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The nature of economic equality

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10/25/2014 11:32:33 AM
Posted: 3 years ago
The defenders of capitalism commonly argue that economic inequality creates incentive and thus makes things better for everyone, and that for capitalism to be just, all we have to do is ensure that the people at the bottom have the necessities, The argument is that no matter how rich the elite become, we are still getting 'more stuff', and so the system is justified.

This is based on, it seems to me, a misunderstanding of what inequality is. You are only 'rich' or 'poor' relative to some standard of wealth, and thus when the rich get richer, someone is always getting poorer. If you own a gold-plated bathtub and a yacht, but everyone else in your society owns a thousand of each, then you are the poor man. You are the one living in 'sub-standard conditions'. The amount of control you have over society's total wealth determines how rich you are, not how much better your living standards are compared to people living fifty years ago.

This is important for two reasons. Firstly, it means that when the income of the richest people increase, you lose out (unless we have some multimillionaires here?). To use a ridiculously simple example, if we increase our production of apples from 50 to 100, but economic inequality increases similarly drastically, then maybe instead of getting 0.5 apples we'll be getting 0.55 apples. Fantastic. But the rich went from getting 10 apples to getting 25.

"Some people think it"s a law that when productivity goes up, everybody benefits," says Erik Brynjolfsson, an economics professor at the Massachusetts Institute of Technology. "There is no economic law that says technological progress has to benefit everybody or even most people. It"s possible that productivity can go up and the economic pie gets bigger, but the majority of people don"t share in that gain."

The statistics indicate that this is exactly what is happening.
According to every major data source, the vast majority of U.S. workers"including white-collar and blue-collar workers and those with and without a college degree"have endured more than a decade of wage stagnation. Wage growth has significantly underperformed productivity growth regardless of occupation, gender, race/ethnicity, or education level"
"The weak wage growth over 2000"2007, combined with the wage losses for most workers from 2007 to 2012, mean that between 2000 and 2012, wages were flat or declined for the entire bottom 60 percent of the wage distribution (despite productivity growing by nearly 25 percent over this period)"
"For virtually the entire period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage growth for most workers has been weak. The median worker saw an increase of just 5.0 percent between 1979 and 2012, despite productivity growth of 74.5 percent"while the 20th percentile worker saw wage erosion of 0.4 percent and the 80th percentile worker saw wage growth of just 17.5 percent"

There we have it. Productivity increases; economic inequality increases; almost everyone loses.

Secondly, it is important to note that, generally speaking, money is power, and thus, when you have less of it compared to others, you have less power. It is quite obvious that a billionaire is going to be more influential than a member of the working class, considering nothing else. This means that when wealth inequality increases, the influence of the rich in society increases and the influence of everyone else decreases.

The system is truly broken when the mainstream arguments used to defend it are actually critiques of it.