December 10, 2006 at 08:05:17

1% now owns 40%

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By Julian Edney (about the author) Page 1 of 3 page(s)

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For OpEdNews: Julian Edney - Writer

America has been growing more unequal since the1790s [1]. The growth has been uneven: at some times in history the middle class grew and incomes became more similar, but then the trend resumed and the highs and lows became more extreme. Now 1% of the population owns about 40% of the wealth [2].

On the face of it, wealth has been trickling up into a few hands. Observers have made some comments, but nobody knows if radical inequality is bad for us.

In fact modern economics welcomes inequality. Inequality is said to keep wealth growing, so it must be good for the whole society.

There are a couple of reasons for this. First, a big society has a complex economy with many different kinds of interconnected jobs. It requires citizens to fill a large number of different roles involving many divisions of labor. Cheap jobs and expensive jobs, and a variety in between, comprise the necessary parts of a highly technical, highly powered, many-faceted machine. In fact, economists have graphs called indifference curves which show that the greater the inequality, the greater the growth of wealth [3].

The second reason has to do with the amount of freedom in a society. Democracy is a balance of two things, freedom and social equality. Democracies are a good place to live because citizens can choose what they want to do with their lives, and can expect to be treated fairly equally.

And hopefully, there's a match between the society and the economy.

But it turns out that these two, freedom and equality, are also opposed to each other. Like water in a U-shaped tube, as one side rises, the other goes down: the more freedom there is, the more the people become unequal. And you can artificially make the unequal people more equal, but in the process you take away some freedoms.

So the second reason modern economics welcomes inequality is that it predicts more liberty, the kinds of liberty in which free markets make a lot of wealth.

Roughly, that is the story handed down by economists who follow Adam Smith from 1776, who said that if you just let people tend to their own interests and do what they want to do, everything will turn out alright, because in their freedom, they will become industrious and invent ways of doing things that are more efficient. So business gets better. The businesses add up; and if everybody freely does this, eventually the whole community becomes more wealthy. In short, selfish interest leads to the common good.

There are hidden corners in this. If all that liberty means inequality, that sounds like a threat to the other part of democracy. So Smith used another principle, the greatest good for the greatest number. Adam Smith was not concerned with inequality, nor with justice: inequality is in the nature of things, and the whole thing works best if everybody acts indifferent.

Today, Adam Smith's theory is almost unopposed. It doesn't matter that some people suffer in the free market system so long as there is a majority which does better.

We have lots of theories like that: they are unopposed because they suggest it's always been that way. They sound like part of the handed-down wisdom of our society and self-evident truth. If you debate them, people think you are deranged. A few people see something is wrong, but they self-censor, because they don't want to be ridiculed. When Galileo publicly questioned an obvious truth that the sun revolved around the earth, they wanted to kill him.

Some ugliness is gathering around Adam Smith's ideas. They contain self-contradictions [4,5]. Second, while the Smithian system creates multimillionaires living on baronial estates, it also creates poverty. We have bag ladies sleeping on sidewalks and lunatics living in the subways. It has created corporations that are wealthier than some nations' economies, and child poverty rates are over 20% in big cities [6]. It has created a nation that is the biggest exporter of food although some of its citizens go hungry [7].

With those inequalities, the big wealth is obviously not all for the common good.

Third, there is new scientific evidence that the inequality by itself is doing damage [8].

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Author: Julian Edney can be contacted through his website, http://www.g-r-e-e-d.com/GREED.htm

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