Tuesday, January 21, 2014

Wealth Inequality or Democracy?

A recent briefing paper from Oxfam, "Working for the Few" examines the issue of economic inequality around the world.  Here is a quote from the opening page:

"Extreme economic inequality and political capture are too often interdependent. Left unchecked, political institutions become undermined and governments overwhelmingly serve the interests of economic elites to the detriment of ordinary people."

The writers of the report admit that some income inequality is necessary to drive economic growth and reward those who innovate, take risks, have talent and have skills that they have earned through education, however, the concentration of wealth can create situations where wealth begins to control government policies and politics in general.

Let's look at a few key points in the study:

1.) Over the past year, 201 people have become billionaires, joining an elite group of 1426 individuals.

2.) The world's billionaires have a total net worth of $5.4 trillion.

3.) The wealth of the top one percent of the richest people in the world has hit $110 trillion.

4.) The wealth of the top one percent of the world's richest people is 65 times the wealth of the bottom 50 percent.

5.) The richest one percent of people in China and the United States have more than doubled their share of total national income since 1980.  Here is a graph shown the share of total national income going to the richest one percent, comparing the levels in 1980 and the period between 2008 and 2012:


6.) Ten percent of the global population holds 86 percent of all of the assets in the world while the poorest 70 percent (3 billion people) hold only 3 percent as shown on this chart:


Now, let's take a quick look at how the concentration of wealth has impacted politics in the United States.  As we know from the data released by the Open Secrets website, Washington is awash in money donated largely by the wealthiest among us.  While there are some laws in place that limit the size of donations, the relatively recent advent of Political Action Committees means that campaign laws can be skirted and that the wealthiest Americans can make donations that are massive in size.  This has led to a situation where wealthy donors can have undue influence on legislators and legislation.  One need look no further that tax laws to see how America's wealthiest have guided legislation; lowered tax rates on dividends, capital gains and high levels of income have advantaged wealthy Americans at the expense of their poorer, lower- and middle-income counterparts.  Here is an interesting graph that shows how the top marginal tax rates for the United States (in green) and other nations have generally followed a downward trajectory over the past 35 years:


As well, lobbying by the financial sector has led to greater levels of deregulation which has allowed corporate executives in the financial and banking sector to experience an explosion in wage growth.  As shown on this graph, there is a strong correlation between the degree of financial deregulation that has taken place over the past century and the income share that has accrued to the top one percent of earners in the United States:


Let's move to Europe next.  Austerity measures have been the order of the day for many European countries as the debt crisis has ground on.  Much of this move to austerity has been based on spending cuts and regressive taxes that have impacted healthcare, education and social security, the very mechanisms that have reduced income inequality in the past.  At the same time as lower income Europeans have seen the economic quality of their lives decline, the richest 10 Europeans have seen their combined wealth grow to €217 billion.  This compares to the total cost of European stimulus measures between 2008 and 2010 of €200 billion.

Now that you’ve absorbed all of this data showing how inequality in the world has reached new levels, let's close this posting with a quote from Justice Louis D. Brandeis (1956 to 1941), Associate Justice of the U.S. Supreme Court:


"We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both."

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