Is Income Inequality Necessary?

As we get into the thick of election season, it becomes apparent we have two Americas — the Trump ‘merica, and the Sanders America. Everyone else falls somewhere in between. Trump’s success stems from his “I don’t give a shit” mentality, offering solace to those angry over years of political correctness getting them nowhere – he wants to “make America great again.” Sanders offers a voice to those who see corruption – legal or not – causing greater inequality and the downfall of our country.

Who’s right?

I’m bi-economical. I’m a socialist and a capitalist – but neither at the same time. Socialism sounds great, until you realize how that limits the opportunity to work hard and get ahead. Capitalism, however, requires inequality. It provides the opportunity to get rich, but that opportunity is light years away for those who didn’t inherit wealth, or work hard and due to a mix of luck and tenacity and good timing make enough money to catapult them into the upper echelons of society. Old money versus new money.

There is no right, persay, but we can look at which countries are happier than others, and how that relates to inequality across their residents. In this Gallup Poll and the World Top Incomes Database, the point is made that in countries with the biggest income gaps between rich and poor, the middle class find themselves unable to afford some simple luxuries like private schools and a house in a good neighborhood.

 

Obama decried income inequality this week in his final State of the Union address. The standard Democrat message — support a thriving middle class  — was front-and-center in the speech.

“Companies have less loyalty to their communities. And more and more wealth and income is concentrated at the very top,” he said. These trends have “made it harder for a hardworking family to pull itself out of poverty, harder for young people to start on their careers, and tougher for workers to retire when they want to.”

Many blame Silicon Valley as a leading source of furthering income inequality. A 330-page report by the World Bank released on January 14 notes that “the economics of the internet favor natural monopolies, the absence of a competitive business environment can result in more concentrated markets, benefiting incumbent firms. Not surprisingly, the better educated, well connected, and more capable have received most of the benefits – circumscribing the gains from the digital revolution.”

I know that income inequality is at play in America because I’m in the top 5th of income earners and am in the fourth quintile (of five) of all U.S. households in terms of my networth, and still I am unable to afford a home in a good neighborhood or to send my “future” children to private school, should I want to. If I feel this way, I can only imagine how the rest of America feels, outside of the .01%.

Paul Graham, a prominent super-rich Venture Capitalist went on recently about how we need income inequality. “You can’t prevent great variations in wealth without preventing people from getting rich,” he wrote in an essay that went viral online last week, “and you can’t do that without preventing them from starting startups.”

Starting in the 1980s, a gap has been widening between what the best-paid Americans earn and what everyone else in the country earns. Economists Barry Z. Cynamon and Steven M. Fazzari shared in a new paper that “Rising income inequality is now a significant barrier to economic growth and full employment.”

I’m worried. I’m worried about the future of America. History has proven that income inequality, when let go for a long time, causes big problems, even civil wars. And in 2016, lower pay for the poor is causing an even wider income gap.

Since the late ‘70s, most of the growth in workers’ earnings has gone to the people who have made the most money. To be precise, the wages of the top 1 percent of workers have grown 138 percent since 1979, while the wages for the bottom 90 percent grew only 15 percent during that period. Yikes. This especially hurts our social security system, which underestimated income inequality, making higher income earners pay a much smaller percentage of their income in social security tax than lower income earners.

This is a huge problem since the number of seniors will double by 2060. If we think income inequality is bad now, it will only continue to get worse.

I find my idealistic side wishing we could get rid of money altogether, but my realistic side worried about creating a decent life for my future family. Where I live, it certainly feels like the only way to do this is to have a household income in the 1% ($400k+) per year, and even that is really just “upper middle class” here. Achieving that is very challenging. It’s much more likely that I’ll be priced out of Silicon Valley as I decide to have a family, and I’ll drop into a lower household income level to be able to afford a middle class lifestyle somewhere else.

 

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2 comments

  1. David says:

    I don’t have a problem with income inequality if one means the gap between the very wealthy and the very poor. But I do have a problem with a shrinking middle class. In my view the measure of a billionaire should be in their ability to create middle class jobs that help as many people as possible rise from dirt poor status to a solid middle class status. If a few highly successful people are able to do that, I don’t have a problem with them being rewarded by becoming very, very wealthy.

    But it often seems like the wealthy have declared war on the middle class and I do have a concern with that. Silicon Valley leaders like Paul Graham often seem to talk about creating value and not so much about creating jobs. The only reason why the average person should get excited about top entrepreneurs is if the entrepreneurs create jobs through their work.

    I think it is fine if there is a huge gap between the very poor and the very rich as long as there is a solid middle class in the middle. And when we talk about upward mobility, I’m more interested in hearing about upward mobility that will help the very poor become middle class. I’m less interested in hearing about the middle class becoming rich–but I have no problem with a few very wealthy people if they’ve made their wealth by helping others to get solid jobs.

    1. Joy ( User Karma: 0 ) says:

      Right – 100% agree with you, and great points all around. The problem is that the billionaires create efficiency which reduces cost/jobs in most cases. That’s what they’re rewarded for – the exact opposite of creating jobs. This makes their stock go up, so those who can afford the stock get richer and those who can’t don’t. I’m not sure how capitalism can promote job growth if with technology such efficiencies are rewarded over job creation.

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