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The Unequal Divide

One could imagine that inequality has been around forever, part of a natural process whenever people or groups compete. Today’s obscene levels of inequality, however, suggest that the divide is not a natural condition of human existence, but a product of how we compete, with the rich always getting richer. In any competitive society, there will always be winners and losers. In a stacked, speed-of-light trading society, big winners and big losers.

We see it everywhere. Fewer children from poor backgrounds go to university, higher levels of incarceration for those in bottom-income brackets, death rates among the less well-off much higher than average. In fact, increased poverty is directly related to increases in cancer and stroke, a correlation unchanged since the late 19th century and the start of modern economic practice.

In The Spirit Level: Why More Equal Societies Almost Always Do Better, Wilkinson and Pickett cited the greater likelihood of health problems the greater the divide between rich and poor, including depression, heart disease, and drug addiction. In case after case, they show how health and social problems are a function of zip code, alarmingly depicting how mortality rates are almost double for the poor (~90 per 10,000) compared to the rich (~50 per 10,000).

The effect on the economy is devastating, where wealth instead of merit determines who succeeds and fails, ripping apart lives and communities. In the process, the rich get richer, because a leg up at the start magnifies the discrepancy between winners and losers. In Stock Buybacks and Margin Debt (April 1), Mike Whitney noted that the top 20 percent own over 85 percent of financial assets. All because of a financial feedback loop, stacked in favour of those in the know.

We are all familiar with feedback loops, from the screeching sound of a microphone held too close to a speaker to the snowballing effect of exponential doubling. Division over a small number, excessive bank leverage, or the focusing power of a lens, which magnifies the output relative to the input, is similar.

Feedbacks loops apply especially to markets: VHS beating Betamax in video recording, despite being a poorer technology; Microsoft topping Apple in the operating system wars; Donald Trump buying his own book to make the best-seller list. A small advantage leads to a dominant market share. The rich profiting more and more from cheap, disenfranchised labour.

Think of a movie that became a summer hit. Why did it succeed when others failed—word of mouth, advertising, poor competition? It isn’t always down to merit. As noted by Frank and Cook in The Winner-Take-All Society: Why The Few At The Top Get So Much More Than The Rest Of Us, “In all these processes, small differences at the early stages of competition can prove decisive.”

The basics of a feedback system can be seen in a simple game from evolutionary theory, which shows how one player (or side or gene or species) ultimately ends up dominating another when in competition (or reaches “fixation” in evolutionary parlance). The computational rules are easy: Put 50 red and 50 black marbles into a bag, double the number of each, then randomly select 100 from the new 200. The number of red (or black) marbles is observed over a series of trials (double the 100 to 200, randomly choose 100 from the new 200, etc.), showing the evolution of each marble “species.”

As one might expect, one colour (or side or gene or species) eventually dominates the other (100-0), despite the randomness of the selection process, and sooner than later if the original balance is biased. A little push at the start makes a huge difference, highlighting the winner-take-all nature of a feedback loop.

Capitalism, however, is meant to reduce prices with increased competition, where companies adapt to create viable alternatives with competitive prices. An enlightened, supposed Christian society is also meant to help those who haven’t climbed aboard the life train. Everybody knows not to leave friends and family behind.

It would seem that competition itself is the problem, where the irony is that the more successful a venture, the more market share it realizes, which creates an advantage or monopoly position for some and, thus, less competition. In the process, we become losers in the race to pay more as our world becomes swamped with profit-only-minded junk and inefficient consumption. Without controls and intermediation, such success overheats the system. Always.

Indeed, the levels of inequality are becoming greater. Economists Paul Krugman and Joseph Stiglitz have been reminding us for decades about the widening income gap and the missed opportunities for the talented to succeed. Instead, our failed financial system has created swaths of unemployed with marginalized lives. Another Nobel economist, James Heckman noted that “skills beget skills” and “motivation begets motivation,” showing a tenfold return for every dollar invested on the very young. According to Heckman, it is much better to help the disadvantaged at the earliest age possible, because a later, albeit well-intentioned intervention is much less effective. If only to stop the unfair feedback loop from feeding back to those who need it least.

