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A Broken System: How Modern-Day Capitalism has Created an Inequality Crisis

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“Capitalism is, fundamentally, an economic system that promotes inequality”–Annalee Newitz

BACKGROUND/MY INTEREST

Throughout history, the two most contrasting and conflicting economic ideologies have been capitalism and communism. Capitalism is “an economic system defined by private or corporate ownership of capital goods” (Merriam Webster, Capitalism). Capitalists believe the most effective political-economic system is one with as little government intervention as possible, and reason that capitalism incentives people to make money. Since consumers always want the best product at the lowest price, there will always be competition and no one will be in control forever. (Bradley)

Communism, on the other hand, is a system defined by public ownership of capital goods. Communists argue that there are two social classes in society: the Bourgeoisie (the ruling class), and the Proletariat, (the working class). They argue that under capitalism, that the bourgeoisie exploit the proletariat and deny them their fair share of capital. Eventually, the conflict would culminate in a Proletarian Revolution and the establishment of a society in which everything is publicly owned, and there are no social classes, money, or government (Turoff).

Image result for adam smith and karl marx
Adam Smith (left) is considered the father of capitalism, while Karl Marx (right) is considered the father of communism.
Source: Reddit

While capitalists criticize communism for its ideas of violent revolution and forced equality, as well as its failed implementations (such as the Soviet Union), communists criticize capitalism for promoting inequality and only benefiting the rich. Though things many take for granted, like money and trade, are all products of capitalism, one negative effect of American capitalism is the economic inequality it has produced. According to the New York Times, the richest 1% in the United States own more wealth than the bottom 90% (Kristof, New York Times). Over 15 million (21%) of American children live in poverty, according to the National Center for Child Poverty (NCCP). While a few Americans live lives of luxury, many struggle to find jobs with steady income, putting food on the table, and being able to provide for their families, and too often they have no way to escape this cycle of poverty.

I am interested in this topic for two reasons. First of all, for most of my life I did not think of inequality as a problem or something that needed to be addressed. As a resident of the Bay Area, I have come to realize Oakland is a prime example of severe inequality. In the hills lie many grand, million-dollar homes, owned by wealthy, white-collar people. However, not ten miles away lies East Oakland, “The Hood”, known for its extreme poverty and common violence. Many people I know are completely unaware of the existence of inequality around them, and for this reason I want to spread awareness about the problem. Second, inequality is an issue that has yet to be solved on a political level, and I want to propose reasonable solutions that could have a real impact on the lives of many.

THE PAST

Members of the Civilian Conservation Corps during the Great Depression.
Source: National Park Service

In the last century, economic inequality has followed a sort of U-shaped pattern, according to researcher Gabriel Zucman. This pattern begins in the 1920’s, commonly known as the “roaring 20’s”. Although this decade was a time of prosperity for many, there was a simultaneous increase in inequality, because many still remained in poverty In 1929, for the first time ever, the richest 0.1% owned 25% of the wealth (Zucman). However, later that year, Wall Street crashed, and the Great Depression began. During this time, the unemployment rate rose to twenty five percent, a record high (Wikipedia, The Great Depression), and many fell into poverty, resulting in less inequality. Even after the Depression ended, inequality continued to decrease, in part due to the New Deal enacted by President Franklin D. Roosevelt, and the prosperity that WWII brought to the US. The New Deal was a set of reforms and public works programs enacted by President Franklin Roosevelt from 1933 to 1938, with the goal of bolstering recovery from the Depression. The New Deal is often credited with ending the Depression, and is a good example of government intervention in the economy. After World War 2, inequality continued to decrease until the 1970’s. This time period, known as the Great Compression, represents the bottom of the U shape. The Great Compression, which occurred as a result of both the Depression Recovery and the War Economy, was characterized by a decrease in wage structure and a movement towards equality (Goldin and Margo). During this period, the income of the poor was raised while the income of the wealthy decreased (Goldin and Margo). However, during the 1980’s, the trend reversed. This can be attributed to the Presidency of Ronald Reagan. Like Adam Smith, Reagan believed that unregulated capitalism was the best method to spur economic growth, and he implemented new economic policies which came to be known as “Reaganomics”.

This graph shows the recent spike in inequality under presidents Reagan, H.W. Bush, Clinton, and W. Bush.
Source: (Jacobs)

Reaganomics had a two-fold goal: to improve the economy through free market policies, and to please the Republican base which was responsible for Reagan’s ascent to the Presidency (Comiskey). While in office, Reagan reduced government spending, lowered taxes, and reduced government intervention in the economy (Comiskey). During his Presidency, union strength also decreased drastically, due to his supporters’ staunch anti-union beliefs (Jacobs). David Jacobs, a researcher at the London School of Economics, identified a correlation between union strength and economic inequality. As inequality began to rise in the 1980’s, union strength decreased. The goal of unions is to decrease differences in earnings and prevent unfair wages, and many wealthy Americans had (and have) a disdain for them. As unions were dissolved, many workers who formerly had reliable salaries sank into poverty. By the time Reagan left office in 1989, inequality was beginning the steady rise that has continued into the 21st century, and it was almost solely due to his policies.

THE PRESENT

A political cartoon.
Source: Seven Pillars Institute

As of 2018, the richest 0.1% own 20% of the USA’s wealth, which is a drastic increase since 1950, when the richest 0.1% owned 10% of the wealth (Kearney). Although the trend has been steadily rising, people have only recently been taking notice, and the issue is far from being solved.

