When the rich get richer: The dangerous economics of inequality
The poorest 50 percent of Americans are struggling with flat or falling income levels, negligible net worth, and bleak prospects. How did this happen? And what can we do about it?
Last summer, a contretemps of the sort that seems to pop up every so often and take flight in the media for a week or two coalesced around the so-called “poor door” of a proposed New York City luxury high-rise apartment building. The controversy sprang from a well-meaning if irreconcilable paradox: In order to gain city approval to build 10 Freedom Place, a large Upper West Side complex targeted at the wealthy, developer Larry Silverstein had to also promise that a certain number of affordable apartments would be made available to middle-class and poor tenants. Silverstein, to his credit, was more than willing to provide the lower-priced apartments, but his architects also designed the building so that the entrance to the affordable housing was separate and sited away from the entrance for the wealthy residents. The rich would not, at any time, have to share space with or even look at their nonwealthy neighbors; by implication, the ability to avoid seeing the nonwealthy was considered a necessary amenity.
This practice was legal under New York City law. After an outcry from activists that included charges of segregation, the developer added further amenities for the nonwealthy residents. But the “poor door” will remain, and is only one of several known to be planned or already in use throughout the city.
This particular controversy struck a collective nerve because it stands as a vivid crystallization of an issue that has been gaining purchase in the public’s imagination since the financial collapse of 2008: inequality. Concerns about inequality are everywhere. Whether it’s in the “We are the 99 percent” protests of Occupy Wall Street, the fights spreading across the country over the funding and tuition costs of state universities, the steady drumbeat of foreclosures increasingly affecting the middle class, the rise of the #BlackLivesMatter civil rights campaign, or the headlines blazoned across the front page of any major national newspaper on any given day (for example, the December 26, 2014 New York Times stories covering rip-off car loans targeted at the poor and the lack of high school guidance counselors for middle-class youth), one cannot escape discussion of inequality.
But what exactly do we mean by inequality? We have, for decades, generally assumed equality was a given in the United States, but suddenly we seem to intuit, in large numbers and throughout society, that it isn’t. We all have a rough notion that equality has something to do with fairness: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights.” But inequality can leave us stumped. What are those “unalienable rights,” and how exactly, in a freewheeling and dynamic democracy, are they to be enforced?
The Longman Dictionary of Contemporary English (Pearson Longman) defines inequality as an “unfair situation, in which some groups in society have more money, opportunity, and power than others.” An unfair situation. That starts to get there, to provide a frame for a worthwhile discussion. American society has always been somewhat stratified, with “poor doors” explicit and implied, but our current malaise is something different—something beyond the robber barons, the trusts of the early 1900s, the all-out money grab of the 1920s.
The word inequality has become a catchphrase today because it expresses an overall frustration with—beyond frustration, a fear about—several distinct yet connected issues in our society and economy, most of which fall within the dictionary definitions of money, opportunity, and power.
A growing majority of Americans are suddenly aware of a diminishment of security, life choices, and life chances in their own personal experiences, with an urgency not seen since the Great Depression. For the first time in 70 years, many of us feel ourselves falling behind and, worse, are gravely concerned for the economic futures of our children and grandchildren. It feels like we’re losing our grip on economic security, like our society is developing a series of “poor doors.” Or one very big one.
And this loss is not imagined: In October 2014, U.S. Federal Reserve Bank Board Chair Janet Yellen outlined in a speech a dispiriting—and chilling—collection of statistics that begin to give dimensions to the problems facing most Americans: “By some estimates,” she said, “income and wealth inequality are near their highest levels in the past 100 years.” It’s important to note that the “past 100 years” includes both the Roaring Twenties and the Great Depression, two great historical extremes of wealth and poverty in the popular imagination.
Yellen continues, “The wealthiest 5 percent of American households held 54 percent of all wealth reported in the 1989 survey. Their share rose to 61 percent in 2010 and reached 63 percent in 2013. … The lower half of households by wealth held just 3 percent of wealth in 1989 and only 1 percent in 2013 . . . .” To repeat: The lower 50 percent of American households now hold less than 1 percent of the nation’s wealth. Contemplating those statistics and an endless array of others like them, it becomes clear that the fears of those outside of the top financial 1 percent are well founded. Further, these wealth and income gaps are accelerating at a geometric pace. How did this happen?
