A quick look at the current sentiments surrounding inequality and how it affects the future of capitalism.

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"This is a very dangerous drift in our American thinking. Kristallnacht was unthinkable in 1930; is its descendent 'progressive' radicalism unthinkable now?"

-Tom Perkins

There's been a lot of talk about inequality lately. Obama made it the main focus in his State of the Union address and the Canadian Liberals have made it a central plank of their electoral platform. Really, there just seems to be a lot of discussion around it since the report came out stating that 85 people have the same amount of wealth as the bottom half of the world's population.

Naturally, alongside this comes discussions regarding class warfare and rich-bashing. At least there are discussions about there being discussions about it. I haven't actually heard any more it than the norm but it's apparently been enough to make billionaire investor Tom Perkins make the badly thought-out statement above that tries to compare the treatment received by the wealthy today and the treatment of the Jews in Nazi Germany.

Kristallnacht, also known as The Night of Broken Glass, was an attack on Jewish property in 1938 by riled-up Germans and Austrians that the governments ignored. Over a thousand synagogues were burned and about 7000 Jewish businesses destroyed. At least 91 Jews were killed.

People have been piling in on Perkins for the poorly thought-out statement and he has since apologized, as he should, because, let's face it, Nazi comparisons are generally stupid unless people are getting systematically mass-executed. And they're not. At least not over wealth discrepancies. None of the main bankers, who are the focal point of the anger against the super wealthy, have even been sent to prison for their roles in the financial meltdown of 2008.

But is there anything to what Perkins suggests? Maybe. In the US, a Gallup poll showed that 67% of Americans are unsatisfied with the distribution of wealth, which is unsurprising considering they live in the most unequal of all the developed societies.

Forbes states that: "One report by Pulitzer Prize-winning journalist David Cay Johnston conducted for Tax Analysts found incomes of the bottom 90% of Americans grew only $59 (adjusted for inflation) from 1966 to 2011, while incomes for the top 10% rose by $116,071."

It's even worse than that considering that most Americans aren't even aware how unequal things really are. One study showed that Americans believed the richest 20% of their countrymen possessed about 59% of the wealth. The number is actually 84%, leaving just 16% of the nation's wealth for the other 80% of the population.

Canada is a bit better off in this regard although by no means totally safe since inequality is growing annually. Since 1976, only the top 20% of Canadians increased their share of the income pie. Between 1998 and 2007, the richest 1% of Canadians took home a third of income growth. Although basically all the developed countries have experienced a rise in inequality in the last 20 years, Canada has managed to be the sixth most unequal country out of the 17. This means that in 2010 and adjusted for redistributive programs, the top fifth of Canadians captured 39.1% of the gains, the second fifth captured 23.2%,  and the bottom fifth captured 7.3%.

All around, I think these numbers are not too shabby. If they stayed like this, it wouldn't be terrible. Equal enough to maintain consumer spending and decent lifestyles for everyone while allowing incentives to try and make it to the top.

America certainly has it worse, which is probably why Occupy Wall Street didn't start as Occupy Bay Street. Occupy Wall Street showed that many people are pretty annoyed with the 1%. However, I think it's safe to say that this annoyance is aimed at a pretty small group of people, a group many would refer to as the parasitic rich. I have yet to hear anyone suggesting Bill Gates or Warren Buffet or Brad Pitt or Beyoncé or doctors or entrepreneurs who create useful stuff or other rich people along those lines should be strung up from lampposts.

Fraudulent bankers - yes. People who use their wealth to try and buy elections for politicians who will distort the laws in their favor - yes. Useful and decent rich people? Nah, not seeing it.

Certainly, people like the Koch brothers get a lot of flak. They inherited their massive wealth and spend a lot of it trying to influence government and voters in ways that are rarely totally honest and are generally at odds with democracy. You may remember that they essentially hijacked the Tea Party movement soon after its creation while trying to keep it a secret that they were funding it. Many in the Tea Party thought that they were just an independent group, angry with a too-big government and its alliance with special interests. However, the Kochs simply considered them useful idiots because they liked their minimal government stance which would mean reduced taxes and regulations.

Either way, back to inequality. Is inequality an issue that needs to be resolved? Personally, I'd say it needs to be tempered because trying to stamp it out completely is a really bad idea. Communism and a lack of incentives results in something that has historically been shown to be pretty terrible. They say a rising tide lifts all boats and they are right. Capitalism and its incentive structure and decentralized planning is needed for resources to be allocated efficiently and for affluence for the masses.

That said, inequality passed a certain threshold causes some serious problems. It becomes more like a rising tide when most of the boats are anchored to the bottom.