Currently, over 45 million people live in poverty (Geography of Poverty), which is about 13% of the population. 50 years after the so called “War on Poverty”,  Hispanics, African Americans, and Native Americans on reservations have poverty rates of 23.5%, 27%, and 28.4%, respectively (Black). As inequality has increased, these groups, who were disadvantaged to begin with, have been hurt even more. Due to the limited availability of federal assistance, many have no way to escape poverty. All of this occurs while the rich continue to get richer, and corporations continue to dominate and exploit the working class. This is why economic inequality is such an important problem; people who are disadvantaged from the beginning have no way to pull themselves out of poverty, and that poverty is passed on from generation to generation.

A map of countries ranked by the GINI Coefficient.
Source: Wikipedia, GINI Coefficient

The image aboveis a map of the world by ranked by economic inequality, using the GINI Coefficient. The GINI Coefficient is a number between 0 and 1; 0 represents perfect equality while 1 represents absolute inequality, where one person owns everything and everyone else owns nothing (O’Neil). In this image, yellow is the most equal while dark red is the most unequal. Notice how compared to other first world countries such as Canada, Japan, Australia, India, and all of Europe, the United States is much more unequal, illustrating the severity of the ongoing inequality crisis.

One person who is attempting to solve the problem of economic inequality is Thomas Piketty. Piketty is a French economist who recently published an award winning book, Capital in the Twenty-First Century. In Capital, Piketty seeks to answer the following question: is inequality the result of a purposely rigged game, or is it caused by unintentional distortions in a basically fair system? (Kearney). He comes to the conclusion that unregulated capitalism is responsible for ever-widening economic inequality, and that without a fundamental change to the system inequality will continue to rise. The solution he proposes is to implement a Global Wealth Tax. The tax would be a tax of 5 to 10 percent for billionaires, 2 percent for people worth 5 million dollars or more, and 1 percent for millionaires below that (Goldberg).

In Washington, many politicians have ideas of how to solve inequality, but so far nothing has been done, and hardly any laws have been passed in the last few years. Solving economic inequality was one of President Obama’s top priorities, yet he was unable to do so. Progressives in congress such as Bernie Sanders and Alexandria Ocasio-Cortez have proposed numerous policies, such as a 70% income tax on the wealthy, but they are unpopular among the rich and have not come to fruition. Donald Trump campaigned on a populist platform, promising to help the working class, but has not followed through on his promise whatsoever. Inequality is acknowledged by both Democrats and Republicans, but neither party is willing to propose a solution, creating false hope for the lower class.

THE FUTURE

Protesters at Occupy Wall Street in 2011.
Source: Wall Street Journal

Overall, the only way to curb inequality is to reform capitalism. It is possible to do this in many different ways, but without fundamental change to capitalism inequality will always be a problem. However, reforming capitalism is different than getting rid of capitalism. The idea of capitalism is vital to success, but some regulation needs to exist to ensure equal opportunity.

If you think inequality is a problem, one thing you can do is spread the word! If any change is going to be made there needs to be more understanding of the severity of inequality, particularly among the upper class. Often, rich Americans are opposed to paying taxes because they do not want to give up their hard-earned money. These people need to acknowledge that poverty is widespread, and that without aid programs these people will never have a chance to succeed. One way of doing this is through peaceful protest. The Right to Assemble Peacefully is guaranteed to all Americans under the First Amendment, and protests have often been used as a means of advocating for social change.

Here are some possible solutions on a federal level :

The government should have a more important role in the economy. Besides improving federal welfare programs, one solution is to create jobs in infrastructure, especially in fixing roads. Many American cities have poor roads that are not safe to drive on, and fixing these roads would not only create many low skilled jobs, but would also improve road conditions. In the 1930’s, when the US was crippled by the Great Depression, President Roosevelt created the Civilian Conservation Corps, which created labor jobs for young, unmarried men (Bradley). These programs were very successful in ending the depression, as well as drastically reducing the wage gap (Zucman), and creating a second generation of the CCC would be very effective. The one change I would make, however, is to make the program available to anyone who is fit to conduct manual labor.

Another idea is to implement Piketty’s idea and create a progressive tax on wealth. Essentially, this would be a tax on assets, or the combined value of everything one owns. Directly taxing assets would have many benefits. First of all, it would make sure that the rich pay their fair share.. Under the current system, Americans are taxed on income, or how much money they make in a calendar year. This means that retired billionaires are paying almost nothing in taxes, because their income is very low. Second, the government could use this money to strengthen programs such as welfare and education that could help poor Americans have a chance to succeed.

Finally, I believe the government should reduce military spending, and allocate the money to social services and education. In 2015, the United States spent 598.5 billion dollars on military spending, according to the National Priorities Project. I believe this is an absurdly high amount, and it is due to the US getting tangled in unnecessary conflicts. Even reducing spending by 10% annually would be billions of dollars that could be allocated to programs that would help those in poverty.

As I said in the video, if you would like to discuss more, you can leave a comment down below, send me an email at taylorw2021@headroyce.org, or DM me on Instagram at taylor.w0ng

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COMMENTS: 3
  1. April 26, 2019 by Nicholas Farzaneh Reply

    I didn’t realize this was a prevalent issue. Thank You for the crystal clear explanation.

  2. April 28, 2019 by Wesley.Breier Reply

    Hey Taylor, although I can tell that I don’t agree with you politically, and I had heard this argument made by people that consider themselves to be on the left wing of our political system, I had never been given information like this that better put into perspective your side of the argument. Even though you didn’t change my mind on this issue, I appreciate your professionalism in delivering your information and I now have a significantly better understanding of where this argument comes from.

  3. April 29, 2019 by Nicolas.Ignaszewski Reply

    Taylor, good work on this page. First of all, I think you do a great job giving raw statistics to explain the country’s current state. However I would like to know where you would see the country after an ideal 30 years. Your project does a great job illuminating your opinion on where we should be moving, but I’m wondering if there’s a deeper ultimate goal you would like to see be achieved.

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