will have nothing to do with how productive people are or what their contributions to society might be. I used to give my students an example of what I mean here. At one time Bill Gates had wealth of about $100 billion. Ignoring for the moment how he came to hold so much treasure, and assuming that he too received a 5 percent return, what would happen to his yearly income from his wealth if he were suddenly to go into a coma. He would continue to collect $5 billion year in and year out with no effort at all. No one can spend this much money every year, not even the most profligate of his caretakers, so Gates’ wealth would automatically expand. Those without wealth will get no income from it, and again the gap between rich and poor becomes larger.
What is more, inequality will be maintained across generations. My parents died with almost no assets. What little there was had to be split five ways, giving but a tiny boost to my wealth and almost none to my future income. I was retired when my mother died, but had I been working, I could not have quit because my inheritance was large. Bill and Melinda Gates’ children, on the other hand, will get such an enormous inheritance that they will never have to work again, and they will find that their wealth grows almost no matter what they do.
As we shall see throughout this book, mainstream economists have long served as apologists for rising inequality, either downplaying its severity or denying that it has adverse social consequences. One ingenious device is the concept of “human capital,” first developed in the 1960s.5 Working people could raise their productivity and their wages, with the latter depending on the former, by “investing” in themselves, mainly by securing more schooling and training. When they did this, they would increase their human capital. This reasoning implies that laborers and capitalists do the same thing. Workers buy additions to their human capital and get a return in the form of higher earnings. Capitalists buy more capital, in the form of financial instruments that give them ownership of various kinds of property, and they get a return in the form of dividends, rent, interest, and profits. Both groups are in reality capitalists.
Unfortunately for the economists’ theorizing, the analog breaks down because of a simple fact. Real property can be alienated from its owner, through a sale in the marketplace. Human capital cannot be separated from its owners; they must go with it because it is embodied in them. And when they die, their human capital perishes too. It cannot be willed to the children of those who made the investment. Given that most workers have little or no property, their offspring will have to work, just as their parents did. The more wealth accruing to a small minority, the greater the divide between workers and capitalists will be. Not only will the gap between rich and poor households grow, but that between the two great classes of persons in capitalist society will increase as well.
Once I provided my students with the data on income and wealth distribution and showed them how inequality had widened and once it did, why it would continue to increase, I made a prediction. I said that inequality would be the future’s most important political issue. A good case can be made that I was right. The Occupy movement, the Arab Spring, the revolt in Syria against the Assad government, protests in Turkey, the burgeoning labor movement in China, the rise of Syriza in Greece have all been rooted in the unconscionable divide between the haves and have nots. And surely the incredible success of a 696-page, complex economic analysis of inequality, Thomas Piketty’s Capital in the Twenty-First Century, indicates that this subject has come of age.6 Given that, as shall become evident in Chapter 2, the conditions that gave rise to the “Great Inequality” have not abated and are, in fact, growing stronger, there is no doubt that inequality will inform all politics for the foreseeable future. If this is true, then an interrogation of inequality, in all of its many dimensions, will serve a useful purpose, informing readers and providing them with some ideas as to how we can create a more egalitarian society.
Before we sketch the consequences and causes of inequality, let us consider the view of most neoclassical (mainstream) economists that inequality does not matter. Harvard professor Martin Feldstein, who served under President Ronald Reagan as chairman of the Council of Economic Advisors, said in 2001, “Why there has been increasing inequality in this country is one of the big puzzles in our field and has absorbed a lot of intellectual effort.” But he was unconcerned, suggesting that the effort has been wasted. “But if you ask me whether we should worry about the fact that some people on Wall Street and basketball players are making a lot of money, I say no.”7
Economists like Feldstein conceptualize the economy as consisting of independent individuals who, faced with certain constraints, make decisions aimed at maximizing their well-being. Those who want higher incomes and wealth will make the appropriate investments in their human capital, and the increased productivity that results will automatically, through the market forces of demand and supply, raise their incomes. Then, if they choose to save some of this income, their wealth will grow as well. Those who fail to make human capital investments or to save their money will naturally fall behind those who do the opposite. Everything is a matter of choice, meaning that inequality is chosen by the participants in the marketplace. Some economists admit that the constraints people face are themselves unequal, but in this case, we must vote to elect officials who will enact public policies that remove such impediments to improvement.
