Income Inequality

I read on BBC yesterday that the richest 62 people in the world now earn as much as the poorest half, which would be about 3.5 billion people! Although there is some confusion about the methodology, it is clear that the wealth and income have been getting more and more polarized. The rich are certainly getting richer. Income inequality is more acute than ever.

Apart from the moral discomfort este unfair and indecent distribution should cause, I have a couple of sound economic reasons why such wealth disparity is bad.

Wealth polarization works against the trickle-down economics. Small number of people with large amounts of money means smaller consumption of products, hence less manufacturing. A Chanel purse may cost as much as a hundred mass produced “normal” purses (or a thousand hand-made third-world purses), but it is still just one purse, requiring only a very small labor input. I remember meeting a lady a couple of years ago who told me that her Louis Vuitton purse (costing $40k, if I remember right) was so exclusive that only two of them were ever manufactured. I am glad that she was rich enough to pay for that kind of exclusivity, but this kind of spending is very different from a normal family spending the same amount on a couple of years worth of groceries. The latter has an army of workers (from the checkout clerks in local supermarkets to farmers in some third world countries) that stand to benefit from it.

En segundo lugar, wealth disparity legitimizes indecent practices. Money translates to political power, and hence policies that are skewed toward the elite, and hence even more wealth polarization. Why do you think 95% of the recovery money after the 2008 financial meltdown went to the top 1%? Why is it that none of the top bank executives and other corporate dons never ended up facing criminal charges for crimes such as money laundering or tax evasion etc? Seguro, HSBC may pay a couple of billion dollars in fines (which will eventually be collected from you in terms of fees, finance charges, commissions etc), but nobody is ever held accountable. Nor will they ever be, as they have money and power. What will happen is that the laws regarding these crimes will morph themselves over time to make them look like legitimate business practices. We are beginning to see “affluenza” defences even for criminal offences.

We need a new ideology. Not capitalism because of how it diminishes human values. Not socialism or communism because they failed. Nor corporativismo, which is nothing more than capitalism on steroids. Something else. I’m not smart enough to come up with one. So my whining is, por último, futile. Hope some of my smarter readers can at least think along these lines.

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