In his 2013 apostolic exhortation, Evangelii Gaudium, Pope Francis describes inequality as “the root of social evil.” This is not a simple statement, nor do I think it was meant to be. The pope echoes the scripture passage, “The love of money is the root of all evil” (1 Tim. 6:10)—a reminder that Christians have, from the beginning, been called to question, if not suspect, worldly measures of success. His specific focus on “social evil” represents a challenge, a provocation to thought, as one experiences and attempts to fathom our new society.
Pope Francis continues: “As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems.” I am particularly struck by the admonition to reject the “absolute autonomy of markets and financial speculation.” The idea of free markets has become so enshrined in the mythology of the United States and the West that it’s startling to hear a figure as mainstream and visible as the pope question their ultimate good.
The behavior of the financial sector known as Wall Street over the past 35 years has without question had a great deal to do with rising inequality. With the deregulation of the financial industry that began in the Ronald Reagan administration and continued without pause through the years of Bill Clinton (lest it be forgotten that a Democrat signed the bill freeing the banks from the most restrictive laws regarding proprietary trading), we witnessed a “financialization” of the American economy, a move from a general theme of making things and selling them to a general theme of making money off of money.
In these last three decades, the most successful Wall Street bankers and hedge fund traders have become astronomically wealthy (it is rumored that hedge fund trader Kenneth Griffin earns $68 million a month). Financial instruments have been developed, such as derivatives, that nearly destroyed the economy in 2008 (and are still very much in use). And American corporations in general have become obsessed with stock prices in a ruthlessly calculated manner that “justifies” any behavior toward their employees, be it sending millions of jobs overseas, reducing wage scales, cutting pensions and health care, or devising new work processes designed to maximize productivity at the expense of the health, well-being, daily life, and future of the work force.
Wal-Mart, for example, emerged as an early supporter of the Affordable Care Act—a move that turns out to have been calculated to save the company billions of dollars as it subsequently cut health benefits to part-time employees. The company then began, through computer-enhanced management, to replace full-time positions with part-time positions structured so that many employees are “on call” and will never be able to increase their hours past the part-time threshold. (Earlier this year Wal-Mart stated that in 2016 it will be offering “some employees” fixed schedules each week.) Meanwhile, in more than 20 states, Wal-Mart has more employees eligible for Medicaid or state-run health insurance for low-income people than any other company, and in a number of states it has the largest number of employees on food stamps and cash assistance.
But this kind of financialization is not the entire story. It might not even be most of it. Evangelii Gaudium issues a challenge to attack all the “structural causes of inequality.” And something else has been going on that has contributed to the various ways in which our society has tipped into manifestations of inequality so jarring that we’re openly discussing and protesting it: the advent of the age of the algorithm—a step-by-step set of instructions that directs a computer to perform a function or task. Algorithms don’t just allow traders like Griffin to use supercomputers to make trillions of calculations per second in the markets. They also allow for the development of ever more sophisticated robotics, which reduce the need for human workers in every business, most notably at the moment in the auto industry, shipping and warehousing, education, and medicine. There will be more and more of this as time passes. For example, the new “internet of things” allows computers and robots to work together at long distances without human involvement once the software has been activated. Any job that theoretically a computer can do, eventually a computer will do.
And if you’re sitting in the CEO’s office, what could be better? Computers and robots don’t ask for raises, they don’t talk back, they don’t take days off, they work faster and harder if programmed to do so, and best of all, they don’t require health insurance. Once amortized, they do much more for much less. Corporate leaders are then able to capture the surplus revenue and increase their own pay packages or raise dividends to shareholders, while the remaining ordinary managers and workers are stuck on a treadmill of low expectations.
This is not new. Each time there has been a significant advance in human technological mastery, there has been an enormous human cost. But the digital computer and all that has come with it may well end up standing as the most destructive innovation in our history.
When I place an order from my laptop in Maine for, say, diapers, that order is relayed without human intervention to a server farm in Utah. It is then relayed to another computer in a warehouse in upstate New York, which activates an automatic robot retrieval system to pull the box from a shelf and place it on a conveyor belt. Then a computer-printed label is applied by another robot, and it slides into a truck.
At least two dozen jobs have been eliminated from that small transaction, never to return. The Internet, for all it has given, has also undermined or destroyed the economic structure of dozens if not hundreds of businesses and ways of life.
The frightening truth is that we have only seen the beginnings of this change. And while these developments may be good for corporate and institutional leaders, financiers, certain stockholders, and, most of all, the technologists who design, implement, and supervise the algorithms and the systems that utilize them, they have been or will be a disaster for almost everyone else.
