Blog Archives

Do the Roots of Rising Inequality Go All the Way Back to the 1980s?

I presented this chart of rising wealth inequality a number of times over the past year. Do you notice something peculiar about the inflection points in the 1980s?

Correspondent W.S. noted that the inflection point for the top .1% (late 1970s) preceded the inflection point of the bottom 90% (around 1986): both increased their share of household wealth from 1978 to 1986, and then the share of the top .1% took off, essentially tripling from 8% to over 22%, while the share of the bottom fell precipitously from 36% to 23%.

(Note that the data stops at 2012; if we extend the trends to the present, the lines have certainly crossed and the share of the .1% now exceeds that of the bottom 90%.)

So what happened between 1978 and 1986? The first phase of the financialization of the U.S. economy.

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The Engine of Inequality: Privilege

We all know wealth/income inequality is soaring. I’ve published many entries on this topic (please see the three charts below as a refresher), and it’s clear there are multiple sources of rising inequality: globalization and technology, which concentrate gains in relatively few hands, and inflation, which reduces the purchasing power of stagnating real wages.

But the dominant source of inequality is privilege–specifically, privilege that is institutionalized by the status quo.

This engine of inequality–institutionalized privilege–is the topic of my new book, Inequality and the Collapse of Privilege($3.95 Kindle ebook, $8.95 print edition).

The word “privilege” is tossed around rather loosely. What does it mean in economic and social terms? I differentiate between privilege, which is unearned, and advantaged, which is earned.

To reverse rising inequality, we must dismantle the institutionalized power of privilege and create universally accessible pathways to the advantages of building capital. A key part of my analysis is causally linking rising inequality, poverty and privilege.

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If We Don’t Change the Way Money Is Created and Distributed, Rising Inequality Will Trigger Social Disorder

Centrally issued money optimizes inequality, monopoly, cronyism, stagnation, low social mobility and systemic instability.

If we don’t change the way money is created and distributed, wealth inequality will widen to the point of social disorder.

Everyone who wants to reduce wealth inequality with more regulations and taxes is missing the key dynamic: the monopoly on creating and issuing money necessarily widens wealth inequality, as those with access to newly issued money can always outbid the rest of us to buy the engines of wealth creation.

Control of money issuance and access to low-cost credit create financial and political power. Those with access to low-cost credit have a monopoly as valuable as the one to create money.

Compare the limited power of an individual with cash and the enormous power of unlimited cheap credit.

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We Need a Social Economy, Not a Hyper-Financialized Plantation Economy

We all know what a hyper-financialized economy looks like–we live in one:central banks create credit/money out of thin air and distribute it to the already-wealthy, who use the nearly free money to buy back corporate shares, enriching themselves while creating zero jobs. Or they use the central-bank money to outbid mere savers to scoop up income-producing assets: farmland, rental properties, cartels, etc.

The only possible output of a hyper-financialized economy is rapidly increasing wealth and income inequality–precisely what we see now.

What we need is a social economy, an economy that recognizes purposes and values beyond maximizing private gains by any means necessary, which is the sole goal of hyper-financialized economies.

Given the dominance of profit-maximizing markets and the state, we naturally assume these are the economy. But there is a third sector, the community economy, which is comprised of everything that isn’t directly controlled by profit-maximizing companies or the state.

What differentiates the community economy from the profit-maximizing market and the state?

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