With the development of the financial sector through the growth of banks and other financial institutions to the integration of global economic hubs through trade, we were presented with a rosy picture of economic growth. We were presented with a picture that everyone has a fair chance in getting a slice of the “pie”. That everyone is afforded the same level of opportunity to succeed. As we further dive into the economic trends and financial downturns over the past decades, the rosy picture of economic growth we were lead to believe may not be what is seems.
As we hear news about promising projections for future economic outturns and the constant growth of our GDP, there lies a deeper and complex policies that were designed to manipulate public perception and actual economic development among the masses. For instance, one strong indicator used to measure economic growth is the Gross Domestic Product (GDP). Every year analysts portray a positive growth rate through the GDP measure and thus leading policy makers to stick to the status quo. What needs to be understood is that GDP as an indicator does not actually measure the growth of a nation in relation to the standard of living of the working class nor environmental implications brought forth by these developments. In other words, GDP paints a utopian picture of a nation’s development catering to an elite circle, most commonly referred to as the “1%”. The GDP indicator is used as a facade of a much more unequal economic system that lies behind, which were made possible through policies meant to favour those at the top of the pyramid. One does not need to have the expertise of an economist nor a policymaker to see the disparity that has continued to plague the mass majority, otherwise known as the 99%. While it may not be a new problem, it definitely is defining future outcomes on what our economy would be like in the next few years or so.
Economic inequality is not only about economics, but also has something to do with politics. Politics wields a great influence on our economy. Political influence by major economic players in the market determines legislation and implementation of regulations. Laws and regulations that were implemented to be the “check and balance” of the dealings amongst financial institutions and corporations are stagnant, and the lack of oversight continues to allow unfair practices that affects the 99%. Policies on taxation continues to favour those with more wealth as trends show that while income taxes are taxed much higher, capital taxes are taxed much lower. Taxation on capital gains have been lowered from 35% to 15% effectively handing out wealth to the wealthy. The average tax rate of the top 400 households was at 16.6%, much lower than the average tax rate of 20.4%. Investor and philanthropist Warren Buffet called for higher tax rates among the wealthy saying that special tax rates for investment income effectively makes people like him pay less tax than those in the middle class. On the other side, the 99% are continually pushing for economic reforms that would balance the playing field as they lack protections from economic downturns due to deregulations.
Wealth has continued to grow exponentially. Today, we see corporations hitting values of a trillion dollars. Other companies continue to increase their market value as they offer services that becomes necessities in a technology driven generation. We hear news about large payouts and bonuses to the top executives of large corporations while labor layoffs and cost cutting measures are being implemented. We ask ourselves, with wealth growing more by the day, why haven’t the 99% experienced an improvement in the quality of life? Why has the decline of poverty continued to slow down or remain stagnant in other economies. Costs of living continue to skyrocket while wages are declining are a common trend we see today in the workforce. Concentration of wealth among the top justifies the long going disparity among the different classes. Most would argue that the theory of trickle down economics should justify the wealth concentration among the top earners. This assumes that corporations and financial institutions are driving economic growth by further investments down the line. Truth be told, this is not the scenario that plays in reality. As wealth among the top grows bigger, their spending stays largely the same unlike the middle/lower income earners who spends almost all if not all earnings for day to day needs. Lowering taxes for the wealthy does not translate to increased rates of employment, investment, consumer spending, and government revenues in the long run. Instead, giving tax breaks for middle-and lower-income earners will drive the economy as they return those savings back to the economy through spending. Spending drives the economy, just like a cycle. People earn wages and in return spends money, which further drives growth in our economy. Though we see that the top earner’s spending stays relatively the same even when they accumulate more wealth, as their spendings are not mostly on consumer goods but on investments that would further expand their personal wealth which are again, subjected to tax breaks from the government.
As current economic trends continue to widen the gap among the mass majority and the top 1%, the disparity caused by today’s economic inequality would continue to grow. Perhaps, if today’s condition retains is current position, the economy we may know today may not serve the needs of the common good rather work for a selected few. The economy we know today, may just be another faux. Once the disparity grows to the point of no return, where there is a lack of equality of opportunity, the already diminishing productivity would further decrease creating an imbalance in our economy. The current economic mantra stresses the role of the private sector as the engine of economic growth. It is what those at the top would want us to believe, that the private sector is our saving grace from the economic turmoil they have played a role in creating. This leads to another point on why inequality governs our future.
Our focus on the private sector would lead to disastrous consequences as the public sector needs their fair share of the spotlight. The government needs money to fund public services that are essential to economic development such as education, infrastructure and social welfare. As previously mentioned, tax cuts for the rich essentially takes away money that the government could use to invest in public services. The very services that those at the bottom of the pyramid need to have their fair share of opportunity to succeed.
One example we could see into is education. Currently the best education are given to those who could afford it. Those from neighborhoods with deteriorating public school system are not given the same opportunity to receive the level of education offered by private schools and universities. The wealthy could afford additional support to higher their chances of getting into top universities which in return would raise their employment chances in the future. There has been a large economic growth when the U.S. government invested in public infrastructure through building road networks that would connect the country. This spurred growth as goods and services became more easily accessible. Social services such as the Social Security has managed to lift those at the bottom of the economy out of poverty and giving them the protections needed to survive. The problem is, as economic inequality grows, the funds that the government could use to invest in the public sector are diminishing. If this trend continues, what may be left of those who rely on public services may not have the protections they should have been receiving, and our economy would be a system catering to the top 1%. This is the very reason why responsible public policy is needed to enforce an effective policy that would minimize inequality and would continue to create equal opportunities for every bracket of income earners.