First, inequality is unstable for societies. Small hunter-gatherer societies always had to be basically egalitarian because they could not survive the societal stresses and internal resentments that came from people having too much more than other people, even social status. One way anthropologists have written that tribal groups would achieve this was by downplaying the roles of their biggest contributors. The other men would do things like stating that the massive boar the best hunter had killed was just a runt and not anything to be proud of. This keeps egos in check and makes the less successful less resentful. Everyone would still be aware of the hierarchy and who contributed what but there was no flaunting that would start fights.

When this resentment gets too severe and is combined with real or perceived scarcity of resources, even large-scale societies get pretty crazy, especially if people start reading stuff about fairness and the rights of workers and such. The Chinese Great Leap Forward, the French Revolution, the Soviet Bolshevik Revolution. Lots of rich people got killed as well as plenty of others who just got caught in the cross-fire of revolutionary madness. If people are feeling the pinch too heavily while seeing others bask in the lap of luxury, they tend to get a little murderous.

The truly epically rich, the 0.000001% are generally so disconnected from the masses that they are like a different species. Everything about their lives will be different from that of a normie. In the same way we tend to see animals as less than humans since we can't communicate, the uber-rich will see the poor as less than themselves since they don't communicate with them.

Some Aboriginal groups up north are forced to cull stray dogs in their communities every so often to keep them from getting out of control and dangerously feral. However, people also treat their own pets like a part of the family and would never hurt them because you know and love them and don't want to see them suffer. This is what needs to happen with the poor. The rich need to know of them in more than the abstract or else they won't really mind having them suffer. Close-gated communities create a dangerous Us vs Them mentality by inadvertently dehumanizing those on the outside.

Second, inequality is unhealthy for societies. In their work, The Spirit Level: Why Equal Societies Almost Always do Better, Richard Wilkinson and Kate Pickett show that in societies where wealth is more equally distributed, the population is better off in almost every way. They compare countries with each other but what I found more useful was their comparison of US states since there would be less cultural and geographical differences that could explain these outcomes than there would be between countries.

Essentially, inequality was linked to worse physical health, mental health, drug abuse, education levels, imprisonment rates, obesity, social mobility, community trust, physical violence, teenage pregnancies, and child well-being. Only suicide was more common in more equal societies, likely because it's harder to blame others when things go wrong when a society is kept more equal.

It might be worth noting that Denmark, the most equal of the 17 developed countries discussed earlier, is also the happiest country in the world according to the the people's response to a survey. Next was Norway, the second-most equal. It mixes up a little bit after that but the general trend remains that more equal countries have happier people. Canada's actually sixth most happy so we're happier than our inequality should dictate while our southern neighbor is seventeenth, which is exactly how happy they should apparently be. 

Interestingly, New York was one of the outlier states in The Spirit Level in that it has high inequality but suffers less from the problems of inequality compared to other US states. Perhaps this is because the rich and poor intermingle much more in New York City than elsewhere in the country?

Either way, I'm pretty sure a lot of the negatives associated with inequality come down to our basic biology. Humans, like everything else alive, are hard-wired to reproduce. Reproducing requires social status. Alpha males get to mate a lot; males down the ladder not so much. This means we are genetically bred to try attain social status in the hope of breeding. Nowadays, social status is based heavily on money and the things it buys.

When you see rich people gallivanting in luxury on Entourage and see advertising for stuff aimed at a much wealthier group than one you'll likely ever be a part of, it's stressful. You start thinking you need to be like those people and have that stuff to gain social status in order to reproduce. Doesn't matter if you already have a spouse and can make kids if you want; we're biologically wired to want to move up that ladder.

Small hunter-gatherer groups needed to stay egalitarian or resentment would stress out the group and cause dangerous conflict. Nowadays, seeing rich, high-status people in the media can create this resentment as well. However, you can't do anything against that person to resolve it. Instead, the stress that this creates has to either be internalized or aimed at people you have power over.

Which sucks because this leads to all kinds of mental and physical health issues, crime, drug abuse, people snapping violently on their families and friends, violent fights with strangers triggered in an attempt to not lose face and what social status they do possess.

People confident with their social status are much less likely to have these issues. For the better off male, their social status is secured by their economic station and education, not by notions of toughness or getting involved with crime in order to try and buy stuff that makes them look rich. This also applies to women although generally to a less extreme degree.

Unique to women is the underage pregnancy tendencies. Females from lower socioeconomic levels are much more likely to get teen-pregnant. They also tend to have less education and employment prospects that aren't improved by having the child. However, raising a baby is often seen as something they can do to gain their credentials as a grownup without these.

