If you think income inequality is bad now, just wait until the middle-class disappears all together
“The city which is composed of middle-class citizens is necessarily best constituted… this is the class of citizens which is most secure in a state, for they do not, like the poor, covet their neighbors’ goods; nor do others covet theirs, as the poor covet the goods of the rich; and as they neither plot against others, nor are themselves plotted against, they pass through life safely.” Aristotle spoke these words of wisdom almost 2,500 years ago, words that ring as true in modern America as they did in 4th Century B.C.E. Athens.
What he is saying is, in essence, that a strong middle class is a necessity for effective democratic governance. What relevance do these words have today, you may be asking? Economic inequality in the United States – and throughout the world – is reaching record levels, and this growing inequality may one day prove to be the death knell of our beloved system of democracy.
American political discourse has been overtaken by discussion of economic inequality in recent years, especially since the 2008 financial crash that left so many millions jobless and destitute. Economists argue in their ivory towers about the causes of this inequality and politicians argue in committee hearings about how to address it, but I plan to take a different tact here. I want to discuss the causes and solutions briefly, but I’d like to focus more upon the probable consequences of this growing inequality if we fail to address it effectively.
First, for a brief overview of the causes of growing economic inequality, we have to look to the economics literature for answers. Two forces that are largely out of policymakers’ control are at work against the old model of the American middle class – globalization and technological advancement.
Globalization and the international free trade model that brought it about have significantly weakened the manufacturing base upon which the American middle class of the mid-twentieth century was built. While manufacturing in the United States is on the rise again, labor costs are certain to remain too high for a large-scale return of anything significant beyond high-tech production.
Technological innovation, especially in manufacturing, is another major cause of the growth in economic inequality over recent decades. As robotics and other labor-reducing technologies came into major use in the 1970s and 1980s in factories, the need for the old model of well-paid, unionized labor ended.
Finally, government policies favoring lower investment and corporate taxes have accelerated the economic divergence of the lower and upper-classes. As middle and low-income earners have seen their wages stagnate, the wealthy have paid significantly lower tax bills than they did in the past, contributing significantly to their growing investment portfolios.
The one-two-three punch of globalization, technological advancement, and supply-side economic policies have brought America’s trend of inequality growth to where it is today, and will likely determine where it goes well into the future. Normally, I would now transition into a series of policy prescriptions that would help address this growing inequality, but that has been done time and again by other media sources.
If you’re interested in learning more about possible solutions to the problem, this will give you a good rundown of the available options. I’m more interested in projecting about the likely consequences of this growing inequality, however, as the state of our current political climate makes any real efforts at ameliorating this trend effectively impossible.
Supposing I am right and nothing will be done to stop the growth of economic inequality, the United States of the future will look very different than the country we know today. Significant social unrest, stagnant economic growth, higher susceptibility to financial crises, and even more dysfunctional politics will likely become permanent conditions for the United States.
Protests, riots, and general civil unrest are liable to be much more common in the coming decades if current trends in inequality growth continue uninterrupted. Feelings of disenchantment and economic hopelessness are growing and, historically, places with high levels of economic malaise generally see heightened social upheaval.
Economic growth is also likely to be stunted by this growth in economic inequality, as the American economy has been reliant in large part upon consumption. If the middle and lower-classes have less cash on hand with which to buy daily essentials and sustain their quality of life and even more debt hampering their earnings potential, future economic performance will be severely hampered.
Another economic consequence that might come as a result of continuing economic divergence between the classes is higher economic instability. We could very well see ourselves increasingly susceptible to crises like the 2008 financial crash. The unfortunate truth is that, as the wealthy begin to hold increasing amounts of wealth, they will feel increasingly free to make risky investments and, as a result, risk the stability of the entire financial system.
The political system could become even more dysfunctional as well, as the wealthy pour evermore dollars into campaigns. Higher campaign donations will leave politicians more beholden to high-dollar donors. The relationship forged between donors and candidates often leads politicians to make decisions that are counter to the interests of the country as a whole and, therefore, when the wealthy have more money, this problem will only be further exacerbated.
If these things do come to pass, and America does fall victim to the worst-case scenario of growing economic inequality, the country will look very different from that in which I grew up. Could this dystopian nightmare outlined above become reality?
It may not be a hypothetical question anymore. Given current trends of growing inequality and an utter failure on the part of our political class to address the problem, we may be on a course to violate Aristotle’s ironclad law of political stability: as the middle class disappears, we will see growing tension between the upper and lower-classes and, as a result, we will suffer a very serious challenge to our exalted system of democratic government.