The Costs of Economic Inequality: Social, Political, and Moral

by Charles W. Elliott

Gandhi once famously said: “Earth provides enough to satisfy every man’s need, but not every man’s greed.” Over the past decade, we have witnessed an unprecedented grab of wealth—with its associated power and influence—by a few at the expense of everyone else. This increasing concentration of wealth for a few in the face of continuing struggles of poor and middle class families just to make ends meet is the consequence of public and economic policies that favor private interests over the public good. This inequality corrupts our political system.  And it ultimately corrodes social cohesion and threatens widespread unrest.

Most people do not have a true perspective of the gross inequality in our economic systems. Fewer still understand its corrosive effects. As writer Michael Lind observed in his article “To Have and to Have Not”[1]:

 The American oligarchy spares no pains in promoting the belief that it does not exist, but the success of its disappearing act depends on equally strenuous efforts on the part of an American public anxious to believe in egalitarian fictions and unwilling to see what is hidden in plain sight.

The six-minute video “Wealth Inequality in America” (http://inequality.org/wealth-inequality-america/), which went viral this past spring, starkly explains the actual extent of this economic disparity. The video, based on research about American attitudes toward wealth by economists Michael Norton and Dan Ariely,[2] shows that most Americans would like to see wealth in the United States much more equally distributed than they believe it is. But at the same time, they grossly underestimate the actual extent of inequality, which vastly exceeds their beliefs about it.

Wealth and Income Inequality in America

In the United States, wealth is highly concentrated in the hands of a few.  While the statistics are dry, they reveal a disturbing truth. The top 1% of households own more than a third of all privately held wealth. The next 19% (the managerial, professional, and small business classes) hold more than half. Close to 90% of all the wealth in the country is owned by just 20% of the people, leaving only 11% of the wealth for the bottom 80% (wage and salary workers). If we exclude home values, and look at just financial wealth (total net worth minus the value of one’s home), the top 1% of households have an even greater share of all the privately wealth in the United States: 42.1%.[3]

In the aftermath of the so-called “Great Recession,” the rich have become much richer while average families continue to struggle. During the period from 2009–2012, overall average family real income grew modestly by 6%. Most of those gains (4.6%) happened last year. But the gains were very uneven. Top 1% incomes grew by 31.4% while bottom 99% incomes grew only by 0.4%. Hence, the top 1% captured 95% of the income gains in the first three years of the recovery.[4]

The income disparities within the top 1.5% are even more drastic. While households in the top 1.5% of households had incomes exceeding $250,000, those incomes were still 2200% lower than those of the top 0.01%!

Increasing Inequality Is a Global Problem

Economic inequality is by no means just an American problem. As an Oxfam International briefing paper observed,[5] for the wealthiest 1% of the global population, “the last thirty years has been an incredible feeding frenzy.” In the United Kingdom, “inequality is rapidly returning to levels not seen since the time of Charles Dickens.” In China, the top 10% now take home nearly 60% of the population’s income.

Across the entire world, the richest 1% of the adult population own 40% percent of household wealth, a total greater than the wealth of the world’s poorest 95%. (http://inequality.org/global-inequality).[6]

According to Oxfam’s briefing paper, in 2012 the top 100 global billionaires added $240 billion to their wealth—enough to end world poverty four times over. If these top 100 people were a separate state, their combined wealth would outstrip the Gross Domestic Product of all but the top eight countries.[7]

What is the Cost to Society?

Such concentration of wealth in the hands of a few threatens our politics, our economy, and our common social values. The World Economic Forum’s Global Risk Report rates severe income disparity as one of the top global risks of 2013.[8]

Severe economic inequality universally threatens democratic values. The ancient Greek historian and sage Plutarch is said to have declared: “An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” In 1816, Thomas Jefferson explicitly noted the dangers of an entrenched and wealthy aristocracy: “[I]t has always been those seeking wealth who were the source of corruption in government. No other depositories of power have ever yet been found, which did not end in converting to their own profit the earnings of those committed to their charge.” More recently, the great defender of social justice and U.S. Supreme Court Justice Louis Brandeis declared: “We can either have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both.”

