How Inequality Harms

By M.A.

Note: This post is part of our League Symposium on inequality. You can read the introductory post for the Symposium here. To see a list of all posts in the Symposium so far, click here.

Mark Thompson’s column, “Why Inequality Might Matter“, gave a good start to addressing the issues of financial (income or wealth) inequality. In particular, he began analyzing some of the premises that made him initially think it didn’t, and went on to address points that changed his mind.

I’m going to assert that inequality beyond a certain degree is actively harmful to society. I’ll be cribbing a few of Mark’s points, but I’ll also be adding my own and expanding the analysis.

Issue #1: What level of inequality is harmful?

This is one of the biggest things to address for any rational discussion of financial inequality. In threads on previous symposium articles, Kurt Vonnegut’s short story Harrison Bergeron, an allegorical tale about a world in which “perfect equality” is forced upon people by physical means, was brought up. I’ll stipulate now that nobody in their right mind is advocating for that level of “forced equality”, nor is anyone advocating for a total equality of outcomes. There is a certain amount of inequality inherent in any society, which is both manageable and healthy. The issue is when we move from a point of financial equality that is stable and manageable to a point where the self-reinforcing aspects of inequality destabilize the system.

As a thought experiment, I invite you to consider varying levels of inequality between the minimum and maximum income at a particular business. A 1:1 ratio is probably too low to make sense. Where does a 1:5 ratio take you? 1:10? 1:25? At what point do you reach absurdity? I’d like to see a few responses on this, to get a sense of what others think. In my mind, I think that a general 1:5 to 1:10 ratio is ideal for maintaining stability in the system, depending on how other factors impact the system. Such factors for an analysis like this include the concentrating effects of inheritance (vis-a-vis eliminations of estate taxes), the concentrating effects of privileging certain forms of unearned income over earned income (capital gains & stock options vs wages), and the concentrating effects of pyramidal control wherein upper management are immune to consequences of their bad management – either through “golden parachutes”, bonuses, or immunity to layoffs – while conscientious workers will nevertheless reap the financial harm of firings, layoffs, and lack of business reinvestment in order to shrink payroll and maximize quarterly shareholder or CEO profits.

Issue #2: How does financial inequality do harm?

As per Mark’s post, there are a variety of ways that inordinate financial inequality harms society. The first point is decreased social interaction.

• Decreased social interaction between classes decreases empathy and concern for others, and for society in general. Increased financial inequality necessarily decreases social interaction and stratifies society. As Mark states, “Indeed, it seems to me that this cultural isolation of the upper crust is an area in which the narratives of the Right and Left are in complete accord, if expressed in starkly different terms”. When those in dominant economic and political power are partially or completely ignorant of the state and concerns of their neighbors in the city, county, state, region or nation, harm can be the only result.
• Decreased social interaction between classes increases resentment and hostility, in both directions. The lower and middle class will see increased resentment as a result of the belief that their needs are not being addressed in the system and their desires and input not taken seriously by those in power; the upper crust begins to see the lower classes as “lesser” humans, mere chattel or worse. The phrase sometimes used for the lower and middle classes, the “hoi polloi“, is a reflection of this resentment from upper crust downward from another era; in the time it was coined, it referred to the disgust an aristocracy carried for the majority of a nation, a people so impoverished that even regular bathing was viewed as a luxury. Mutual resentment and hostility between classes can only create harm.
• Decreased social interaction decreases local investment on both an emotional and financial level. A local CEO of a local business hopefully cares about his community, his neighbors. CEOs of small businesses sponsor local parks or clubs, encourage employees to participate in local civic groups, and engage in the community. The CEO of a multinational corporation sitting in an office in New York or Dubai thinks nothing of the cost to the community of Hot Springs, Arkansas or Joplin, Missouri before flicking the pen over the paper that shuts down a local factory and puts half the population out of work in a cascade effect.
• Decreased social interaction decreases class mobility. It’s hard to form business partnerships with people you never meet; it’s hard to convince someone to loan money to start a new business when you’re competing with their fraternity-buddy’s son from Trustfund Delta Silverspoon fraternity, who went to universities that deliberately price themselves so high that nobody out of the 0.1% could ever attend. And inter-class marriage is quickly becoming something that is “simply not done” once again.

The second point to how inordinate financial inequality harms society is in the translation of work effort into reward. For this we go to the question of productivity vs wages, and the outlook is grim.

