The Consequences of Inequality Can Be Fatal

Yves here. So many of health costs of inequality are obvious, yet most people seem trained to look past them. And Congress fiddles about a new stimulus package, with the odds of getting it back on track soon not looking very good, while Americans have rent and mortgage payments looming.

By Richard D. Wolff, professor of economics emeritus at the University of Massachusetts, Amherst, and a visiting professor in the Graduate Program in International Affairs of the New School University, in New York. Wolff’s weekly show, “Economic Update,” is syndicated by more than 100 radio stations and goes to 55 million TV receivers via Free Speech TV. His two recent books with Democracy at Work are Understanding Marxism and Understanding Socialism, both available at democracyatwork.info. Produced by Economy for All, a project of the Independent Media Institute

Capitalism, as Thomas Piketty’s Capital in the Twenty-First Century shows, relentlessly worsens wealth and income inequalities. That inherent tendency is only occasionally stopped or reversed when masses of people rise up against it. That happened, for example, in western Europe and the U.S. during the 1930s Great Depression. It prompted social democracy in Europe and the New Deal in the United States. So far in capitalism’s history, however, stoppages or reversals around the world proved temporary. The last half-century witnessed a neoliberal reaction that rolled back both European social democracy and the New Deal. Capitalism has always managed to resume its tendential movement toward greater inequality.

Among the consequences of a system with such a tendency, many are awful. We are living through one now as the COVID-19 pandemic, inadequately contained by the U.S. system, savages Americans of middle and lower incomes and wealth markedly more than the rich. The rich buy better health care and diets, second homes away from crowded cities, better connections to get government bailouts, and so on. Many of the poor are homeless. Tasteless advice to “shelter at home” is, for them, absurd. Low-income people are often crowded into the kinds of dense housing and dense working conditions that facilitate infection. Poor residents of low-cost nursing homes die disproportionally, as do prison inmates (mostly poor). Pandemic capitalism distributes death in inverse proportion to wealth and income.

Social distancing has destroyed especially low-wage service sector jobs. Rarely did top executives lose their positions, and when they did, they found others. The result is a widened gap between high salaries for some and low or no wages for many. Unemployment invites employers to lower wages for the still employed because they can. Pandemic capitalism has provoked a massive increase in money-creation by central banks. That money fuels rising stock markets and thereby enriches the rich who own most shares. The coincidence of rising stock markets and mass unemployment plus falling wages only adds momentum to worsening inequality.

Unequal economic distributions (of income and wealth) finance unequal political outcomes. Whenever a small minority enjoys concentrated wealth within a society committed to universal suffrage, the rich quickly understand their vulnerability. The non-wealthy majority can use universal suffrage to prevail politically. The majority’s political power could then undo the results of the economy including its unequal distribution of income and wealth. The rich corrupt politics with their money to prevent exactly that outcome. Capitalists spend part of their wealth to preserve (and enlarge) all of their wealth.

The rich and those eager to join them in the U.S. dominate within both Republican and Democratic parties. The rich provide most of the donations that sustain candidates and parties, the funding for armies of lobbyists “advising” legislators, the bribes, and many issue-oriented public campaigns. The laws and regulations that flow from Washington, states, and cities reflect the needs and desires of the rich far more than those of the rest of us. The peculiar structure of U.S. property taxes offers an example. In the U.S., property is divided into two kinds: tangible and intangible. Tangible property includes land, buildings, business inventories, automobiles, etc. Intangible property is mostly stocks and bonds. Rich people hold most of their wealth in the form of intangible property. It is thus remarkable that in the U.S., only tangible property is subject to property tax. Intangible property is not subject to any property tax.

The kinds of property (tangible) that many people own get taxed, but the kinds of property (intangible) mostly owned by the richest minority do not get taxed. If you own a house rented to tenants, you pay a property tax to the municipality where the house is located. You also pay an income tax on the received rents to the federal government and likely also the state government where you live. You are thus taxed twice: once on the value of the property you own and once on the income you derive from that property. If you sell a $100,000 house and then buy $100,000 worth of shares, you will owe no property taxes to any level of government in the United States. You will only owe income tax on dividends paid to you on the shares you own. The form of property you own determines whether you pay property tax or not.

This property tax system is excellent for those rich enough to buy significant amounts of shares. The rich used their wealth to get tax laws written that way for them. The rest of us pay more in taxes because the rich pay less. Because the rich save money—since their intangible property is not taxed—they have that much more to buy the politicians who secure such a tax system for them. And that tax system worsens inequality of wealth and income.

