patrick.net

One of the topics that has kept coming up over the 2 years of this blog's existence is wealth and income disparity. It's pretty obvious from a number of different sources and metrics that --after heading down for several generations-- it's been going up over the past 35 years or so in the U.S. In fact the U.S. is now closer to China or Iran in terms of wealth distribution (as measured by the Gini Coefficient) than Canada or Western Europe.

Some of the regulars here (myself included) view this as an alarming trend, with some disturbing implications, such as:

A gradually shrinking middle class (however one chooses to define that), and increasingly bifurcated economy/society.

Less overall economic/social mobility (fewer opportunities for ambitious, intelligent poor people to join the ranks of the middle class, or move from middle to wealthy class).

Potential for greater social/political unrest, as wealth disparity approaches Third-world levels (What good is it to be "middle class" or wealthy, if it means having to live in a heavily fortified compound that you cannot leave without bringing along a small private army to protect you, a-la Mexico or Colombia?).

The devolution of our economy, from "free market" capitalism, based (at least somewhat) on the concepts of rule-of-law, meritocracy, competition and personal responsibility, to one based more on kleptocracy, plutocracy, corruption, and political connections.

The growing phenomenon of "Privatize Profits, Socialize Risks", where politically well connected big businesses and de-facto cartels attempt to insulate themselves from competition, and seek to transfer the consequences of their own bad financial decisions to taxpayers, via federal laws, subsidies and bailouts.

Some of our Patrick.net regulars appear to think this may be a symptom of an inevitable mega-trend that no amount of social engineering or tax redistribution can stop. Some even consider the emergence of a large, prosperous middle class as a historical aberration, that we are now in the process of "correcting". Peter P has often commented that, "no matter how you redistribute wealth, it always ends up in the same hands". And there may be validity to this view: consider the spectacular rise and fall of Communism in the Twentieth Century. There is also the notion that our economy has progressed to the point where wealth disparity is unlikely to lead to the kinds of social/political unrest it has in the past (French, Russian Revolutions, etc.), because for the most part, citizens' basic physical needs are still being met. A.k.a., the "bread and circuses" argument (see Maslow's hierarchy of needs).

The big questions for me are:

1) Is the decline of the middle class and bifurcation of the U.S. economy an inevitable result of macro-economic and historical forces beyond our ability to influence (such as global wage arbitrage and the transition from being an industrial power to a primarily service-based economy)?

2) Is it theoretically possible to reverse this trend through social/economic policies, and if so, how? Is Different Sean-style socialism the only way? (see "How does one regulate 'well'?")

3) If such reforms are theoretically possible, are they practically feasible? (i.e., is it realistic to assume political opposition from entrenched special interests can ever be overcome?)

Discuss, enjoy...

HARM