Economists further argue that inequality is a socially good thing. They take the view of my paternal grandfather, an ardent conservative, who asked what incentive would there be for anyone to improve himself if we all had the same incomes. For him, as for the economists, human wants are unlimited, and we are all striving mightily, day and night, to satisfy as many of these insatiable desires as possible. We need incentives to work hard to do so, however, and what would be the point of working if everyone’s incomes were equal. Inequality keeps our noses to the grindstone. What is more, our efforts to improve our own circumstances benefit society as a whole by augmenting the nation’s aggregate output of goods and services, as well as the national income. A growing economy offers the only hope for the political alleviation of problems that the market cannot solve, even inequality itself, should it get so high that those at the bottom are demoralized. A stagnant economy, on the other hand, is bad for all of us. To put this another way, whatever individual and social difficulties inequality might entail, these are outweighed by the deleterious personal and societal impact of the low economic growth guaranteed by focusing too much on equality.
While this book examines the causes and consequences of inequality, it is also a sustained attack on the mainstream analysis of inequality, both its theory and its conclusions about inequality’s consequences.8 The chapters to follow afford detailed treatments, so here let me offer some prefatory remarks. First, inequality has little to do with individual choice or work incentives. If you are born into a poor family, you will inherit nothing; if your parents are rich, you very likely will be too. Your choices have nothing to do with this. And neoclassical economists seldom give much attention to the constraints we face and the fact that neither can these be overcome for most of us nor can public policies equalize them. If I have to borrow money to attend college and you do not, you will have a great advantage in terms of earning a high wage and accumulating wealth. I may not go to school if I have to borrow, and within the mainstream framework, this might be a rational choice. If the government provides me with a scholarship, this will not count for much if your parents’ wealth has won them important connections that you can use to your labor market advantage. As for work incentives, we only have to look at past time periods in the United States or compare the United States to other countries to see that lower levels of inequality have neither made us lazier nor reduced the rate of economic growth.9
Inequality has its roots in unequal power. Those with more assets have more power than those who do not; that is, they can compel us to do what we would be unlikely to do otherwise. Here I do not mean the power of any particular person, although in a specific circumstance, this might be important. Critical is what is best-called class power. Most of us must work for wages to live. If we do not have employment, our lives will be difficult in every imaginable way, as anyone who has suffered an extended bout of unemployment knows. Unfortunately, we do not control our access to employment; we are at the mercy of our employers. They have power over us, and there are many things we might do at their command rather than lose our jobs. We might accept pay cuts, work long hours, tolerate irregular shifts, endure unhealthy working conditions, and worse. Our employers are, for the most part, those who have the lion’s share of society’s assets and sit on the highest steps of the income and wealth ladders. Their power depends on our lack of wealth, so they will use theirs to exert control over us. As we will see, their wealth and income depends on our labor. But these things are embedded in the business entities they own. It is through these, through the corporations and other businesses that employ us, that the wealthy exert power. They work ceaselessly to organize businesses in such a way that their workers cannot easily wield a countervailing power. Even if employees organize together to confront their bosses, they will be confronted by the reality that employers have wealth enough to outlast them in any struggle. If they manage to defeat their adversary in a battle, they sooner or later will become victims of managerial control, replaced by machines or workers in another country when plants are closed and work is outsourced. In this way, a reserve army of labor is created and continuously replenished—enlarged greatly whenever the economy is struck by the recessions and depressions that have plagued capitalist economies almost from their birth—threatening those who have jobs with competition for the ability to earn a living.
There is an entire panoply of institutions that buttress the power and hence the monetary resources of the 1 percent. These include the government, the legal system, the media, the schools, and religion. All of these combine to form a culture and a way of looking at the world, what we might call an ideology, that tells us that what we have is good, that our society is the best on earth, the apex of human creation. That the inequality to...

Table of contents