FINANCE
A New Gilded Age
by Keshav Raghavan
2016-03-11 08:00:00
Wealth inequality in America is alarmingly high. For fear of igniting a new gilded age, we need to address it. It is the greatest threat to the American economy.

America today is returning to an effective plutocracy contrary to the egalitarian ideals on which the nation was founded. Obstruction of social mobility, posed by income inequality, disbars the nation from pursuing its full economic potential.

The demise of the American middle class has been well documented. Not only has it been a recurring theme in the political dialogue this primary season, but economic analyses support that same conclusion. The Gini Coefficient, an index of wealth-dispersion, is at a high unparalleled in the post-Gilded Age era. On a scale from 0 to 1, where 0 represents complete equality and 1 complete inequality, the United States scores 0.45. The increase of inequality has also been the subject of several controversial, yet important, economic analyses, most notably that of Thomas Piketty, who argues that the inequality between the rate of growth of personal wealth and that of the economy at large has led to a more rapid accumulation of wealth for the wealthy, further exaggerating the problem.

Sociopolitical divisions exist as well: the “one percent,” as often referred to in invective, has become a polarizing political concept, leading to a dispossessed populace less determined to work because of the perceived inequality, without accounting for actual hindrances.

In today’s America, the poor face both the material problem of capital deficiency as well as the persistent psychological problem of hopelessness that is only growing by the day. The oligarchical devolution of American politics is a harbinger of the death of a “fair shot” in America. Supreme Court cases such as Citizens United vs. United States have protected the rights of incredibly wealthy donors to hold a disproportionate sway over political processes, further contributing to alienation of America’s former middle class. The growth of the American middle class in the twentieth century corresponded to an increase in quality of living unmatched anywhere else in the world. The consumerism of an enfranchised middle class powered economic gains which established the United States’ primacy among the world’s economies in terms of GDP per capita.

Yet the issue is not merely one of ideology. Exorbitant inequality actually reduces labor market efficiency. Much of the capital, and consequently, power, in the economy is put out of circulation and use. Stored away offshore, this capital has no use. Yet socialist arguments regarding the distribution of wealth fail to acknowledge the importance of free-market incentive and place too much priority on the government. Adam Smith, in The Wealth of Nations noted that “wherever there is great property, there is great inequality.” Inequality is inherent in any free-market society. Finding a responsible way to combat it without compromising capitalist principles is the issue that remains.

In general, wealth is intended as a meritocratic instrument, given to those who have contributed a proportional amount to society. But the way the modern financial system is structured, those with wealth have inherent advantages in its further cultivation and growth; financial literacy is critical. As the wealthy distance themselves from the poor, and the prospect of economic betterment vanishes gradually, so does the impetus a free market provides for people to work. A capitalist society completely divided by inequality gives no more incentive to work than a socialist one.

It is the principal duty of us in the present, cognizant of history, to avoid a similar trial by fire and address the issue before the natural mechanisms of the market do. A reformation of the American tax code is a first step toward critical reform. Proposals such as a progressive tax have been sponsored and endorsed by my many economists on both sides of the political aisle. Other economists still believe that a shift of investment into educational reform is the solution to disabling the hegemony of wealth developing in the United States. Education powers economic ascent.

This issue without doubt is the greatest obstacle to the growth and stability of the United States’ economy, posing an issue to economic productivity and labor efficiency. The very security of the nation’s future depends on a resolution between the economic realities of a capitalist society and the values of a democratic one.



A New Gilded Age

America today is returning to an effective plutocracy contrary to the egalitarian ideals on which the nation was founded. Obstruction of social mobility, posed by income inequality, disbars the nation from pursuing its full economic potential.

The demise of the American middle class has been well documented. Not only has it been a recurring theme in the political dialogue this primary season, but economic analyses support that same conclusion. The Gini Coefficient, an index of wealth-dispersion, is at a high unparalleled in the post-Gilded Age era. On a scale from 0 to 1, where 0 represents complete equality and 1 complete inequality, the United States scores 0.45. The increase of inequality has also been the subject of several controversial, yet important, economic analyses, most notably that of Thomas Piketty, who argues that the inequality between the rate of growth of personal wealth and that of the economy at large has led to a more rapid accumulation of wealth for the wealthy, further exaggerating the problem.

Sociopolitical divisions exist as well: the “one percent,” as often referred to in invective, has become a polarizing political concept, leading to a dispossessed populace less determined to work because of the perceived inequality, without accounting for actual hindrances.

In today’s America, the poor face both the material problem of capital deficiency as well as the persistent psychological problem of hopelessness that is only growing by the day. The oligarchical devolution of American politics is a harbinger of the death of a “fair shot” in America. Supreme Court cases such as Citizens United vs. United States have protected the rights of incredibly wealthy donors to hold a disproportionate sway over political processes, further contributing to alienation of America’s former middle class. The growth of the American middle class in the twentieth century corresponded to an increase in quality of living unmatched anywhere else in the world. The consumerism of an enfranchised middle class powered economic gains which established the United States’ primacy among the world’s economies in terms of GDP per capita.

Yet the issue is not merely one of ideology. Exorbitant inequality actually reduces labor market efficiency. Much of the capital, and consequently, power, in the economy is put out of circulation and use. Stored away offshore, this capital has no use. Yet socialist arguments regarding the distribution of wealth fail to acknowledge the importance of free-market incentive and place too much priority on the government. Adam Smith, in The Wealth of Nations noted that “wherever there is great property, there is great inequality.” Inequality is inherent in any free-market society. Finding a responsible way to combat it without compromising capitalist principles is the issue that remains.

In general, wealth is intended as a meritocratic instrument, given to those who have contributed a proportional amount to society. But the way the modern financial system is structured, those with wealth have inherent advantages in its further cultivation and growth; financial literacy is critical. As the wealthy distance themselves from the poor, and the prospect of economic betterment vanishes gradually, so does the impetus a free market provides for people to work. A capitalist society completely divided by inequality gives no more incentive to work than a socialist one.

It is the principal duty of us in the present, cognizant of history, to avoid a similar trial by fire and address the issue before the natural mechanisms of the market do. A reformation of the American tax code is a first step toward critical reform. Proposals such as a progressive tax have been sponsored and endorsed by my many economists on both sides of the political aisle. Other economists still believe that a shift of investment into educational reform is the solution to disabling the hegemony of wealth developing in the United States. Education powers economic ascent.

This issue without doubt is the greatest obstacle to the growth and stability of the United States’ economy, posing an issue to economic productivity and labor efficiency. The very security of the nation’s future depends on a resolution between the economic realities of a capitalist society and the values of a democratic one.