Political influence secured by great wealth is inevitably corrosive and contrary to broader public interests. The pernicious influence of wealth in American politics was exacerbated by the U.S. Supreme Court decision in Citizens United v. Federal Election Commission. In that case, the Court decided that the First Amendment of the U.S. Constitution allows unlimited political independent expenditures by corporations, associations, or labor unions. While this ostensibly provides a level playing field for political participation through money, the reality is the reverse. For example, in 2012 campaign contributions, America’s wealthiest .01% all by themselves outspent all of organized labor by more than four-to-one.[9] These contributions protect the privileges and property of the wealthy: to make the super-rich even richer.

It’s no wonder, then, that many justifiably believe that the American political system is rigged to favor the wealthy and powerful. In his recent book Affluence and Influence: Economic Inequality and Political Power in America (Princeton University Press, 2012), Dr. Martin Gilens explores the relationship between political and economic inequality in the United States. His work—based on an analysis of thousands of proposed policy changes, and the degree of support for each among poor, middle-class, and affluent Americans—shows that policy outcomes are biased overwhelmingly in favor of the affluent. When the poor, the middle class, and the rich disagree, American policy makers largely ignore the poor and the middle class and cater to the wishes of the affluent. What kind of democracy do we have when the wishes of the vast majority of Americans are bypassed in favor of the rich?

Deep inequality also damages our economy itself. While some inequality benefits economic growth through rewards to those who take risks in innovation, economists increasingly recognize that deep and pervasive inequality is economically damaging and inefficient.[10] International economists Berg and Ostry postulate that high levels of inequality can impair long term economic growth by amplifying the potential for financial crisis, discouraging investment because of political instability, making it more difficult for governments to make difficult choices (such as the choice between raising taxes or cutting public expenditure) in the face of shocks, or by discouraging investment in education and health for the poor.[11]

Such inequality not only limits the overall amount of growth, but prevents growth from benefiting the majority. Consolidation of so much wealth and capital in so few hands is inefficient because it depresses demand, particularly in an economy like that of the U.S., which is so consumption-driven. As the Oxfam paper points out, if “this money were instead more evenly spread across the population it would give more people more spending power, which in turn would drive growth and drive down inequality.”[12] Instead, the opposite is happening. Thus economics Nobel laureate Joseph E. Stiglitz writes:

What worries me is the idea that we’re in a vicious cycle. Increasing inequality means a weaker economy, which means increasing inequality, which means a weaker economy. That economic inequality feeds into political economy, so the ability to stabilize the economy gets weaker.[13]

But the adverse impacts of such inequality are more than economic. In their provocative book, The Spirit Level: Why Greater Equality Makes Societies Stronger, British public health researchers Richard Wilkinson and Kate Pickett argue that the effects of severe inequality reach far beyond economic life and worsen a wide array of social ills, from poorer health to lower trust of government. They’ve investigated the incidence of health and social problems between different countries, and the relationship between those problems and income inequalities within each country. Their conclusion: the more unequal a wealthy country is, the worse its performance is likely to be in a whole range of variables including life expectancy, infant mortality, obesity, child well-being, mental illness, use of illegal drugs, teenage pregnancy rates, homicide, fighting and bullying among children, imprisonment rates, levels of mutual trust between citizens, math and literacy attainment, and social mobility.

A controversial question is whether inequality causes these ill effects or is merely correlated with them. Wilkinson and Pickett consider this question and conclude:

It is very difficult to see how the enormous variations which exist from one society to another in the level of problems associated with low social status can be explained without accepting that inequality is the common denominator, and a hugely damaging force.

 What is the Moral Cost?

Every major religious tradition proscribes greed and selfishness, and teaches instead generosity and fairness. Lao Tzu declared: “Manifest plainness, embrace simplicity, reduce selfishness, have few desires.” Tao-te Ching, Ch. 19. In the Gospel of Luke (12:15), we read: “Then he said to them, ‘Watch out! Be on your guard against all kinds of greed; a man’s life does not consist in the abundance of his possessions.’” And in Matthew (19:24) it was taught: “Again I say unto you, it is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.”

