Introduction:
We have seen economic progress through the centuries, and we have prized that progress because the same has been making our living standards better and it is giving us access to so many services. That of the United States is an economy which screams progress, but within this progress, the economy also hides a great flaw. In this economy, the rich seems to be getting even richer, while the poor suffer through the worse of the ups and downs, at least this is a question that we are going to prove true or false in this paper.
As per the figures of last year, the average American income plummeted for the second time. The data put together by the Bureau of Labor Statistics shows that the income for an American household went down by 0.9 percent. The story was different amongst the wealthy though for their income increased by the same percentage. For the poorest, there was a much steeper decline of 3.5 percent.
These figures provide credibility to the metaphor introduced by the economist Robert B. Reich who put forth his belief that the social classes could be divided into boats. One of these boats is sinking rapidly while another also sinks but with much less velocity. In the midst of this loss, there is also one boat which Reich believes is on the rise. Amongst these boats, the one fast sinking describes those who are caught in extreme poverty. The one slowly sinking describes the middle class, while the rising boat is one which points to the socially affluent.
There has always been a time when the society was divided into the rich and the poor and of course, also the middle class. The poor has always worked for the rich merchant for low wages, and that poor person has always tried to make ends meet with what little income is given to him. There has always been the poor child who has served the rich master and in between that servant and the master, there has been quite a difference in terms of ownership of resources.
The existence of the poor and the rich has been constant in time, but the state in which the poor and the rich have lived has been under constant change. Experts blame the economy for the responsibility of the increase in the gap in between the rich man and the poor. The economists say that life becomes more and more luxurious for the rich while the poor man is working harder for lesser.
With all of the reforms introduced by the government, all the pension plans and the unemployment funds, how much truth is there to that allegation? And if that claim is, in fact, true, how is it bound to influence the living standard of the average and the poor man? Also, what is the main driving force behind these increasing differences? How can the situation be changed for the future generations? How can we create economic progress that could benefit all the classes of the society?
Economic Theories:
Karl Marx was a German economist who saw the world from a more pessimistic viewpoint compared to other economists. His Capitalist theory explains that when a capitalist who is the man with the money sets out to manufacture a product, his focus is the maximization of profit and for this purpose, the cost of production has to be minimized. Amongst this cost of production, the capitalist has to focus on the labor.
Firstly, that worker that he hires has to work for the lowest possible wages. Secondly, there also has to be efficiency in the work that the labor performs. Through this efficiency, the capitalist does not feel the need to hire many workers and the ones who actually work, have to work quite hard for little money.
There was also Keynes theory which was quite different from that of Marx. This theory said that where there is a capitalist economy, there should be interference from the government to relatively stabilize the flow of income and reduce the gap in between the rich and the poor. Keynes believed that there was only one way for any economy to come out of its period of depression and that would be if the government started to spend money into the economy and in response, raise the demands for goods and services so that the activities of the economy could come back to normal.
The same policy applies when talking about the gaping hole in between the differences in the social classes. The same theory explains why it is necessary for the government to receive taxes from the rich so that they could give that money back to the poor. This giving back could be in various forms like lotteries, unemployment funds and education and health plans which could make life better for the poor.
Analysis
There could be a number of factors that could explain why the gap in between the rich and the poor just keeps on increasing. One reason that comes forth from the Congressional Budget office is that because there is a very large portion of the workforce reaching retirement, the government spends more capital on the sustenance of the middle class which means that there is very little money left to help the poor.
Another reason is that the amount of taxes collected for the wealthy has been declining over the longer run which means there is less money now to help the poor while the inflation and the cost of living keep on the rise.
So while the cost of raising children has become so much higher that it was no more than a decade ago, the wages of the labor have held constantly steady, and this has made it harder for that man who earns the wage to support the family.
The same policy describes Keynes theory regarding the involvement of the government in the regulation of the distribution of income. Because the government focuses on the middle class more and the poor people not as much as it should, the poor are left on their own against the inflation that is hard to cope with and the cost of services that just wouldn’t stop climbing.
It is not hard to imagine what things would be like for the poor and the middle class had the government help not existed, to begin with. It is quite reasonable to say that matters would be worse off.