• At some point between 1970 and 1982, difficult to ascertain due to the masking effect of normal trends in the graph, increased worker productivity stopped resulting in increased wages for normal workers.
• At the same time, “standards of living” and purchasing patterns only increased. Translation: much of the perceived growth in GDP between 1980 and 2008 was in fact not growth, but a credit bubble and the effect of other bubbles like housing, tech, and energy.
• Worse than that, workers have been forced to work longer hours for lesser wages. In 1967, 47% of households had both spouses working. By 2008, that number exceeded 70%. The “9-to-5” day, in which workers worked 8 hours and were credited a 30-45 minute lunch break, has been replaced by the 55-plus hour “overtime exempt” workweek and making employees “get off the clock” for assigned breaks or lunches. This has impact upon health and well-being; it has impact upon family stability; it has impact on the amount of quality time that workers can spend with their children, or volunteering in the community, or even going for a walk around the neighborhood to stay fit. It has created much of the sleep deprivation epidemic in America.
• When I say lesser wages, I mean lesser wages. Inflation-adjusted wages for the lower and middle class have not moved in a statistically significant way since 1980. Real, inflation-adjusted take-home wages are down as workers have constantly been told they needed to “pay their fair share” in the replacement of pension funds with “employee contribution 401(k)” scams and ever-increasing health insurance premiums, co-payments and “capping” systems.

We can plainly see; workers in the USA are expending far more of the zero-sum resources of sleep and health, while their wages have stagnated. This is not the sort of “positive sum, win-win” snake oil that Roger was peddling, this is a win-lose proposition because hours cannot be put back into the day, and “patching” the damage to health – masking it with sleep drugs, caffeine, or even more drastic interventions required to deal with the long term heart damage and other chronic physical symptoms of lack of exercise and sleep – then puts a real burden on the lower classes and society at large in the form of health care costs.

The third point to how inordinate financial inequality harms society is in the destruction of leisure activity access. I pasted a quote from the movie Jurassic Park in an earlier comment; here I will include the video. [To the editor; if you can actually embed it, please do so!]

The issue is that inordinate financial wealth prices the lower classes out of any non-pervasive good, service, or recreational activity. This becomes a part matter of the first point – social isolation – but a part all its own as well. In sports, it gives rise to skyboxes, private booths, and “private sections” as well as ticket price inflation. The sport of professional basketball in the USA is an instructive case; its player base is 90% black, drawn mostly from the inner cities based on the genetic lottery that results in “tall and can dunk” luck, but the attending viewers at a game will be 95% or better nonblack, and almost all will be in at least the upper 25%, if not 10%, income bracket. This is the result of the pricing mechanic at work – the “cheap seats”, up in the nosebleed section, start at $65 and then prices ascend from there. When newer stadiums have been built in the USA since 1980, they have decreased the available seating while increasing the number of “luxury box” seats and then increased the price of even the low-grade seats.

In the market of products, as Mark offered: “By this I mean that as inequality increases and wealth becomes increasingly concentrated, the market will increasingly cater to the tastes and priorities of the wealthiest classes, and those tastes will increasingly drive new products and innovations.” In professional sports venues skyboxes displace bleachers, the available seat total in general is reduced, and the lower and middle classes can attend and enjoy less games in person as a result. This feeds back into point 1 yet again; the poor and middle classes, realizing that they are being priced out of the leisure activities market, will justifiably become resentful of the system that is doing so and the upper crust who drive it.

All of this may be “positive sum” economically, if we claim that GDP has truly grown and not just risen on a bubble of credit; but it is definitely not win-win. All the risk is placed on the lower classes; all, or almost all, of the reward is reaped by the upper.

The lower classes of the 1950s had a general faith in pensions and social security, even if they didn’t have ipods, didn’t have netflix, and might have been saving up to buy that new color TV or just listening to the radio. The lower classes of the 2010s have ipods, netflix, personal computers… and absolutely zero faith in what retirement funding they may have, zero faith in social security, and zero faith that society will continue to improve their lot. It’s a win-lose proposition; while the upper crust wins the inordinate financial disparities squeeze more hours out of the working day of the lower and middle classes, destroy their health, destroy the time they should be spending with family, friends and children, and price them out of more and more of the marketplace unless they become slaves to debt, mortgaging the future and running the Red Queen’s Race as they get less and less return for the same hour of work each year.