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Income Inequality-Class #1-Gerald Lizzo
February 3, 2015 | Leave a Comment
Capitalism, the idea of privately owned businesses operating for a profit, is at the very foundation of what America is. For years, America was the place to come for that shot to become what you couldn’t elsewhere. America represented the frontier of nearly unlimited economics opportunities. It is as a result of these beliefs that the idea of the “American Dream” was born. Yet here we are years later, America has emerged as one of the world’s greatest superpowers and one of its wealthiest nations. Yet it appears that capitalism, the very foundation of all of that, has resulted in a great problem. This problem is significant income inequality amongst its citizens.
According to John Ydstie’s article in a country of over 330 million people, the 400 wealthiest own more than the individuals in the bottom 50%. That is a statistic that is mind-boggling to think about. For me, the most memorable theory I read about in the material was from the Bloomberg View article. Thomas Piketty, author of “Capital in the 21st Century” believed that capitalism, if left unchecked, results in this kind of income inequality because “the rate of return on capital generally exceeds the growth rate of labor income.” I could not agree more with this statement. Think about the wealthiest individuals of our society, the Warren Buffetts and the Bill Gates and think about what they do to earn their money. At the end of the day they invest their money. Our millionaires and billionaires do not work in a factory or at McDonald’s. For those of us going to school in New York City not far from Wall Street, this should be exceedingly clear.
Now while the income gap here in the United States is exceedingly large, it is most important to note that it is continuing to grow. According to the Bloomberg article citing the U.S. Census Bureau, the top 5% of households in the United States that make the most money have seen their average income double in the last 40 years from around $160,000 to over $300,000 per household. By contrast the bottom 80% of the population has seen virtually no wage growth whatsoever. The lowest fifth actually experienced essentially no wage growth and even the fourth fifth growing from approximately $60,000 to $90,000. Not only are the rates significantly lower but the overall income is perhaps even lower.
The cause of this for me is at its heart, education. As the Bloomberg article also stated, there has also been a significant rise in the cost of an education. We are college students and we all know how much it costs to be able to go those extremely reputable private institutions. Some one whose annual income household income is below $50,000 does not have a good chance of being able to afford that education. Without, he or she is at a significant disadvantage. Those who are wealthy and who have received a high-end education are mush better positioned for success in this economy. To go back to Piketty’s assertion that return on capital is greater than the growth rate of labor income, those are not educated will not have the ability to be able to make successful investments, but they can be taught to robotically take orders McDonald’s. In this way I agree with Branko Milanovic, an economist at the City University of New York Graduate Center. He believes this undermines the idea of equal opportunity, the very ideology that built America. When people do not have money they cannot get a good education and contribute as much to society. Therein lies the issue. Today’s economy is more interconnected than ever. People rely on others more than ever before to accomplish tasks and in this system we are essentially removing individuals from being able to do this. How then, is our society supposed to continue to grow and advance in a healthy manner?
Some, like Richard Wilkinson in his TED Talk believe we are already seeing signs of this. In his speech he points out how countries with a higher income inequality gap such as the U.S. have higher homicide rates, lower expected lifespans and even trust each other less than in countries like Sweden and Japan where there are lower income inequality gaps. Now, while I agree that these are all traits I would like to have in my country, my question is do the people of these countries like Sweden recognize and appreciate this? In other words, are these individuals happy with their lives, or more specifically, their economic and social position in society? I feel it is maybe easy for us in New York City to see poor and homeless individuals daily and think we are in that sense content with our position. But in those countries, where there is perhaps less exposure to such things and everyone is much closer together, is there a sense of disappointment in that there is less of an ability to move higher in the social ladder? Is America still where the most economic opportunities are in the perception of others?