The inequality in the economy has also taken a great hit in times of economic peril for experts say that the financial crisis of 2008 was to blame for why the poor are hardly able to support themselves while the rich have no care in the world. So when the time came when the banks came tumbling down, and the mortgage crises were at its worse, the people who scored big were hardly affected. The normal people, however, had everything to lose. Many lost their homes because of the tricky mortgage policies and jobs were threatened from the downsizing of many companies that were shaky.
Apart from these many factors which supposedly increase inequality in not just the US but a number of other economies too is the advancement in technology. The change in technology calls for a workforce that is technologically trained and the need for the basic worker no more exists in the labor market. This is why the weaving, spinning, and threshing which was previously performed by workers who had expertise in the field was taken over by the machines and what the companies required for these machines was labor which knew how to operate these machines.
This point explains Marx’s theory and tells us how the businessman makes use of the machinery and then hires an expert for the running of that machinery so that his cost of production should be kept to a minimum. He will always prefer to make use of a skilled person and a piece of machinery rather than hiring a group of workers who could establish the same task but in far greater time.
The impact that this practice has on the economy could prove quite crippling because the poor man who has not taken skill in his field is not going to find work to support his family and the family is then going to suffer the consequences and is going to remain trapped in the eternal cycle of poverty which runs for generations in the same family.
There are experts who say that a free economy is going to result in declined standards of living amongst the people. Researchers have estimated that the mean and median income of an average American had increased through the years 1980 to 1990, but that it had fallen during the course of the past decade. This decline in income is expected to lead towards a decline in the living standards of people, the experts estimate.
Luckily, these experts also provide us with a way out of this predicament. Since it is their estimate that a free economy is bound to make the poor even poorer, the solution would be to not let the economy free, meaning encourage government intervention. But how does an economy which runs with freedom falls down on itself?
The economies which are at rising extensively encourage the creation of capital which leads to an expectation of improved standards of living. So the moment the freedom in the economy waivers, the capital is suddenly going to go scarce, and the sources will be misused and maintained under the poor structure.
What we expressed here is only one view of how inequality could change the standards of living for a person. Believe it or not, there are also others out there who assert otherwise. Here, an economic analyst uses consumption as the standard of measurement for living standards.
Consumption, Carter says, is the use of different commodities by the various members of the household. So how well off a person is economical can only be measured by how well that person maintains the ability to earn income which becomes ample enough to meet the needs of consumption for his household.
His claim that the living standards do not decline because of inequality stands on the contention that since the people have not become less able to acquire all of the resources that they seek to consume, inequality does not really affect consumption.
Carter writes a paper on the subject and highlights a few of his key findings. He finds that in the developing world, countries which have higher inequality amongst its people have higher standards of living. Also, it has been a trend in developing countries that where there is greater inequality, the economic growth is also higher. So even if the higher few get the major portion of the economic gains, the middle class and the poor do get some part of it.
How inequality can leave us worse off
Despite the varying opinions regarding the impact of inequality in the society, there are a number of reasons why this problem needs addressing. James Myles who is a senior researcher at the University of Toronto says that there are many ways in which people are becoming poorer could impact us in unfavorable ways, and one of the consequences of the same is the lack of spending power amongst the people which in turn is not going to encourage growth in the economy.
This declined economy is also bound to lead to political disturbances like the growing of frustration amongst the people, increase in protests and political movements. In economies with a high prevalence of inequality amongst its people, the wealthy could also come in positions where they become able to influence the public policy in their own favor. This could further put the poor at a disadvantage, and the economy could fall in even greater misbalance as a result.
James Galraith who is the author of ‘Inequality and instability: A study of the World Economy just before the great crisis’ is of the view that a large and a stable middle class of a country is a sign of wealth for that country. So where there will be classes with very wide gaps in between, the economy could not be regarded as very healthy there.
Conclusions and Recommendations:
We know now what the reasons for the increase in inequality are in many countries including the United States. Knowing about these reasons could help us in finding ways in which the economy could be pulled out of this dilemma. There is a very large population of people who blame the advancements in technology as the chief reason for the fact that most of the poor class is out of employment.
