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A SHORT HISTORY OF CAUSE AND EFFECT OF WAGE AND WEALTH INEQUALITY

November 15, 2015

A SHORT HISTORY OF CAUSE AND EFFECT OF WAGE AND WEALTH INEQUALITY

I was invited by a professor on the net to submit comment on what is termed the “Gatsby Effect,” which is essentially a rich vs. poor wage and wealth inequality issue. Following was my (for me) abbreviated response, which I decided to publish here in blog form as is. Here it is.

I have written just over 1,000 blogs and many of them have to do with wage and wealth inequality. We are a very wealthy country but that is not the problem; the problem is how to fairly and equitably distribute the income and wealth from our economy to all of those of us who are involved in it, either as producers, investors, consumers or whatever. The one percent started to hog both the income and wealth created by our economy (including the marginal productivity of corporate workers) in the middle 1970s and as a result we have suffered (inflation-adjusted) wage stagnation ever since – now in its fourth decade. In my view, this and its effect on aggregate demand constitutes our main economic problem in our country today (unlike in some social democratic states in Europe where their economy’s income, wealth and marginal productivity of their workers are broadly shared and demand for goods and services in their markets is anything but tepid – as it is here).

The overall result in such European states (with occasional ups and downs due in part in one instance in which our failure to regulate our big banks in 2008 led to international chaos in financial markets) is that those who populate such economies have fashioned a solid middle class, enjoy good wages, excellent medical care etc., and have disposable income with which to travel abroad, while the companies they work for are buying U.S. companies one by one (Smithfield Ham is now owned by Chinese interests; the first ten biggest breweries in America are owned by overseas interests etc.). All are prospering because all are sharing in the fruits of their respective economies, unlike here, where the one per cent is booming and the rest of us live on a different plane in this two-tiered economy.

More enlightened societies such as these (though excluding China) are proving to the world that managed capitalism can work for everyone. They invest in their people, and their people respond as efficient producers. Here we invest in Wall Street and the people are sullen producers since they are left to their own devices with a political class determined to keep it that way, and the difference in the result is glaring in terms of the relative efficiency of their economies and ours. In plain words, “Why should we work hard for starvation wages?” Good point.

As to the Gatsby effect, it is no surprise that children from gated communities go to Ivy League schools and children from slums go to jail. What other result could we imagine given the present political configuration? I encourage all readers of this to read Piketty’s extensive treatment of inherited wealth in its Gatsby connection and its effect upon the future of capitalism in his book, Capital in the Twenty-First Century. I think his conclusions on the topic backed by three centuries of research strongly support a wealth tax on capital that is inherited rather than earned and which plods on out of reach from one generation to the next in Swiss banks or other such havens. It seems to me that any reform of our latter-day feudal mindsets in our current noble-serf economy will have to be political, and it’s possible. FDR proved that, and so can we, so let’s do it! GERALD   E

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