Why the income inequality gap will never be closed

Two news items in the last few days triggered this post.Income inequality

First, a report that 50% of Americans did not eat out last year.

Second, the gap between the incomes of the rich and the poor keeps increasing, in other words the rich keep on getting richer and the poor poorer.

The first report was a bit vague on the definition of “eating out” did it include fast food outlets? Take outs?

The second gave detailed statistics on how much of America’s wealth is controlled by how few people, how real incomes are declining and so on. Like most news items on this subject in the mainstream media (and the more liberal blogs) it is worded to portray successful people negatively. It conveniently ignores the fact that comparatively few people pay a disproportionately large share of total income taxes and that 47% of Americans pay no Federal income tax.

Both news items obviously adding to the “occupiers” lists of grievances.

The occupiers have every reason to be concerned and every reason to complain about the situation many of them find themselves in. But I cannot see that trying to disrupt the very systems they have benefited from, turning public (and in some cities, private) property into unhealthy squatter camps or seriously inconveniencing  other people is the right way to go about improving the situation.

Can the faulty model be fixed? Or is it on its way to extinction, like the dinosaur, unable to adapt to changes in the environment? Has the introduction of the “Nanny State”  with all its laws, restrictions and suppression of initiative, finally corrupted the efficient capitalist system?

Has capitalism already gone the way of the Dodo and are we fooling ourselves by trying to ignore the fact that we are now all living under a socialist system designed to bring us all down to the lowest common denominator?

What if a watered down capitalist system like we have now, is unsustainable in the long-term, more sustainable than communism or socialism ever were, but in the end an artificial system that has run out of steam.

Let’s assume for a moment though that a wide disparity between the incomes of a relatively small elite group at the top and the vast majority of workers at the bottom is more the norm than the current democratic system that we have been following for only the last 150  years or so.

OccupiersMonarchies, Empires and dictatorships controlled by beneficial or malevolent rulers have  been the norm for thousands of years and are  systems that many “liberated” countries have quickly re-engaged after overthrowing previous regimes.

On that score,  future developments in Egypt and Libya could prove interesting.

Attempts to impose a “fair” distribution of incomes under communism have proved to be dismal failures wherever they have been tried. The two remaining communist states, Cuba and North Korea provide daily examples of this failure and China’s move to a more capitalist society has triggered the enormous growth in that economy.

The fact that 50% of Americans did not “eat out” last year, is of much less concern than the thousands who cannot even afford to “eat in” properly or afford a home in which to “eat in”.

What if this upheaval is not just a symptom of a few greedy bankers selling worthless paper but a result of trying to extract too many benefits from too little productivity on a national scale or an inter- continental scale covering America and Western Europe.

What if the sustainably correct rate of pay for a factory worker is closer to the current rate in China or India than the one demanded by workers in the Western economies?

What happens when the major emerging markets have all “emerged” or matured and no longer need to import the products of our current technological superiority? What happens to our balance of payments then?

How do we provide employment for the younger generations while providing pensions  for increasing numbers of baby boomers and those too old to work?

Far better brains than mine are wrestling with these questions, but solutions seem to be in short supply.

I am not an economist, but it doesn’t take a lot in the way of common sense to know that in the long run, the same dynamics that cause individuals and businesses to become bankrupt eventually catch up with countries that have been spending more than they earn for too long.

Greece is proof right now of that painful reality.

Governments can only pay out to the unproductive what they have taken fromGoose that lays the golden egg the productive. Increasing taxes on the wealthy and profitable businesses will soon kill the goose that is already too sick to lay enough golden eggs.

How can we protect ourselves? There are lessons from history and in those developing countries that do not have the luxury (or burden) of huge governments dispensing endless benefits.

In both examples, society is made up of a small, powerful elite controlling most of the wealth at the top of the pile, a relatively small middle class made up of artisans, farmers, shopkeepers, performers, doctors, religious and secular teachers. Every one else, the vast majority, are peasants exchanging their manual labour for pitiful wages or housing and food.

It sounds brutal, it is, but it is still the system in many parts of the world and endured by millions of people.

Other than the elite who hope that their wealth will always buy them protection or at least an escape route, (not a sure bet for certain North African leaders) the artisan class are the most secure. They have the skills to provide value and receive payment in return. The better their skills, the more they earn.

Are all Western societies doomed? Destined to break down into small feudal nations ruled by whoever is brutal enough to seize and hold onto power?

Not necessarily, but it is quite obvious to anyone who can do simple arithmetic, that for most people, the “American Dream” has passed its zenith and is turning into a nightmare of unpaid bills and foreclosed homes.

We can no longer rely on government or big business to provide jobs.

No amount of squatting in parks, occupying streets or interfering with the free movement  of law-abiding people is going to improve things. That road leads to bloodshed and anarchy.

We each have to take responsibility for our own futures, become like the medieval blacksmith or the shopkeeper in Timbuctoo. The person with skills and motivation to take action is going to survive better than those who can’t or won’t.

Whenever there is uncertainty, there is opportunity. For those of us brave enough to take action instead of complaining, the next few years will be the most exciting time in our lives.

How do we take action? The most important thing any of us can do right now is to leverage the skills we do have to start generating  extra income. It does not matter how small that is at first, the mightiest river starts as a tiny stream.

Just get started.

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Wishing you success in all your endeavours.

Peter Wright



p.s. I will get a commission if you purchase products or services advertised on this blog.

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