See no evil
Merely protesting inequality is not nearly enough. Using the catchphrase, in my view, has become a way of not discussing Janet Yellen’s statistics, the ruthless financial markets, the remorseless march of algorithms, computers, and robotics. Too many of us comfort ourselves with chants of “inequality” when perhaps we should be discussing workers’ rights, union decline, the specifics of access to fair banking, artificial intelligence, expanding health care, stockholders’ rights, a living wage, equitable law enforcement, moral hazard, and so on. The way we see—or don’t see—the problem, to paraphrase leadership guru and author Stephen Covey, might be much of the problem.
Evangelii Gaudium, again, issues a call to question today’s society along these lines, mentioning the “epochal change set in motion by the enormous qualitative, quantitative, rapid, and cumulative advances occurring in the sciences and technology and by their instant application . . . . We are in an age of knowledge and information, which has led to new and often anonymous kinds of power.” None of these changes have ever been voted on by the average citizens of our wider society. Many if not most people don’t even know it’s going on. And the situation threatens to become an insurmountable challenge for those Americans (most of us) who find themselves on the wrong side of the societal shift, permanently consigned to the “poor door.”
The issues have been developing for decades but it is as if this new world, this new regime, has appeared from nowhere and suddenly surrounds us, dictating how almost every aspect of our society, work, home, education, health care, and government is conducted. And it is presented as progress, which perhaps it is, except that no one as of yet has revealed how the average person is to thrive in a world built upon the ever more capable relentlessness of computers and machines.
Very few politicians, as Pope Francis notes, “are genuinely disturbed by the state of society, the people, the lives of the poor.” To put his comment in an American context, think of how little our politicians have done about, or even discussed, these issues during the last 10 years of partisan conflict and gridlock. It is as if vast numbers of Americans and their concerns, needs, and issues do not exist. As if they are, as they conduct their lives, walking in and out of a door that is somewhere over there and just out of sight.
The political system has contributed to the creation of this “poor door” in ways that link directly to the previously discussed issues. Money that is extracted from the economy by Wall Street and technological advancement then finds its way (via direct and indirect campaign donations) into a political system where it is used to fund laws that emerge from Washington. Tax cuts for the rich and a tax code that allows large corporations to park billions of dollars untaxed overseas and set up overseas headquarters to evade taxes further exacerbate the trends of inequality, ever widening the chasm between the 1 percent and the 99 percent.
What might be most disturbing is the insidious way in which these trends are combining to scar and divide our country. As things tighten, we devise various responses to falling behind: borrowing money, working more and more hours and jobs, cutting corners where we perceive we have an advantage and might be able to get away with it, extracting money from those less fortunate than ourselves.
An example of the destructive and complex refractions these economic practices impose on our society can be seen in the law enforcement policies in St. Louis County, Missouri, substantiated in a recent Department of Justice Civil Rights Division report. As manufacturing jobs have disappeared and tax bases have eroded, a law enforcement regime has arisen that essentially involves working-class whites extracting cash from poor blacks in order to finance the agencies that then pay their own salaries. In one jurisdiction, a town that is 67 percent black is policed by a department that is 99 percent white. African Americans account for 93 percent of all arrests, 85 percent of vehicle stops, and 90 percent of citations.
According to the Washington Post, “Some of the towns in St. Louis County can derive 40 percent or more of their annual revenue from the petty fines and fees collected by their municipal courts.” “Petty” meaning $50 to $300, just small enough that the poor can pay. “A majority of these fines are for traffic offenses, but they can also include fines for fare-hopping on MetroLink, violations for uncut grass or unkempt property, violations of occupancy permit restrictions, trespassing, wearing ‘saggy pants,’ business license violations, and vague infractions such as ‘disturbing the peace’ or ‘affray’ that give police officers a great deal of discretion to look for other violations.”
Taking a step back to gain perspective, we see the danger inequality poses for our society: Can this quietly harsh regime have had anything to do with the events that spiraled around the nation into what we now refer to as “Ferguson”?
“The poor and the poorer peoples are accused of violence,” writes Pope Francis, “yet without equal opportunities the different forms of aggression and conflict will find a fertile terrain for growth and eventually explode.” Regardless of the legal specifics of that particular case of police violence, the rage and humiliation that cascaded into a year of protests and riots did not emerge from nothing. And it should be noted this disruption is at least as much economic as it is racial.
As stated by philosopher Bernard Williams, if we do not want to see ever more social violence, we have to “find a practical conception of equality that can give people a genuine sense that they receive equal consideration from society and so have a stake in it. Only this has any hope of giving people a reason why they should obey and cooperate.” The specter of “the 99 percent” or whatever other appellation one might give to the “have-nots” (in which I include the great majority of whites in St. Louis County) fighting and scrambling over an ever shrinking pie should give us great pause. Is this the American future, what we hold to be “self-evident”?