Unequal economic distributions finance unequal cultural outcomes. For example, the goal of a unifying, democratizing public school system has always been subverted by economic inequality. In general (with few exceptions), the better schools cost more to attend. The tutors needed to help struggling students are affordable for the rich but less so for everyone else. The children of the wealthy get the private schools, books, quiet rooms, computers, educational trips, extra art and music lessons, and virtually everything else needed for higher educational achievement.

Unequal economic distributions finance unequal “natural” outcomes. The U.S. now displays two differently priced foods. Rich people can afford “organic” while the rest of us worry but still buy “conventional” food for budget reasons. Countless studies indicate the dangers of herbicides, pesticides, chemical fertilizers, food processing methods, and additives. Nonetheless, the two-price food system delivers the better, safer food more to the rich than to everyone else. Likewise, the rich buy the safer automobiles, more safely equip their homes, and clean and filter the water they drink and the air they breathe. No wonder the rich live years longer on average than other people. Inequality is often fatal, not just during pandemics.

In ancient Greece, Plato and Aristotle worried about and discussed the threat to community, to social cohesion, posed by inequalities of wealth and income. They criticized markets as institutions because, in their view, markets facilitated and aggravated income and wealth inequalities. But modern capitalism sanctifies markets and has thus conveniently forgotten Plato’s and Aristotle’s cautions and warnings about markets and inequality.

The thousands of years since Plato and Aristotle have seen countless critiques, reforms, and revolutions directed against wealth and income inequalities. They have rarely succeeded and have even more rarely persisted. Pessimists have responded, as the Bible does, with the notion that “the poor shall always be with us.” We rather ask the question: Why did so many heroic efforts at equality fail?

The answer concerns the economic system, and how it organizes the people who work to produce and distribute the goods and services societies depend on. If its economic organization splits participants into a small rich minority and a large non-rich majority, the former will likely be determined to reproduce that organization over time. Slavery (master versus slave) did; feudalism (lord versus serf) did; and capitalism (employer versus employee) does. Inequality in the economy is a root cause contributing to society-wide inequalities.

We might then infer that an alternative economic system based on a democratically organized community producing goods and services—not split into a dominant minority and a subordinate majority—might finally end social inequality.

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14 comments

  1. Ignacio

    Wow! I just can say this is very well pointed and that It must be understood we cannot expect empathy from the well off. Even if some are empathic by nature they just cannot see what’s really happening given how wide is the rift.

    Reply
    1. dk

      Yes, the position form the top of a heap is inherently isolating. The taller the pyramid the more profound the effect. Some degree of hierarchy in large civic societies may be inevitable and unavoidable, but this suggests to me that a) authority should be distributed and not highly centralized, even though information sharing is valuable and healthy, b) concentration of wealth is equivalent to concentration of authority, and c) proportions of economic disparities measure stability, security, and durable trust that healthy economy demands, not just the subjective satisfaction or dissatisfaction of individuals. The satisfactions of wealth are addictive as any comfort, and exclusive comfort leads to inattention to responsibilities to the civil entity.

      “Freedom” is not an absence of responsibility, it’s the opportunity to fulfill responsibilities by personal and even original action.

      The subsequent NC post Thomas Frank: Liberal Elites Will Create Conditions for Another Trump discusses particulars of the evolution to the current scenario described by Wolff.
      https://www.nakedcapitalism.com/2020/07/thomas-frank-liberal-elites-will-create-conditions-for-another-trump.html

      Reply
  2. rob

    inequality is a state of nature. blame god….right.
    but here in this humanistic creation, we ought not institutionalize inequality.
    That is one of the big points of monetary reform.
    The current federal reserve system and the banking system ,having control of the “money creation” of this country, PROMOTES wealth inequality.
    The nationalization of the fed, and the ending of banks creating money; is the main essence of monetary reform. The people who have been trying to discuss the world with a different ,more equal access to the fiat created “for the people to use, for the economy to function”,point to the growth of inequality by the nature of how the system currently is structured. They point to how our money is created and by whom.They point to who gets “the debt”…
    Some people try to dismiss the 100 year history of the fed promoting inequality as a bug…. but how can someone not see it is a feature, The monetary system we have now was created by an act of law. It would be unconstitutional ,if not for the federal reserve act. Allowing the banks to create money.Instead of the congress..as the constitution explicitly stated.
    But now, we are no longer a fledgling republic.
    The world accepted our fiat, as created by bankers… now we ought to create our own money and retire our national debt.Heal ourselves, to lead forward in the future. Time to write a new law….
    https://www.congress.gov/bill/112-thcongress/house-bill/2990/text

    Reply
  3. Anonymous

    Pessimists have responded, as the Bible does, with the notion that “the poor shall always be with us.”

