Why is income and wealth inequality a problem?

Why is income and wealth inequality a problem?

  • mdo  Admin
  •   Articles
  •   August 16, 2021

Widening income inequality and wealth inequality or "excessive wealth disparity" undermines the economy and jeopardizes democracy. In the Journal article "Health and social cohesion: why care about income inequality?" by Ichiro Kawachi and Bruce P. Kennedy stated that "Income inequality has spillover effects on society at large, including increased rates of crime and violence, impeded productivity and economic growth, and the impaired functioning of representative democracy. The extent of inequality in society is often a consequence of explicit policies and public choice. Reducing income inequality offers the prospect of greater social cohesiveness and better population health."

As Justice Louis D. Brandeis said "We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both."

In a representative democracy such as the U.S., people hold political power through electing representatives. In the Constitution of the United States Preamble it states that "We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity". Aspects of U.S. democracy means ensuring the rule of law and investing in the people and their civil rights. That includes the right to participate in a democracy by voting, and basic economic welfare and economic security.

When wealth and political power rests with a small number of people it can negatively impact democracy, how we vote, and what our elected representatives work towards. That reduces the effectiveness of a representative democracy and chips away at the democratic norms outlined above.  

It's not just eroding democracy, it impacts the economy negatively too. While CEO's pay skyrockets, they are also constantly outsourcing, downsizing to skeleton crews, consolidating, buying out their competition, and stifling unions. The types of jobs and pay available changes... no longer in favor of the average citizen. In Western Europe and the U.S., "technological progress has also translated into a hollowing out of middle-class jobs, a phenomenon known as job polarization (Goos and Manning, 2007)."


If some people are getting really wealthy through investments without impacting anyone else, is it really a problem?

Yes, a huge problem. It does impact everyone. A variety of studies from around the world show that widening income and wealth inequality or "excessive wealth disparity" also impacts health outcomes such as life expectancy, infant mortality rates, mental health, and obesity.

High rates of inequality increases chronic stress, which can severely impact mental health.

With unfavorable job prospects, low pay, reduced union protections, and poor physical and mental health, citizens are not left with much agency, and their trust in government institutions diminishes.

The biggest negative impact of wealth and income inequality could be the inverse link between income inequality and social cohesion. Income inequality reduces social cohesion, which can lead to increased stress, fear, and insecurity. It could "lead to political polarization, and ultimately lower economic growth (Berg and Ostry, 2011; Rodrik 1999)."

As human beings, we rely on healthy societal relationships. The U.S. Department of Health and Human Services details social cohesion as part of healthy relationships: "Relationships are important for physical health and psychosocial well-being. Relationships are conceptualized through terms such as social cohesion, social capital, social networks, and social support. Social cohesion refers to the strength of relationships and the sense of solidarity among members of a community."

Social cohesion helps build general trust in other citizens, a willingness to cooperate and help other citizens, a sense of belonging to the community, it helps build acceptance of diversity, it increases memberships in associations and trade unions. When an individual feels that they will not be left behind, that has a strong positive effect on their well-being. Social cohesion helps build respect for social rules, trust in government institutions, trust in leaders and public figures, and grows civic and political participation.

As income inequality reduces social cohesion, that means trust in other citizens is broken down, the willingness to cooperate and help others is stifled, some people are ostracized and feel left behind, membership in unions are slowed, trust in government institutions diminishes, trust in leaders and public figures is reduced, and civic and political participation slows down.

The reality is that income and wealth inequality or "excessive wealth disparity" significantly affects everyone and can lead to situations that affects institutions at large. Wealth inequality undermines social cohesion, and increases political and social tensions. It can lead to instability, conflict, and crime that can potentially reach every member in a society, even if they feel distant or unaffected by it.


What can be done to resolve widening income and wealth inequality?


Firstly, and quite simply, the ultra-wealthy should be taxed. The Ultra-Millionaire Tax Act of 2021 aims to do just that.

President Biden's plans include wanting to Re-grow the Middle Class: https://www.investopedia.com/joe-biden-s-economic-plan-save-the-middle-class-4769869#the-american-middle-class

There are other initiatives that are working toward reducing the negative effects of widening wealth and income inequality in the U.S., such as the For The People Act, which would change how political campaign financing works. There is a big march planned for this over at https://marchonforvotingrights.org on August 28, 2021.

There is the movement to Cancel Student Debt - https://twitter.com/DebtCrisisOrg - Student loan debt now impacts over 45 million borrowers, households, and families nationwide. Removing the debts could grow the GDP by
billions of dollars and create 1.5 million new jobs - http://www.levyinstitute.org/pubs/rpr_2_6.pdf

There is the movement to Make the CTC Permanent - https://twitter.com/ExpandCTC

There is also the #BuildingAnEconomyForFamiliesAct - to permanently extend the refundable worker-and-family-focused tax credits included in the American Rescue Plan, including the Child Tax Credit (CTC), Earned Income Tax Credit, and The Child & Dependent Care Credit.

Lastly but not least, there is the UBI movement and March planned, https://digicen.org/guides/joining-the-ubi-movement for the 25th of September: https://www.basicincomemarch.com/


Can ordinary citizens help reduce wealth inequality and poverty, reduce instability, reduce crime, help restore trust in our institutions, and increase social cohesion?

Yes, you can be an advocate with DIGICEN and encourage Digital Economic Inclusion. Economic Inclusion is the idea that everyone can participate in the economy. Digital Economic Inclusion is a modern method of ensuring everyone has access to the variety of tools necessary to participate in the economy and society, while encouraging democratic participation and social entrepreneurship. The necessary tools include: a foundational income floor, such as a Universal Basic Income (UBI), freedom to use the CBDC, access to Internet-enabled Devices and Apps (Universal Access), and access to Democracy Technology, such as Voting Helper Apps. Digital Economic Inclusion cannot work without a commitment to diversity.


Tags:
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