Also, there are economists who say that a free economy could lead to a decline in living standards for the poor. The solution to this problem is government intervention. The government could introduce policies which extend in the aid of the poor and which makes sure that their consumption could extend to the commodities which they require for survival.
One step could be the providing of services like health and education which could be made available to certain low-income families for minimal cost or none at all. This way, these people could spare some cash to create demand in the economy which could drive it forward.
Within the United States, there is another factor which hugely contributes to a major part of the poor population, and that is the racist attitude of people towards some of the members of the society. The class that remains a constant target of this racism is that of the black Americans, and these people are always kept at least a step behind the white American takes, whether in business, in government or in employment.
So if we truly seek to eliminate the inequality in income amongst our people, we could implement a policy which makes a judgment on the basis of competence and skill rather than the color of the skin. These black Americans since they occupy the same economy as us also regulate the demand for goods and services the same way. So if they have money to inject into the economy, they could contribute towards its betterment.
There could also be implemented in the country policies which foster the due integration of the immigrants into our economy. A workforce which is clean of discrimination be in on the basis of sex or of nationality could help take the overall economy more towards equality and could help encourage the even distribution of all resources within the economy.
Economic growth is as we saw in the paper, a two-edged sword which could hurt us just as much as it aids us in moving towards a better quality of life. Does that mean that economic growth comes to us at the expense of social welfare?
Fortunately, the statement does not have to be necessarily true. We can say the same for free economic growth, but when the same economic growth becomes regulated by the government and the public policy, we could alter it to benefit not just the top few percent rather the benefit from this economic growth could also reach the middle class and the poor.
Now, to answer the real question of whether the rich are actually getting richer and the poor poorer even today? In the present economy where technology is the force which drives the economy, yes, the statement is very true.
We only have to take an example of a rich and a poor to understand just how divided we concern the distribution of income. On one hand, there is a man who indulges in the luxuries of the sports cars and expensive cruises and still leaves plenty for his family to spare on kitty parties and raves, to say the least. Then, there is also a household in American where the houses are not proper, and there is no working system of water sewerage and sanitation. In this poor household, when a child falls ill, there is very little to no money which could be spent by way of expense on medicine.
Let’s keeps the economic and the political arguments to a side for an instance and discuss the matter from the perspective of ethics and morals. What type of a nation are we if we can see one or more household live in conditions like these and do nothing to change that?
So is government intervention ample to take us to a state where the resources are well regulated in between classes? Unfortunately, a change at the level of the nation has to be triggered as well as driven by the society, and this society should help the government in achieving the same objective.
Charity events and volunteer programs could be encouraged in high-income schools and residences, and the people who belong to the well-off classes should be made aware of the state that the poor live in so that they could feel motivated to do more for their welfare.
Works Cited
Acemoglu, Daron. Technology and Inequality. 2003. 18 August 2016 web <http://www.nber.org/reporter/winter03/technologyandinequality.html>.
Carter, Joe. Income Inequality Doesn’t Affect Living Standards. 29 October 2014. web <http://blog.acton.org/archives/73638-income-inequality-doesnt-affect-living-standards.html>.
CBS News. Why the rich get richer, and the poor get poorer. 20 March 2014.web <http://www.cbc.ca/news/business/why-the-rich-get-richer-and-the-poor-get-poorer-1.2580263>.
Ehrenfreund, Max. It’s not just you: Americans are actually still getting poorer. 03 April 2015. web <https://www.washingtonpost.com/news/wonk/wp/2015/04/03/its-not-just-you-americans-are-actually-still-getting-poorer/>.
Info Please. Three Economists and Their Theories. 2003. 18 August 2016 web <http://www.infoplease.com/cig/economics/three-economists-their-theories.html>.
J.D.Tuccline. Expect Declining Living Standards From Decaying Economic Freedom, Warnweb Researchers. 15 June 2015. <http://reason.com/blog/2015/06/15/expect-declining-living-standards-from-d>.
Preece, Kyla. Robert B. Reich Why the Rich Are Getting Richer and the Poor. 14 February 2014.