The real problem with all of this is that it tends towards systemic traps for the poor. Of course, any group on the wealth spectrum will produce some people who don't get jobs or educations or get too into drugs or crime. The issue is that the negative stresses of inequality upon the poor combine with the influence of the people surrounding them who are also damaged by it. If your brother in your rich family is a criminally-inclined drug abuser despite your parents' best efforts, the worst he will likely do is hurt himself and inconvenience everyone else. It's doubtful that your son will take after him with all of the other positively-influencing people in your family available to mimic.

However, if everyone around you is hurting and stressed due to your crappy location in the societal pecking-order, the number of good influences will likely be greatly reduced and your idea of normal may not be super useful for getting out of poverty. This is how ghettos form and why they are so hard to undo.

Anyway, the third reason for avoiding inequality is economic. Simply put, it's bad economics when a lot of people don't have money to buy stuff. Capitalism relies on people buying stuff. My dollar spent is your dollar of profit.

I'm not sure who said it and can't find it right now but somebody said that "Capitalism is like poker. It's human nature to want all the chips but if you get them, the game is over."

Which is true. We've forgotten some central lessons from earlier in the 20th century. Inequality was peaking in its lead up to the Great Depression and peaked again in the lead up to the financial crisis of 2008 and has actually gotten worse since. This earlier failure of capitalism fed directly into fascism and communism. There is again a rise in right-wing populism in the European countries that are still suffering from the crisis and a reemerging militarism in Japan where the economic situation is still bleak.

One of the main problems has been the continued dominance of a bastardized version of supply-side economics, a type equated with low marginal tax rates and reduced regulations. Prior to that, demand-side economics was employed, an outgrowth of Keynesian economics that tried to achieve full employment as its goal. However, in the 70s came stagflation, the new phenomenon of inflation at a time of little economic growth and high unemployment. Economist Paul Craig Roberts, one of the brains behind supply-side, recently posted an explanation of why it was needed and why it worked in curing stagflation, which I won't go into here.

He also explains why it was not supposed to become the new permanent economic paradigm. Referred to by George H. W. Bush as " voodoo economics" and often known as 'trickle-down economics,' its base concept of reducing all regulations and taxes on 'job creators' was promptly embraced by the political and economic elite as the new model to use since it massively increased their share of the pie at the expense of everyone else. Alongside this was the  off-shoring of manufacturing jobs and the decoupling of wages from corporate profits and productivity gains.

Due to all of this, the consumer spending power required to maintain the required capitalist growth indefinitely is simply not there. Marx had actually predicted this earlier. People tend to get jittery when Marx is mentioned because his ideas of socialism and communism were taken and used to justify such horrible atrocities and authoritarian states. However, it's important to remember that he didn't know how socialism would possibly turn out. No one did, it had never been enacted anywhere. What Marx did understand though was capitalism. He also understood its self-destructive contradictions, which is why he felt socialism would have to be better.

One of the main contradictions was that of Overproduction and Underconsumption. He knew that capitalists would always try to undercut each other by pursuing productivity gains via automation and greater organization efficiencies that would require paying fewer people to do the work. Walmart terminating 1.4 jobs for every job it creates is a good example of this. This means that as more productive capacity builds up, there will be fewer customers able to purchase the goods, and eventually the system will seize up.

On one hand, this may be seen as a good thing considering that you can have fewer people doing the work that used to require more, leaving the excess people to do other necessary work. However, this is only the case if other jobs are available and training and social assistance is there to help them transition. Otherwise you just wind up with more people requiring social assistance from already broke governments and more resources to deal with the societal fallout that comes with unemployment. For capitalism to continue working for the masses, a return to an emphasis on creating demand is necessary, which means redistributing wealth to transition those whose skills are no longer relevant.

Anyway, what is clear is that labor is going to become less and less valuable in the near future. The movement towards fairly divvying up the economic pie needs to really get its act together because this concentration of economic power is also a concentration of political and military power.

Once this economic power is absolute and unified, which it could potentially already be, there will likely be no more chance for the masses to decide how the economic pie is sliced or whether they get a piece.

At that point, whether the Masters of the Universe choose to share it will be entirely up to them.

AS

Authors Website: http://www.theotheradamsmith.blogspot.com

Authors Bio:
25 year-old Canadian student, currently attaining my masters in political science. Work with mentally disabled individuals for employment. Try to be politically involved. A card-carrying member of the provincial and federal green parties of Canada.

Politics is both the most interesting and depressing thing in life so I'll find out later whether it was a wise thing to pursue. Please feel free to read my opinions on relevant matters over at my blog. theotheradamsmith.blogspot.com

I promise I'll try and make it entertaining for you.