The Insecurity of Inequality


April 12, 2017

The Insecurity of Inequality

by Kaushik Basu

https://www.project-syndicate.org/commentary/rising-inequality-globalization-by-kaushik-basu-2017-04

Image result for kaushik basuKasuhik Basu

“In our globalized world, inequality cannot be left to markets and local communities to solve any more than climate change can. As the consequences of rising domestic inequality feed through to geopolitics, eroding stability, the need to devise new rules, re-distribution systems, and even global agreements is no longer a matter of morals; increasingly, it is a matter of survival”.–Kaushik Basu

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Image result for Income Inequality and Social Stability

Global inequality today is at a level last seen in the late nineteenth century – and it is continuing to rise. With it has come a surging sense of disenfranchisement that has fueled alienation and anger, and even bred nationalism and xenophobia. As people struggle to hold on to their shrinking share of the pie, their anxiety has created a political opening for opportunistic populists, shaking the world order in the process.

The gap between rich and poor nowadays is mind-boggling. Oxfam has observed that the world’s eight richest people now own as much wealth as the poorest 3.6 billion. As US Senator Bernie Sanders recently pointed out, the Walton family, which owns Walmart, now owns more wealth than the bottom 42% of the US population.

I can offer my own jarring comparison. Using Credit Suisse’s wealth database, I found that the total wealth of the world’s three richest people exceeds that of all the people in three countries – Angola, Burkina Faso, and the Democratic Republic of Congo – which together have a population of 122 million.

To be sure, great progress on reducing extreme poverty – defined as consumption of less than $1.90 per day – has been achieved in recent decades. In 1981, 42% of the world’s population lived in extreme poverty. By 2013 – the last year for which we have comprehensive data – that share had dropped to below 11%. Piecemeal evidence suggests that extreme poverty now stands just above 9%.

That is certainly something to celebrate. But our work is far from finished. And, contrary to popular belief, that work must not be confined to the developing world.

Image result for The Myth of Poverty

As Angus Deaton recently pointed out, extreme poverty remains a serious problem in rich countries, too. “Several million Americans – black, white, and Hispanic – now live in households with per capita income of less than $2 per day,” he points out. Given the much higher cost of living (including shelter), he notes, such an income can pose an even greater challenge in a country like the US than it does in, say, India.

This constraint is apparent in New York City, where the number of known homeless people has risen from 31,000 in 2002 to 63,000 today. (The true figure, including those who have never used shelters, is about 5% higher.) This trend has coincided with a steep rise in the price of housing: over the last decade, rents have been rising more than three times as fast as wages.

Image result for Poverty and Income Inequality

There’s Poverty and  Increasing Income Inequality in America too–A Failure of Market Economics

Ironically, the wealthy pay less, per unit, for many goods and services. A stark example is flying. Thanks to frequent flier programs, wealthy travelers pay less for each mile they fly. While this makes sense for airlines, which want to foster loyalty among frequent fliers, it represents yet another way in which wealth is rewarded in the marketplace.

This phenomenon is also apparent in poor economies. A study of Indian villages showed that the poor face systematic price discrimination, exacerbating inequality. In fact, correcting for differences in prices paid by the rich and the poor improves the Gini coefficient (a common measure of inequality) by 12-23%.

The better off also get a whole host of goods for free. To name one seemingly trivial example, I can’t remember when I last bought a pen. They often simply appear on my desk, unintentionally left behind by people who stopped by my office. They vanish just as often, as people inadvertently pick them up. The late Khushwant Singh, a renowned Indian journalist, once said that he attended conferences only to stock up on pens and paper.

A non-trivial example is taxation. Rather than paying the most in taxes, the wealthiest people are often able to take advantage of loopholes and deductions that are not available to those earning less. Without having to break any rules, the wealthy receive what amount to subsidies, which would have a far larger positive impact if they were allocated to the poorest people.

