Growing Income Inequality

[Garshasp]

What explains the recent radical increase in income inequality in America and the West over the past few generations? Why is the middle class shrinking so rapidly? Why is the upper class becoming so superrich? Why does the upper 2% own the majority of the private wealth in America? What is the standard and accepted Objectivist explanation for all of this?    

 

My reading of history indicates that ever since the advent of the nation-state 5000 years ago, about 95% of the populace has been lower class peasants, with maybe 3% middle class tradesmen and skilled laborers, and maybe 2% upper class political and religious leaders who mostly got their money via economic monopoly, inheritance, land seizure, general theft, dictatorship, etc. But once freedom, capitalism, and the Industrial Revolution began in the mid-1700s, the middle class burgeoned in Western Civiliation. Wealth accumulated and grew radically in the middle class for two centuries -- seemingly a social good. (But is it?) And yet, starting in about the 1960s, wealth began to accumulate in the upper class, while the absolute size of the middle class shrank from maybe 80% to 65%, and while the relative wealth of the middle class also declined. The lower class also increased in size, and their relative share of the national wealth also declined.

 

Now, this is a quick summary of Western economics, but I think I'm being fair and accurate. (If not, someone please correct me!) So...

 

Why is all this happening? Why is this new social evil upon us (if it is, based on Thomas Sowell's "cosmic justice") which is so inimical to freedom, and which lends itself so well to pro-Big Brother rhetoric and ideology? Why is the standard nonsensical socialist/communist claim of "the rich are getting richer and the poor are getting poorer" suddenly true? Clearly this has something to do with the radical expansion of the welfare state from WWI to the 1960s. But what is the detailed and insightful explanation for this? What is the current best libertarian or Objectivist explanation for it? 

[Reidy]

Two questions fairly leap to mind:

- What evidence have you got?

- What's wrong with inequality?

 

Claims like yours were popular during the Reagan era, most of them tracing back to the now-forgotten Kevin Phillips.  When people took a closer look, they found that it was mostly dubious statistical methods: ignoring social mobility; conflating household with individual incomes, so that two-income households will almost always have more money than single people; timing the measures to make temporary situations look permanent.  And so on et cetera.  One has to approach such claims more cautiously than you evidently do.  Once you get past the statistical sandbagging, according to sources I don't have at hand, the world has seen some real growth in inequality because more of the world's wealth has been tied up in technology and in the skills of the people who know how to use it and who have consequently become wealthier.  Some of the growth in the gap has come from wealth transfers to government.  A case in point is the well-publicized finding that five of the ten wealthiest counties in the US are within commuting distance of Washington DC.

 

The first place a libertarian/Objectivist would look for an explanation to growing inequality is in the possibility, mentioned above, that some people have become more productive.  His reaction might be "That's evidence that the world is becoming wealthier.  This is good news, but I'm more interested in seeing more wealth and more opportunity than I am in equality."

 

(By the way, we have evidence that inequality has grown during the Obama years.)

Edited April 14, 2013 by Reidy

[Harrison Danneskjold]

I don't know if the income inequality is actually growing or not; I haven't given it the slightest thought.

You're asking why the rich are getting richer and the poor are getting poorer, with the implicit assumption that such would be inherently bad.  But is it?

 

Don't look at it from a societal perspective; remember that every society is only a group of individuals.

If an individual works hard, invests wisely or invents something which has never existed before, they will profit accordingly.  (and rightfully)  If an individual sits around the house all day doing nothing, never creates or improves anything and squanders their meager paychecks, their poverty will be their own doing.

Under lassiez-faire capitalism that's how it would work, and everyone's wealth or poverty would be a direct result of their own virtues or vices.  That's still mainly how it works today, except that the government has decided to tax the wealthy into oblivion and redistribute their money.

 

Redistribute- to whom?  To the needy; to those who have no desire to support themselves and who despise the sources of their sustenance.  To green energy, to hostile countries, to every subsidized businessman with certain friends in Washington and to every collectivist artist who demands that his scribbles be funded by everyone, at large.

 

So it doesn't matter how many Americans are rich and how many are poor (although I would point out that the American concept of "poor" is exceptionally misleading).  But there are very evil, greedy examples of the wealthy; George Soros, for one.

[Nicky]

The poor aren't growing poorer in the West, that is pretty clear. But if they and the middle class are accumulating wealth at a slower pace than the rich, then that is a logical conclusion of welfare and entitlements, as well as the failure of the public school system.

Welfare and entitlements take wealth away, but they DO NOT create wealthy people. Even a welfare and big government advocate would have to admit that the government doesn't and isn't intended to make the recipients of its handouts rich. With the exception of one entitlement program, their efforts are mostly aimed at keeping people comfortable in their poverty.

Which brings us to the one exception statists cite as a cause for economic growth and socio-economic mobility: public education. This is the program that has failed most spectacularly. Instead of allowing the private sector to educate their own workforce on the basis of merit (as a capitalist system, be it for profit companies or charitable organizations, no doubt would), the government has chosen to tie up every capable young person in America, except for the very rich, for 12 long years in a system that aggressively refuses to so much as acknowledge merit, let alone reward it with extra attention and resources.

[Bogdan]

I probably shouldn't say anything about this since I really have not information to go on....

 

So here it goes. It's difficult to define rich and poor, and those who do define them usually have hidden agendas. The lines of separation between classes are also unclear and shift according to the point to be proven. I am sure statistics have also a lot to do with this. Here are a few examples starting with a base year in which a rich guy makes $1 million and a poor guy makes $10000 and next year the rich guy gets richer by more than the poor guy.

- Next year they make $2 million and $20000. The poor guy is poorer only relatively, in fact he is richer.

- Next year they make $1.1 million and $15000. The poor guy is 50% better off, while the rich guy is only 10% better off.

 

Since you mentioned Thomas Sowell, you probably read this argument in one of his books (quite possible "Cosmic Justice"): To say that the poor are getting poorer and the rich richer is like the guy in that joke where a friend of his says "In New York a pedestrian is hit by a car every 12 minutes" to which he replies "Poor pedestrian! He must look awful". Which is to say that the 'rich' and 'poor' are almost never the same people throughout the years. Most of the poor move to the middle class and some of those in the middle class become rich. Some of the rich die, and the new people in the poor class are usually the young who finish school and have lots of debt and immigrants looking for a better life.