And something almost beyond thinking about in terms of the potential sacrifices involved: What does it mean globally for us as Americans, who consume more than half of the world’s resources, in a time when societies such as China and India are rising and want to consume like we do, but can’t because the laws of physics (finite resources, climate change, population overload) won’t permit it? It is, as Pope Francis has hinted, going to require a new way of thinking and being, and it is not going to be covered by the usual statements about “opportunity,” “education,” and “giving more.”
What is to be done?
In the largest frame, the majority of Americans will have to understand and accept that we need to assume responsibility for our society in a way that we haven’t since, perhaps, the civil rights movement. I would like to propose a list of small steps:
1. Take seriously the situation we find ourselves in. Among other things, understand that economic exploitation and the hunger of the markets know no bounds, and whatever is allowed to be done to the poorest and weakest among us will eventually be done to us.
2. Take seriously the instruction and admonitions of religious leaders and teachers, particularly Pope Francis and Evangelii Gaudium. Join together in study and reflection, try to understand how we got here, and try to imagine what we might do to begin rebuilding a society that is more in line with Christian and American ideals.
3. Look around the nation and world, and see what is being done in terms of the preceding point and what we might do to support and extend those efforts.
For example, the Intersect Fund, a nonprofit founded in 2008 by two Rutgers University students, is one example of the kind of action that can make a difference in the face of today’s ever harsher economic realities. Drawing on the Nobel Prize-winning micro-loan model developed by Muhammad Yunus and with the help of a grant from the Catholic Campaign for Human Development, the Intersect Fund has provided one-on-one coaching and more than $800,000 in loans to small businesses that would be viewed as too high risk and thus not profitable by standard banks.
A loan of as little as $1,000 can make a huge difference for a barbershop owner, a restaurant owner, or a handyman. These small businesses, through the help they receive at crucial growth junctures, are able to hire more workers and ultimately contribute more dollars to their communities, as well as tax dollars to society that would otherwise be lost. This is a win-win for those on the other side of the “poor door” and for the country as a whole.
Another nonprofit with ties to the Catholic Church, the Cara Program in Chicago, meets people where they are and attempts to integrate them into the shifting economy. Cara works with people who would otherwise be viewed as unemployable: people experiencing homelessness, former drug addicts, and parolees, among others. The program applies strict admissions standards, offering training and follow-up to both those in need and the organizations that will hire them, achieving a remarkable 72 percent initial employment retention rate at one year.
This is another societal win-win that would otherwise be lost: “For every dollar invested in the Cara Program,” says thecaraprogram.org, “$5.74 is produced over a five-year time horizon in tax contributions, social security, sales taxes paid, and costs avoided (in shelter expenses, cash assistance, unemployment benefits, health care costs, food stamps, rearrests costs, and the like).”
These are but two of the thousands of small, individual, yet crucial steps. “Each individual Christian,” writes Pope Francis, “and every community is called to be an instrument of God for the liberation and promotion of the poor, and for enabling them to be fully a part of society.”
But while hands-on measures like this can and should be taken, it’s also important that we do not allow these small successes to obscure the bigger, more daunting societal forces underlying it all, pushing ever more people into poverty and financial straits from which they will need this kind of assistance. We are called to attack not just individual instances of inequality but also the structural causes. And in my view, doing so starts above all else with reforming the political system in order to elect politicians, of the left and right, who are responsive to the needs of their constituents rather than those of their biggest campaign donors, politicians who value average workers and families above corporations and the wealthy.
It will also involve, as Americans, giving up a sort of narcotizing naïveté about our political and economic systems, how they work, and the outcomes they generate. We must avoid, as Pope Francis teaches, “crude and naïve trust in the goodness of those wielding economic power.” It will involve correcting a certain laziness in ourselves about who is ultimately responsible for our personal and familial well-being and the well-being of our society.
It will involve remembering that people died to give us the freedoms and opportunities we have, and that we teach these ideals to our children. It will involve recognizing that the deprivations of inequality, once allowed to flourish, never end, and the “poor door” leads back to the kind of unrelenting feudalism found in the Middle Ages, if not ancient Rome. If we are not diligent, we will find this is the way the world—or more specifically, America and the epochal dream of human progress and dignity—ends.
This article appeared in the May 2015 issue of U.S. Catholic (Vol. 80, No. 5, pages 12-17).