Beyond these concrete inequities, there are less obvious – but equally damaging – imbalances. In any situation where, legally, one’s rights are not enforced or even specified, the outcome will probably depend on custom, which is heavily skewed in favor of the rich. Wealthy citizens can not only vote; they can influence elections through donations and other means. In this sense, excessive wealth inequality can undermine democracy.

Of course, in any well-run economy, a certain amount of inequality is inevitable and even needed, to create incentives and power the economy. But, nowadays, disparities of income and wealth have become so extreme and entrenched that they cross generations, with family wealth and inheritance having a far greater impact on one’s economic prospects than talent and hard work. And it works both ways: just as children from wealthy families are significantly more likely to be wealthy in adulthood, children of, say, former child laborers are more likely to work during their childhood.

None of this is any individual’s fault. Many wealthy citizens have contributed to society and played by the rules. The problem is that the rules are often skewed in their favor. In other words, income inequality stems from systemic flaws.

In our globalized world, inequality cannot be left to markets and local communities to solve any more than climate change can. As the consequences of rising domestic inequality feed through to geopolitics, eroding stability, the need to devise new rules, re-distribution systems, and even global agreements is no longer a matter of morals; increasingly, it is a matter of survival.

10 thoughts on “The Insecurity of Inequality

  1. We have perhaps won the fight against abject poverty. Relative poverty remains. But the issue is what to do with inequality without destroying the incentive to work. Maybe economics does not have the answer, although economists are too arrogant to admit that. Can someone to come to their defence? Maybe LaMoy, CLF, Conrad, Wayne, Bigjoe. et.al can respond to my comment.–Din Merican

  2. Din, it’s too difficult, nay – impossible to promulgate answers to a situation that has existed since civilization began. It’s nothing new. The poor we will always have with us. Humanity is beyond redemption and what we need are solutions that start at the base of Fundamental Human Needs.

    Perhaps this vid might help, but because of it’s length, i let the viewers outta this space:
    .https://www.youtube.com/watch?v=5fbvquHSPJU

  3. The article seems to imply that having the World’s wealth in the sole possession of only a tiny percentage of humans is a bad thing.

    Why is it a bad thing?

    Unfair, unjust, unethical, unnatural?

    In ancient China, since 1000 B.C.E., the merchants, (our present businessmen, entrepreneurs, etc,), the class of people that generated a large proportion of economic wealth, then and now, and employ and give a means of living to the most number of people were placed at the bottom of the social or socially acceptable hierarchy.

    At the top are the scholars, (poets, the literati), in other words the dreamers who generated no wealth, (if you discount sales of their works), and employed practically no one.

    Why?, when the Chinese have been known to place profit from business above all else? Shouldn’t the poets, literati, the unproductive consumers of wealth be despised?

    Perhaps the ancient Chinese had considered making money, accumulating wealth, by fair means or foul, as something unsavory, ungentlemanly, unclean even? Yet, the Chinese, ancient or modern, have been held up as exemplary models of business acumen, second only or equal to the Jews who were equally despised precisely because of their money-making abilities.

    In the modern context we all know what Karl Marx thought of capitalists.

    And then we have someone who said that if all the money in the World is distributed equally among all human beings at 7 a.m., by Noon, many would have lose all of theirs, some would have half left, while a small number would have doubled, or even tripled their money.

    And some believe that how much money you have throughout your whole life, like the total number of years you live, is foreordained and therefore fixed. Try as you might, you won’t get a cent more. This, there say, accounts for people going bankrupt after striking a large lottery.

    So ranting about it like the article is getting us nowhere. Just as we have to accept that not all humans beings are created equal, inspite of the American founding fathers’, should I say, naive belief, we have to accept that some people are just better, or luckier, when it comes to money or the making of it and most importantly retaining it.

    All we can do, as a society, as a global family, is fundamentally to tax the rich and help the poor. You cannot make the poor rich or intentionally impoverish the rich, or silliest of all make everyone equally rich.

