A Case for Economic Equity and Long-Term Growth

Framework: Examine macroeconomic policy issues as well as the theoretical assumptions underpinning their conclusions within a political Liberalism framework that ensures and upholds the democratic values of liberty and equality inherent to the constitution. The complexity of economic development requires a holistic empirical approach that accounts for the historical, political, sociological, and business factors contributing to the makeup of society when crafting and recommending economic policy.

Overview: Economic growth is the aim for any society. Inequality is a product of increased bargaining power resulting from increasingly powerful institutions in the business, financial, and governmental sectors. Research has repeatedly confirmed growing inequality globally and domestically. Inequality, manifested as widening income and wealth disparity, contributes to domestic and global account imbalances, consumer debt, and economic stagflation, i.e. inflation and unemployment. In addition, inequality is linked to key social variables such as political stability, civil unrest, democratization, education attainment, health and longevity, and crime rates. Greater economic equality always results in greater long run economic prosperity for the whole.

Thesis: Bargaining power inequalities causally contribute to economic and socioeconomic inequality due to path dependency, organizational inertia, and habit formation. Bargaining power inequalities increase proportionally with capital accumulation, concentration, and centralization. Restoring bargaining power will rectify financial and labor market imperfections and spur economic growth.

The Problem

  1. Increasing debt, unequal capital accumulation, stagnating wages, and increasing inflation are responsible for the steadily rising economic inequalities experienced the past several decades. The habit formation of conspicuous consumption has compounded the impacts of income inequality.
  1. Inequality has deleterious effects on social well being and long term economic growth, and is the source of a host of cultural ills, affecting education, healthcare, political corruption, etc. It also affects entrepreneurship, creativity, and technological innovation in the long run.

The Cause

  1. Historical monetary policy, financialization, and financial liberalization (deregulation) have directly contributed to exacerbating economic inequality by negatively affecting business cycles through the misdirection of short term economic incentives and failing to consider the long-horizon. In addition, credit market imperfections, due to asymmetrical preferences and institutional constraints, causally contribute to inequality, in both physical and human capital accumulation.
  1. Bargaining power increases with capital accumulation, concentration, and centralization both domestically and globally, establishes organizational inertia in business and legal exchanges, and further compounds the effects of inequality. Avoiding full employment decreases labor demand, in turn decreasing wage bargaining power, leading to wage stagflation.

The Solution

  1. Increasing economic equity yields the highest long term economic growth, improves social well-being, facilitates creativity and innovation, and empowers society to resolve its cultural ills.
  1. Economic equity can be achieved by restoring bargaining power, regulating financial investment activities, incentivizing real-asset investment, and implementing a single structured tax policy on the wealthiest.

A Prediction

To pay off our $15.5 trillion national debt the government will continue monetary expansion and quantitative easing, i.e. printing money. Inflation will rise. Prices Increase. Income/ real wages will stagnate and unemployment will increase as businesses look for ways to cut costs. Since businesses possess bargaining power, wage labor markets will suffer. The cost of living will be so great that people will be forced to reign in consumption and cut spending. If you have debt (financed by wealthy private domestic lenders), you will have difficulty paying it off because cost of living has left you with less money to live on. If you can’t pay it off and file for bankruptcy, they will not only repossess your assets, you’ll still be in debt, thanks to recent revisions in Chapter 7 and 13 Bankruptcy laws. What’s left of the middle class will continue getting squeezed until the income disparity is so large that poverty will be the norm. Meanwhile the wealthy will get richer as they continue cashing in on your debt.

A word of advice: get out of debt, fast.

Now, I have to ask myself: if income drops and consumption decreases, and if credit and loans are more difficult to obtain, what will sustain the domestic demand that drives economic growth? Simplified: if 90% of the country has no money, how will they buy things, and how will businesses make money?

Data indicates that our GDP has continued increasing and is back to pre-recession rates.

What if I said GDP is a worthless measure of the economy? What about exponential growth in inequality? What if I said real wages were a better determinant of economic prosperity and success?

Aging and Poverty: Longevity and Wealth

So I e-mailed a group of my more thoughtful and opinionated friends the following link:

DNA test links ageing and poverty: Scientists in Glasgow develop a new test of the ageing process, which confirms it is linked to social factors.

They responded to the article back and forth in typical jesting fashion (see below). These are my abridged thoughts:

I’d like to add my psychoanalytic interpretation: In the American capitalist culture, wealth and materialism are some of the most prized values. The failure to achieve success in their acquisition, as typified by the vast majority of people, may be the cause of the depression and anxiety we identify as being so prevalent.

Think about it: If you existed in a culture where the value of a person was measured in terms of wealth and material possessions, and you lacked these things, what would that do to an individual’s psyche? My guess: it would result in a profound neurosis, something like the collapse of the ego, due to the failures to live up to these societal indicators of value. The duress of this failure would undoubtedly cause a physical stress to manifest in all sorts of ailments.

Of course, our society doesn’t only see the value of a person in wealth and material accumulation, but mainstream media and pop-culture definitely over inflate how important these values should be perceived. Depending on your cultural influences, anything could cause a neurosis like depression if you were to fail to live up to a societal standard of value and success. Most other cultures value family, community, altruism, intelligence, religion, etc. In some parts of China culture academics seems to be the trump value, in South American cultures we find family, in Middle Eastern cultures we find piety and devotion. The list goes on. Failure to live up to these values in their respective culture would be a major blow to the ego.

My point is this: in a culture that emphasizes values such as wealth that inherently operate as a result of scarcity, it’s no wonder we have so much ‘mental illness’ such as anxiety and depression. It is impossible for everyone to possess a value that by definition is reserved for few. Yet, capitalism relies on our desire to live out this fantasy in order to consume and possess by any means possible, even if it means selling ourselves as slaves to debt.

The remedy exists in realizing that these values are culturally dictated and that your value as a person can and should be self-generated and dictated from within; and this is by no means an easy task. We navigate our world through symbols and the symbolic meanings attached to them are typically inherited from our culture: community, family, peer group, etc. It’s extremely difficult to overcome this conditioning, and I’d say that only the most genius in a society ever successfully create a system of values and meanings that are original to them and them alone.

I’ll end by saying that stress is a major cause of physical aging. The more money one has, the less one has to worry about. You may argue that accumulating that wealth may cause even greater stress, but I’d defer to a Bible verse to counter: “For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs” (1 Timothy 6:10).

Now, I’m not a religious person, but I mine for wisdom where I can find it. Having money and loving money are two different animals in my book. If you can accumulate money without getting absorbed in a romance with it, I believe you will not only live longer, but you will live happier!


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