Income Inequality Threatens Capitalism, Democracy?

The primary cause of inequality’s threat to capitalism, according to economists surveyed by IGM, is the erosion of faith in the capitalist system that inequality produces.

“It’s a threat to people’s belief in capitalism as an institution of economic governance,” said David Autor, an economics professor at MIT. “Absent shared belief, we are in trouble.”

Other economists tended to agree, such as Barry Eichengreen of UC Berkeley: “Certainly the perception that economic outcomes are unjust is a challenge to the legitimacy of the economic system.”

One economist brought up concerns that extend beyond the popularity of capitalism as a system. Darrell Duffie of Stanford pointed to a paper that found inequality lowers demand and economic output.  “Inequality can lead to social instability, low demand, and other threats to successful capitalism,” Duffie said.

However, not all economists were convinced. Among those that were uncertain, there was mention of another system that inequality is likely threatening: democracy.

“It’s certainly a major threat to democracy,” said Maurice Obstfeld of Berkeley.

Robert Shimmer from University of Chicago disagreed with the statement, yet conceded: “The perception that the rich don’t play by the same rules is a major threat, but not their wealth per se.”

Source: Chart of the Week: Income Inequality Threatens Capitalism – ProMarket

What do I know, I’m not an economist. It seems to me this country, this democracy, was created during a time of significant inequality – indentured servants for example.

We have had inequality since have we not?

Todays inequality has largely been built thanks to creation of new technology, new industries, IPOs and the stock market. In the process of all this, millions of new jobs, new businesses were created, new wealth for the masses in many cases.

Now this makes sense: “The perception that the rich don’t play by the same rules is a major threat, but not their wealth per se.”

If they don’t play by the same rules or they have undue influence, that is the fault of our elected leaders who we should be holding accountable. If the super wealthy intentionally block opportunity for others or take overt steps to hold others down, that is a serious problem. Is there evidence of that and if so, why hasn’t it been addressed?

One thing is for sure, the American political left has gone out of its way to convince Americans that our billionaires are the bad guys, greedy and not paying their fair share … without specifics demonstrating any harm they have done and ignoring the positives. And ignoring the reality that all of us make an effort to minimize our taxes within the tax code – written by Congress – or if we cheat we are subject to penalties.

3 comments

  1. I can agree that inequality is bad when it is the result of artificial limits. And, I agree that folks like Musk and Bezos and Gates, etc. make good targets for the left who are more likely to espouse Marx: “From each according to his ability, to each according to his needs.” than they are to quote Milton Friedman: “Underlying most arguments against the free market is a lack of belief in freedom itself. A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”

    However, as “unequal” as Musk, Bezos, Jobs and Gates (etc.) are to me, I think this only becomes a major concern among folks who conclude that there are insurmountable barriers to improve their lot in life, that they are denied opportunity, where economic mobility is missing.

    In the early 1970’s, I was earning close to minimum wage and I was in debt. I was in the lowest quintile when it came to income and wealth. But, I made investments that improved what I know would be the most valuable asset each of us has – our ability to earn a living.

    I’ll never begrudge Musk, Bezos, Jobs or Gates their wealth. I don’t own a Tesla and never will. I don’t use Amazon much. Yes, I have an Apple iPhone and use Microsoft products everyday at work. But, those guys earned their wealth. They have made massive improvements in my quality of life, and the quality of life of those around me. When I think of them, I think of Kennedy’s quote: “A rising tide lifts all boats.”

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  2. The thread that ran through most of the comments was that perception of inequality will lead to problems for the capitalist system. I agree with that sentiment. When people change their beliefs, all hell can break loose. The argument that billionaires are all deserving may be true or not, but you can’t ignore what the mass of people start to believe. What must be done is a fair wage for a fair days work and respect for workers at all levels as human beings. The hope of earning something better is necessary to keep people from chucking the whole shebang.

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  3. Somehow, somewhere, people started believing what the socialist, communist, liberal colleges and politicans where telling them. Everything is “unfair”, “inequable”, and is someone else fault. One of the basic principles of capitalism is that with hard work you can get ahead. For the most part, every baby born in the United State starts out with the same opportunity and is give a free education thru high school. Not everyone will become doctors and no one will just give them a practice unless they earn it.
    If American capitalism doesn’t work and is so unfair, why are there so many illegal immigrants cross INTO American vs. Americans crossing into Mexico?
    These “studies” appear to be justifying opinions and quantifying laziness without examining people’s life choices and missed opportunities.

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