Why the establishment is worried about inequality
TheStar.com – News/World – Warnings from central bankers Janet Yellen and Mark Carney signal that world leaders are recognizing the economic dangers of the growing income gap.
Oct 25 2014. By: Tony Burman
The dirty little secret in today’s global economy is not that the rich are getting richer and the poor are getting poorer. That we already know. What’s new is what key custodians of this faltering world economy are now saying.
In essence, they are suggesting that this gap is growing, perhaps to a breaking point, and, because of that, society as a whole is increasingly becoming the loser. In other words, our economic “system” is rigged — now virtually hard-wired in favour of the rich — and this urgently needs to be changed. (Yes, who knew?)
Of course, this thesis is not entirely novel. It is what motivated hundreds of thousands of people, in more than 80 countries, to take part in the so-called “Occupy” movement in 2011 to protest social and economic inequality. It is also what may explain the phenomenal success this year of the bestselling book, Capital in the Twenty-First Century, written by French economist Thomas Piketty. He wrote that inequality in Europe and the U.S. is back to pre-First World War, Downton Abbey-like levels and that only government intervention will prevent the eventual outbreak of social disorder.
But what is different now is that influential establishment voices seem to echo that view. There have been several recent examples coming from conservative government, business and media circles, but two notables stand out. Last Friday, Janet Yellen, head of the U.S. Federal Reserve, created waves in the business and pundit class by suggesting that rising wealth inequality may be incompatible with American values. This was only a few months after Bank of England governor Mark Carney, a Canadian, warned that free-market “fundamentalism” is creating greater inequality in society, and threatening the legitimacy of capitalism itself.
In her speech, Yellen cited Piketty’s work and noted that the distribution of income and wealth in the U.S. had been widening steadily for decades to a greater extent than other advanced countries: “It is appropriate to ask whether this trend is compatible with … the high value Americans have traditionally placed on equality of opportunity.”
Carney, for his part, criticized what he called the extreme free-market orthodoxy among business leaders and policy-makers: “Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself.”
Earlier this month, a report analyzing global wealth revealed that the richest 1 per cent of the world’s population was getting richer, now owning more than 48 per cent of global wealth. The report by the Credit Suisse financial services company warned that growing inequality could lead to a recession: “Taken together, the bottom half of the global population own less than 1 per cent of total wealth.”
Last April, an international report indicated that Canada is among the worst countries in the industrialized world in terms of the widening gap between rich and poor. An analysis by the Organization for Economic Cooperation and Development (OECD) showed that income inequality is increasing in most developed countries, but particularly in the U.S. and Canada.
As the global economy falters again, it is significant that the policy debate among many decision-makers seems to be changing. Rather than the nonsense about “the makers versus the takers,” there is increasing focus on the notion that income inequality could be a key factor in why overall economic growth has been sluggish in recent years.
There has always been a “common sense’ element to this argument. The wealthy tend to save a larger percentage of their income because they are able to. In contrast, middle- and lower-income people spend virtually all of what they earn because they have to. If the rich have more to save and the rest have less to spend, is it surprising that the current economy has remain stalled?
But a glimmer of hope can be seen in these latest appeals from Yellen and Carney. Their message to the business and political class was not only that the increase of inequality was morally wrong. But, perhaps more convincing with this crowd, they are arguing that it is dumb economics.
If the vaunted rulers of our flawed economic system can finally get their heads around this simple truth, the world may miraculously escape another recession.
< http://www.thestar.com/news/world/2014/10/25/why_the_establishment_is_worried_about_inequality_burman.html >
Tags: economy, featured, ideology, standard of living, tax
This entry was posted on Saturday, October 25th, 2014 at 11:19 am and is filed under Equality Debates. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
Leave a Reply
Recent Comments