    The Bible does not say that, it says:

    However, there will be no poor among you, since the Lord will surely bless you in the land which the Lord your God is giving you as an inheritance to possess, if only you listen obediently to the voice of the Lord your God, to observe carefully all this commandment which I am commanding you today. Deuteronomy 15:4 [bold added]

    But just a few verses later:

    For the poor will never cease to be in the land; therefore I command you, saying, ‘You shall freely open your hand to your brother, to your needy and poor in your land.’ Deuteronomy 15:11 [bold added]

    Taken together, these verses are not about the inevitability of poverty but the inevitability of poverty from DISOBEDIENCE to what is being commanded – especially, i suppose, wrt economic justice.

    So though we might never completely eliminate poverty, it can certainly be reduced to the extent we are willing to obey – per the Bible.

    And as anyone who has read the Old Testament should know, the US is far from obedience wrt economic justice (e.g. Deuteronomy 23:19-20, e.g. Leviticus 25).

    Reply
    1. Alternate Delegate

      Yes the Bible most certainly does say that.

      Mark 14:7 For ye have the poor with you always, and whensoever ye will ye may do them good: but me ye have not always.

      Matthew 26:11 For ye have the poor always with you; but me ye have not always.

      Reply
      1. Dick Swenson

        One can always find something in the Tanakh and the New Testament to support any position. Look at all the comments on the justification for slavery, genocide, male domination, etc. Pick your topic, something will support it or contradict it.

        Re genocide. Read the texts at the beginning of Joshua describing how the armies of the Lord should deal with the conquered.

        Reply
  4. TomDority

    “If you own a house rented to tenants, you pay a property tax to the municipality where the house is located.”
    the above means that you are already up the income ladder enough to not qualify as being low income _ most of the country is low income since the word Low is comparative – it is comparative to the cost of living –
    So the above property tax is paid by the tenant – the carry costs by the tenant and the profit – by the tenant.
    So the rent is a high cost of living due to the bidding up or asset inflation that most “investment goes into today”
    A key way to reduce inequality is through a tax system that penalizes activities that tend to raise the cost of living – tax heavier the investments that inflate asset prices (assets are things already created).
    Taxing something is to put a burden upon an activity
    Why we tax labor so much – who knows

    Reply
    1. Michael Fiorillo

      The Great Depression of the 1930’s prompted social democracy in Europe?

      The professor skipped an episode or two there, no?

      Reply
  5. Susan the other

    When it comes to the value of money everything is skewed. If Picketty were analyzing money as merely a medium of exchange and not a store of wealth he’d have much less inequity. When the value of money is considered in on-the-ground finance operations “lost opportunity” is considered into the interest rate. Lost opportunity is totally ignored on a human level. You’d think that money itself was a… person.

    Reply
  6. Sound of the Suburbs

    What attracted the globalists to neoclassical economics?
    It concentrates wealth.
    It’s supposed to be like this.

    Mariner Eccles, FED chair 1934 – 48, observed what the capital accumulation of neoclassical economics did to the US economy in the 1920s.
    “a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion of currently produced wealth. This served then as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied themselves the kind of effective demand for their products which would justify reinvestment of the capital accumulation in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped”
    The problem; wealth concentrates until the system collapses.

    “The other fellows could stay in the game only by borrowing.” Mariner Eccles, FED chair 1934 – 48
    Your wages aren’t high enough, have a Payday loan.
    You need a house, have a sub-prime mortgage.
    You need a car, have a sub-prime auto loan.
    You need a good education, have a student loan.
    Still not getting by?
    Load up on credit cards.
    “When the credit ran out, the game stopped” Mariner Eccles, FED chair 1934 – 48

    Reply
    1. Sound of the Suburbs

      Have the Americans ever thought of studying their own history?
      It doesn’t look like it.

      Reply
      1. drumlin woodchuckles

        Has any American history been permitted into American history textbooks in Junior-Senior high school over the past few decades?

        Since I haven’t read any, I don’t know. But the question might well be asked.

        By the way, whatever happened with those Social Justice Warriors who wanted to destroy that historic New Deal WPA-produced mural in that school in San Francisco ( I think it was). How did that turn out? Is the mural still there? Or did the Social Justice WokeNazis get it destroyed the way they wanted?

        Reply

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