As a college teacher, I began telling my students in the early 1980s that we were witnessing the beginning of a rise in inequality not seen since the 1920s. Every year I showed them charts illustrating the change in the distributions of income and wealth. The share of income going to the top 5 percent of income recipients grew nearly every year, and the wealth share grew steadily as well. I explained how the two distributions interacted to further increase inequality. A household with high income — the yearly sum of its wages, salaries, bonuses, dividends, interest, rents, profits from unincorporated businesses, and government transfer payments such as social security and subsidies to farmers — probably could not spend all of it. The remainder, the household’s savings, would be used to purchase assets, such as stocks, bonds, real estate, precious metals, and works of art. These assets are what we mean by wealth. Most of them will generate income, either in the form of regular payments like dividends from stock or as capital gains when assets are sold at a price higher than that at which they were purchased. In this way, the household’s income grows just because its wealth has risen. Those with low incomes will not be able to acquire assets and will not see their wealth rise. The more unequal are incomes, the more unequal wealth will become.
If we begin with wealth, we get the same result. I gave my students an example. At one time Bill Gates had wealth of about $100 billion. Assuming that he received a 5 percent return, he would collect $5 billion year in and year out. No one can spend this much money every year, so Gates’ wealth would automatically expand. Those without wealth will get no income from it, and again the gap between rich and poor becomes larger.
What is more, inequality will be maintained across generations. My parents died with almost no assets. What little there was had to be split five ways, giving but a tiny boost to my wealth and almost none to my future income. I was retired when my mother died, but had I been working, I could not have quit because my inheritance was large. Bill and Melinda Gates’ children, on the other hand, will get such an enormous inheritance that they will never have to work again, and they will find that their wealth grows almost no matter what they do.
Why Is There So Much Inequality?
Inequality has its roots in unequal power. Those with more assets have more power than those who do not; that is, they can compel us to do what we would be unlikely to do otherwise. Here I do not mean the power of any particular person. Critical is what is best called class power. Most of us must work for wages to live. If we do not have employment, our lives will be difficult, as anyone who has suffered an extended bout of unemployment knows. Unfortunately, we do not control our access to employment; we are at the mercy of our employers. They have power over us, and there are many things we might do at their command rather than lose our jobs. We might accept pay cuts, work long hours, tolerate irregular shifts, endure unhealthy working conditions, and worse. Our employers are, for the most part, those who have the lion’s share of society’s assets and sit on the highest steps of the income and wealth ladders. Their power depends on our lack of wealth, so they will use theirs to exert control over us. They work ceaselessly to organize businesses in such a way that their workers cannot easily wield a countervailing power. Even if employees organize together to confront their bosses, they will face the reality that employers have wealth enough to outlast them in any struggle. If they manage to defeat their adversary in a battle, they sooner or later will become victims of managerial control, replaced by machines or workers in another country when plants are closed and work is outsourced. In this way, a reserve army of labor is created and continuously replenished — enlarged greatly whenever the economy is struck by the recessions and depressions that have plagued capitalist economies almost from their birth — threatening those who have jobs with competition for the ability to earn a living.
There is an entire panoply of institutions that buttress the power and hence the monetary resources of the 1%. These include the government, the legal system, the media, the schools, religion. All of these combine to form a culture and a way of looking at the world, what we might call an ideology, that tell us that what we have is good, that our society is the best on earth, the apex of human creation. Let us look at some of these.
A nation with significant and growing inequality cannot be a democracy. The authors of a recent empirical study wrote:
The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence.
Money calls the tune in U.S. politics. Hundreds of millions of dollars are spent every four years by presidential candidates, and its takes millions of dollars to run a successful congressional campaign. Getting access to this cash necessitates a close relationship between almost all persons seeking high political office and potential wealthy donors, as well as cash-rich corporations. Quid pro quos are always part of the bargain. From this flows a harsh conclusion. It is now nearly impossible to either get a man or woman dedicated to popular democracy elected or to secure passage of progressive legislation.
If we look at what governments do, who advises political leaders, who serves in appointed positions and on commissions, what politicians do after they leave office, who suffers when governments enact austerity measures, the conclusion is the same. The state is of, by, and for the wealthy. If I were to say that there are no longer any tribunes of the people, I would be exaggerating only slightly.