In the teachings of Islam, the Koran (3:180) proclaims: “Let not those who hoard up that which God has bestowed on them of His bounty think that it is good for them—nay, it will be worse for them. The things that they hoard shall be tied to their necks like a collar on the day of Resurrection.”

In Buddhist teachings, greed, along with hatred and delusion, is one of the “three poisons,” the three “unwholesome roots,” and the “three fires,” from which suffering arises. Generous giving to others, on the other hand, is said to be the first among the ten types of meritorious deeds and the ten perfections (pāramitā) that lead to Buddhahood.

Even modern political philosophers such as John Rawls, who argued the moral case for inequality in support of free-market democratic structures, recognized that such a moral case required that social and economic inequalities must satisfy two conditions of fairness and social benefits: “[F]irst, they are to be attached to offices and positions open to all under conditions of fair equality of opportunity; and second, they are to be to the greatest benefit of the least-advantaged members of society.”[14]

Of course, neither one of these conditions exists today. To the contrary, economic inequality is closely tied to political inequality. The wealthy acquire ever more political influence and power, and the poor are powerless, destroying “fair equality of opportunity.” Current conditions of inequality in no sense inure to the greatest benefit of the least-advantaged. Rather, they perpetuate and institutionalize disadvantage.

When we consider the moral character of accumulation of great wealth, we often want to know two things: How was it acquired? Once acquired, is it used for selfish or beneficial ends? To be sure, wealth can be the product of great effort in a socially productive endeavor. But more often it is the result of such things as inheritance or speculation in equities and commodities, rather than technical innovations, investments in job-creating industries, or social services. In the United States, enormous wealth was acquired with financial instruments in a rigged game in which risk was externalized and off-loaded to others. In Russia, during the infamous decade of the 1990′s, virtually the entire national economy was rapidly “privatized” and sold for political prices at a fraction of real value. Massive transfers of property were achieved through “theft, and seizure of state resources, illicit stock manipulation and buyouts. The future billionaires stripped the Russian state of over a trillion dollars worth of factories, transport, oil, gas, iron, coal, and other formerly state-owned resources.” [15]  In other places, such as the Democratic Republic of the Congo, great fortunes are made through unlawful exploitation of natural resources and human labor on a colossal scale.[15]

Wealth accumulation for selfish ends is even less justifiable. While Buddhism recognizes that wealth can be acquired and used virtuously, and praises the use of wealth to benefit others, the accumulation of vast sums beyond any reasonable material comfort, used and kept solely for selfish ends, is to be condemned. Such selfishness invites enmity; perpetuates inequality; and reinforces the false sense of “I” and “mine” that is the root of fundamental delusion.

On the other hand, manifold benefits and virtues arise from generosity and giving. From a Buddhist perspective, a wonderful exposition of the virtues of giving can be found in the selection of essays in “Dana: The Practice of Giving”, (ed. Ven. Bhikkhu Bodhi), available at: http://www.accesstoinsight.org/lib/authors/various/wheel367.html

The Māgha Sutta maintains that by making generous offerings one leaves hatred behind (Sn 506). The one with a generous heart earns the love of others (Anguttara Nikaya, 5:34; III 39). [16] And in the Itivuttaka (18) the Buddha says:

If people knew, as I know, the fruits of sharing gifts, they would not enjoy their use without sharing them, nor would the taint of stinginess obsess the heart. Even if it were their last bit, their last morsel of food, they would not enjoy its use without sharing it if there was someone else to share it with.

Increasing economic inequality divides our society, breaks the bonds of community, invites social unrest, and inevitably invites national decline. It is also profoundly unjust. We need to start demanding political, economic and social reforms that address the structural causes of economic inequality so that basic human values of compassion, sharing, and community are affirmed and reinforced for all.

(Photo credit: Inequality for All, a documentary film by Robert Reich, http://inequalityforall.com/)