The numbers really are shameful. Oxfam recently calculated that 85 people have as much wealth as half the world. In The Harder You Work, the Richer They Get (March 28), Peter Dolack noted that the world’s top billionaires have “an aggregate net worth of US$6.4 trillion, an increase of $1 trillion in just one year.” Yet minimum wages for workers keep decreasing, making it harder for many families to survive. Dolack noted that the minimum wage in 1963 was less than $2 or $15.25 in inflation-adjusted dollars, yet the minimum wage today is only $7.25. Relatively speaking, we’re going backwards. A more dignified and appropriate $15-rate makes sense, to get people working in authentic ways.

Sadly, modern economics is a zero-sum game with money as its measure. The billionaires should be ashamed. We’re meant to be building societies with shared goals not gated communities under a pretend umbrella of liberty.

Imagine if Warren Buffet received only 50 cents on each dollar he invested. If Berkshire Hathaway kept losing like everyday workers are, Buffet would be out of a job, possibly ending up collecting food stamps with the 47 million other “unfortunate” Americans. I doubt it, but maybe then the needed politics would follow.

But at every turn, the system is stacked, rewarding those with insider knowledge and privileged access. Turning a small advantage into a huge advantage. Major corporations and multi-millionaires pay less tax than you or I. For example, Apple paying 0.5 percent on its Irish profits of over $7 billion. Others shelter their money because of preferred access to a members-only financial system. Michael Lewis even stated that the stock market is rigged in favour of the technologically elite, further separating the winners and losers.

Of course, when those same elites crash the system, the public pays. Fines are never appropriate, burdening the rest who end up “socializing” the costs. Fines related to the 2008 meltdown were only a small fraction of holdings—less than 0.2% to settle charges brought by the Securities and Exchange Commission against Citigroup, or roughly one week’s profits. Goldman Sachs paid only $550 million or 2 weeks’ profits to settle charges that it sold subprime investments secretly designed to fail, while no senior executives were charged.

In today’s ultra-fast wired world, winners become bigger winners, sheltering more, paying less, receiving more advantage, getting better access and extra privileges at every stage. The haves and the have nots have become the good and the bad as labelled by the wealth-obsessed game players.

To be sure, many are still mired in a Social Darwinist past, thinking that money is the only measure, believing in failed “trickle-down” economics, claiming that a rising tide raises all boats, a common refrain when talking about economic investment and growth.

But it just isn’t so, when some don’t have boats. Or if they do, a leaky raft compared to a luxury yacht, without access to state-of-the-art protection, insurance, radar. Even an engine. In fact, a rising tide destroys many boats. It may be fun to imagine, but tides aren’t a useful comparison. If they were, it would be more apt to say that an economic tsunami has been wiping out our world.

It’s hard to believe we are still arguing over basic ideological differences between left and right, when it is greed that is to blame. But imagine a world where people and not bank accounts were used to determine wealth. Imagine a world where the very rich recognized their complicity in the pain of others. Martin Luther King summed it up best 65 years ago when he noted that truth could not be found in either communism or capitalism:

[C]apitalism is always in danger of inspiring men to be more concerned about making a living than making a life. We are prone to judge success by the index of our salaries or the size of our automobiles, rather than by the quality of our service and relationship to humanity. Thus capitalism can lead to a practical materialism that is as pernicious as the materialism taught by communism.

Or new Federal Reserve chairwoman, Janet Yellen, who in her first public speech, told the story of three unemployed people: “They are a reminder that there are real people behind the statistics.”

We have to end our basest obsession, the money game. We cannot all be rich, and if we’re not careful, the whole system will come crashing down. Am I my brother or sister’s keeper? Sadly, that seems to depend on who I consider my brother or sister. The human family has become divided by the cruellest of measures: our own selfishness. What a crying shame.

JOHN K. WHITE, an adjunct lecturer in the School of Physics, University College Dublin, and author of Do The Math!: On Growth, Greed, and Strategic Thinking (Sage, 2013). Do The Math! is also available in a Kindle edition. He can be reached at: john.white@ucd.ie.

 

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John K. White, an adjunct lecturer in the School of Physics, University College Dublin, and author of Do The Math!: On Growth, Greed, and Strategic Thinking (Sage, 2013). Do The Math! is also available in a Kindle edition. He can be reached at: john.white@ucd.ie.

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