At this point, almost everyone has heard about income inequality. It seems that income inequality defines itself in the very name. A few have a lot and a lot have very little.
In the United States, income inequality increased through the “roaring 20s” and culminated in the Great Depression — which affected people throughout the world. In the US, the “Dustbowl” was a secondary factor which made the effects of the Great Depression even worse. One targeted the overlying economic system and the second targeted the underlying ability to produce food and other necessities.
Once the Great Depression hit, it was a matter of figuring out how to allow the greatest number of people to survive. Horrible as it was, it did force the population and the government to stand back and look at what had been happening to have the country come to this position and to put so many people into such desperate situations. “Sacred cows” — things that “had always been such” came under questioning. Perhaps “just because they had “always” been done that way” was no longer a sufficient reason to do that.
Root Causes of the Great Depression
Folks who know a lot more about history, and economics, than I do have split the root causes of the Great Depression into five areas.
Vulnerabilities due to Massive Events. For the 1920s, this was the effects of World War I; it involved changing global trade agreements, war debt, and job displacement due to casualties in the war. In the present period, the global pandemic initiated situations very similar to that of the WW I.
Financial Speculation by those that had large “footprints” in the global stock markets. There were very few regulations on the banks or investors and the actions of a very few people caused a ripple effect, and panic, through the economy. After reversing many of the safeguards instigated in the recovery from the Great Depression, we are once again vulnerable to financial speculation. In addition, the US government concept of “too big to fail” (TBTF) encourages large businesses to do unsafe, even foolish, things.
Shortly before the Great Depression, the “Fed” decreased the money supply and greatly increased interest rates. This occurred because of panic moves by the controllers of the Fed. Hopefully, this is one factor that will not come into play at this time — but with oligarchic influence it cannot be certain.
The Wall Street collapse influenced people to purchase gold with their currency. The Fed then increased interest rates to “protect” the value of US currency which led to a further economic slowdown.
The Smoot-Hawley Act. This Act, initiated before the crash, but signed after the crash, increased US tariffs an average of 16 percent. This was responded to by other countries increasing tariffs and inflation roared, the value of the dollar decreased, and global market chaos ensued.
In summary, the Fed has a good deal of influence. As long as they maintain independence from large businesses and wealthy people (and have competent people in charge) then that should act as a safety cushion. But the increasing oligarchy puts this into jeopardy. Also, the concentration of wealth into the hands of the few, with fewer and fewer restrictions on businesses and wealthy individuals, easily transform small errors into large problems. Once again, the increasing income inequality brings this into question. Finally, it is normal that there is a reaction to every action (Newton’s laws apply to many areas) — and tariffs for control are likely to result with tariffs in reciprocal.
Putting All the Eggs into One Basket
There are still some safeguards in place from the post Wall Street collapse/Great Depression days. Hopefully, they are still sufficient to avoid the “domino effect” that was a strong factor in the Wall Street crash of 1929. People who watch the stock market have probably noticed that the stock market has been “frozen” a few times over the past few years once certain criteria have been met — those instances are the safeguards at work. But, with the current oligarchic Executive Branch (including Cabinet) there is no guarantee that features protecting the general populace will stay in place.
Still, even if safeguards prevent the domino effect, income inequality is still like putting all of your eggs in one basket. Let’s say that the eggs in your local coop number 100 per day. If the number goes to 75, or below, then it causes problems in being able to meet commitments to people buying your eggs. If one person owns 25 eggs, three own 10 each, five own 2 each, twenty-five own 1 each, and sixty-six own the remaining 20 then you have to keep your fingers crossed that the mega egg-carrier doesn’t trip and fall.
Perhaps that may be a silly example — but our economy is such that large shifts can have extra large effects and if only a few people are needed to make those large shifts all by themselves, then we have a dangerous situation.
A Dam in the Flow of Money
A very small minority of economists still think that “trickle-down” economics has positive value; this is an argument for keeping, or increasing, income inequality. But the great majority acknowledges that this does not work. Perhaps “splash-over” will occur as the ultra wealthy hire masses of people at minimum wage to build their personal equivalent of a pyramid. But that helps very few — and mostly gets distributed to those at the lowest economic ladder.
IF that huge pool of money retained by the ultra-rich gets dispersed throughout the economy then the economy still flows — though there is still no “trickle-down” effect. But that isn’t what happens. It is retained and, based on current rules (or lack of rules) on capitalism is able to “earn” more money by being available to other businesses and earning interest and capital gain. But it is not available for general people to exchange for goods and services. One person making larger purchases that do not always flow back into the general economy or ninety-nine people making purchases that do flow back into the general economy. Which is better?
Regulated Capitalism Works for All
The economic system of capitalism works because it works with people as they are — not with how we wish they were. Many people are greedy. Most people want a direct correlation between their work and what they get back from the work. The book “Animal Farm” by George Orwell does a great job, in my opinion, of describing the problems that exist when an economic, and societal, utopia is attempted with people as they are. While most people would wish that people would be “better”, wishing doesn’t help a lot.
I look at it as over a long period. Are people, in general, better off now than they were 500 years ago? Certainly they live longer, are healthier, and have access to facilities that would not have been dreamed of 500 years ago. There are some negative effects also; the direct connection to the land for most people has been lost and that may be lamented. All in all, in general (and that is always needed to be kept in mind as there are almost always exceptions) we treat each other better and live better now than back then.
But, people are people. Capitalism may work because it works with people as they are — but that doesn’t mean that letting them move along freely works the best. Greed can be good as it motivates — unrestrained greed creates social problems, breaks “free market” restraints on how competition works, and creates income inequality. Unrestrained business practices can abuse the general workers, destroy the environment, and warp priorities around the specific businesses.
People need money (or the equivalent of money) for basic needs. Maslow’s “hierarchy of needs” lists the layers of physiological (food and clothing), safety (job security), love and belonging needs (friendship), esteem, and self-actualization. These are listed in the order of first needed. Everyone needs food and clothing (and shelter and other physical requirements). Those are necessary before the next step — security in being able to keep those items. And that is necessary before beneficial social interaction.
But, a strange thing exists — well, not really strange but rarely pointed out. Money is needed for physical needs. Stability of income to provide for those physical needs comes next but as we ascend the “pyramid” of Maslow’s needs, there is less and less need for money. Assuming that Maslow’s pyramid of needs is correct and reflects reality, then money is superfluous beyond a certain point — it may even be counter-productive. So, restraint on greed within capitalism both allows a larger number of people to meet their needs (and preserve a healthier society) and may be of general benefit to the people whose greed is restrained. A progressive income tax, in conjunction with strong unions (which strive to balance the needs of those within companies), works to achieve that result.
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