    • “…we have to accept that not all humans beings are created equal, inspite of the American founding fathers’, should I say, naive belief, we have to accept that some people are just better, or luckier, when it comes to money or the making of it and most importantly retaining it….”

      I basically agree with what you’re saying. But you’ve picked the words of the American founding fathers out of context. The context is: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness.”

      “All men are created equal” because we “are endowed with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness.” These words are certainly no “naive belief”. The American founding fathers never said how one should pursue his happiness nor discounted that we all are born with unequal talents and abilities.

      I agree with you that economic inequality and income insecurity will always exist because we are different in intelligence, abilities, talents, skills … even physically. Given the same opportunity not every one has the ability to study for a PhD degree, in any field. And given the same ability not every one wants to study for a PhD degree.

      Din has noted that abject poverty is, perhaps, under controlled. In fact, World Bank has recently reported that world poverty has reduced to 10%, mainly due to the great efforts of China and India. In China alone, from 1990s to 2016, has brought 800 million people out of poverty. It is interesting to note that India is democratic and China is authoritative, proving that eradication of poverty has nothing to do with the political system of government. It’s the political will of a government that is most important.

      A good government is one that creates an environment of social mobility and the opportunity for the disadvantage groups to better their lives. A progressive tax system by taxing the rich more, as you noted, is one way of doing that. I certainly have no qualm to contribute more if it helps the poor and the low income people. Affirmative action is another, but certainly not the type in Malaysia which only target a specific race by handing out freebies to breed lazy parasites. I believe in creating jobs for the poor and the disadvantage communities, disregard of their race. I’ve never agreed with Modi in many things, but I agree with him when he said: “Hard working people know better than Harvard economists.”

      One last thing, I don’t see insecurity in and by itself a necessary bad thing. It could be a motivational force to drive one to learn new knowledge and new skills unless, of course, if you were a plain lazy person. But a government must provide the availability and the facilities for those who want to learn and better themselves.

  4. “But the issue is what to do with inequality without destroying the incentive to work.”

    Mr.Merican I think this is the most obvious canard peddled by the likes of people like Sowell – who btw was someone I was enamoured with in my younger days – to dismiss the underlying causes of different types of inequality that societies face.

    The reality is that disenfranchised communities from working class people to undocumented peoples work harder than your average “class” of people who define themselves as the middle class and demand that their class gets the lion share of coverage from the democratic process and of course the wealthy class who benefit from the inequalities that exist in societies.

    Indeed it is the rich class of people who have no incentive to work and whose only interest is growing and maintaining their fortunes using the skills and labour of classes of people who in their own way are exploited by the system which is there to maintain specific interests in the name of the state.

    While certain so called progressive solutions to wealth redistribution is problematic, the reality is that the State does not function as an impartial arbiter. What it does do is play off one class against the other in a rigged game that ensures that a very specific type of capitalism endures.

    Meanwhile institutions like banks and the other kinds of financial pirates demand deregulation so that they can go on conning people and be except from laws that are applicable to the numerous “low level” commercial crimes that other criminals engage in.

    The difference is that these criminals do not ply their trade in places like Wall Street and have access to lobbying firms and lawyers who in most cases define the law and legal language in the Capitol.

    Meanwhile mainstream politicians on the Right and Left of the political spectrum offer bread and circuses to their bases in lieu of any real ideas based on their ideologies because if anything the system is apolitical and is sustained by the inequalities that are perpetrated by its minions.

  5. What is presented by Kaushik Basu, an intellectual, is not complete if it is not checked with equal-counterweight intellectuals such as Thomas Sowell:

    Personal Responsibility

    • Personal Responsibility from people who demand bailouts and whose creed is too big to fail ?

      Right Wing types always define demands for equality as abdications of personal responsibility while going on about imperfect systems as though they were simple glitches instead of systemic black holes.

      Trump for instance is proud that he gets to maintain his wealth by declaring bankruptcy whereas the same does not apply to Joe Stupid Average who voted for him.

      Who really needs a counter weight when you got ignorance.

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