More so than any other developed capitalist country, good health care in the United States depends upon our ability to pay for it. Given this, it is no surprise that the lower your income, the worse are your physical and mental health. And as income and wealth become more uneven, the demand for health care, and thus eventually its supply (higher demand increases profits, which call forth more supply), will tilt good health care provision toward the rich. They will get the best care, and most of the rest of us will get the worst. Their life expectancies will rise and their infant mortality rates fall; the opposite will occur for those who are poor. What is more, there is a substantial body of research that strongly suggests that inequality in and of itself affects health. If we compare two states with roughly the same average income, health will be worse in the state where income disparity is greatest. Falling further behind those above demoralizes us, generating stress and the accompanying poorer health that stress creates. There is even some evidence now that the lack of income and inequality can harm those who are poor or discriminated against at the level of their DNA. According to an article by Nico Pitney, “The urban poor in the United States are experiencing accelerated aging at the cellular level, and chronic stress linked both to income level and racial-ethnic identity is driving this physiological deterioration.”
There is also an interaction between the political oligarchy discussed above and health care, a connection that holds true for all of the other effects of inequality. Government healthcare policy will be largely determined by the needs of corporate America and the moneyed individuals who control it. National healthcare is held hostage to the private economy. Obamacare, for example, was put in place largely to guarantee gigantic cash flows to insurance and pharmaceutical companies. Whatever benefits it might offer to some poorer individuals were a secondary consideration.
Inequality gives rise to a two- or even three-tier system of education: elite private and a few superior public schools at one end, mediocre public and private (mainly religious) schools in the middle, and rundown second-rate public schools at the other, especially for racial minorities. As with healthcare, public education policy is steered into narrow channels of reforms that put money in the pockets of those who already have more than enough of it. Schools are now set up not for liberal education but to provide employers with cheap, pliable labor.
Today, wealthy private foundations and individuals have declared war on public schools, teachers, and especially teachers’ unions. In league with the federal government, “the Gates Foundation, the Walton Foundation, the Broad Foundation, and the Dell Foundation, together with the Business Roundtable, education-industry organizations, like Pearson and MGraw-Hill, and the National Governors Association and the Council of Chief State School Officers” are dismantling public schools and transforming them into adjuncts of private capital, according to the June 2015 issue of Monthly Review. Schools have always been purveyors of system-reinforcing ideology, but the schools of the future will be much more blatantly so. As inequality widens, capital will need ever greater control of society if it is to prevent outright rebellion.
The impacts of inequality on housing range from obvious to subtle. Public housing has been a dead letter for many years, and rising inequality will keep it on life support into the indefinite future. Governments will be unlikely to fund building rehabilitations or provide money for repairs to the millions of units of substandard and unhealthy apartments and single-family homes.
Whenever new housing is built, it is more and more for the well-to-do. City governments sometimes give tax breaks to developers for agreeing to include lower-income housing in development projects, but these are honored more in the breach. Rapidly rising wealth at the top means that more space will be devoted to their housing, not just in terms of land use but also in terms of the size of apartments. Little space is used for smaller and cheaper apartments. Economist Moshe Adler writes in Economics for the Rest of Us, “My own calculations show that if Manhattan apartments were limited in size to 1,200 square feet, then, without constructing even one new building, the supply of apartments for ownership would increase by 35 percent and the supply of apartments for rent would increase by 20 percent.”
A recent article in the Guardian newspaper illustrates not only another outcome of escalating inequality in the United States but also the intimate connection between the haves and the have-nots. As income growth has been siphoned off by the rich, those at the bottom have less money upon which to live. Poverty causes a multitude of problems for those in its grasp, but for the rich, the large and growing number of poor people is an opportunity. The Guardian report is about the growing investment opportunities in trailer parks:
Trailer parks are big and profitable business — particularly after hundreds of thousands of Americans who lost their homes in the financial crisis created a huge demand for affordable housing. According to US Census figures, more than 20 million people, or 6% of the population, live in trailer parks.
Because towns and cities have become loathe to allow more trailer parks to be built and because the demand for housing in them is rising, the value of trailer parks has risen. An owner can make money in two ways — through a capital gain by selling a park at an inflated price, or by raising the rent for residents who have no other housing prospects. Those with the requisite cash can buy a trailer park, immediately raise the rents, collect considerable revenues, and then sell to the next greedy buyer.
Let me end with two points. First, it is the essence of the capitalist system that drives inequality. The default position of such a system is an unregulated drive to accumulate capital, and this accumulation cannot transpire without the exploitation of workers. If the working class is able to exert sufficient power, this exploitation can be mitigated. However, it, and the resulting inequality, cannot be eliminated unless capital’s control is eliminated altogether. Capital’s lust for money is insatiable, relentless, ever-vigilant, which is why reforms and victories by the adversaries of the big wealth-holders are always being subverted, and often reversed.
Second, we can write about the evils of inequality all we want, but unless we offer lasting remedies for them, our analysis must remain partial and open to valid criticism. In many of the essays in my book, The Great Inequality, I provide both specific policies and a general framework for ending the scourge of inequality.
Note: This article was adapted from an excerpt from the first chapter of The Great Inequality, published by Routledge in 2016.