[Robin] The World Economic Forum ranks inequalityas one of the greatest risks to the global economy.
71% of the world’s adults own just3% of the world’s wealth.
6% of global wealth is owned by only 8.
1% of the population.
The people at the very top – the 0.
7% of humanity who are millionaires – own almost half ofthe world’s wealth.
Is this the natural order of things? Can thegap be closed? This is a big question to answer.
Luckily,Libby and Brogan from Bloom are here to help me! [Libby] Let’s see if our brains (and Brogan’spen) can answer the question! Firstly, it is important to acknowledge thatthere is a division in wealth.
As you can guess, there is a direct correlationbetween capitalist industrialisation and the concentration of wealth.
The very richestpeople in society – the super rich, who own at least $50 million in assets – are concentratedin the West.
Between them, the USA and the UK have over half the world’s millionaires.
The USA has by far the most billionaires.
Unsurprisingly, it also has the worst disparityof wealth in the industrial world.
The richest 5% of American households each have more than90 times the wealth of the typical American family.
The second biggest national wealthgap in the world is half the size of America’s.
According to a study by Emmanuel Saez andGabriel Zucman from the University of California, Berkeley, these statistics are part of a long-termtrend.
After the Great Depression, the economy saw a slow reduction in the share of wealthowned by the richest 1%.
There was still great inequality, but the gap was closing.
Sincethe rise of neoliberalism under Ronald Reagan and Margaret Thatcher, the USA and Britainhave seen an increasingly uneven distribution of wealth, with the very richest taking moreand more.
In the last 17 years alone the net worth of the poorest American households hasdecreased by an average $6,000.
Meanwhile the net worth of the very richest has grownby another $70,000, even after the Great Recession of 2008.
This is partly because the recessionaffected the most significant assets owned by the poor – their houses.
When it comes to incomes, the pattern is thesame.
The top 0.
1% of earners take home more than 184 times the income of the bottom 90%.
According to a study by NPR, if the level of inequality had stayed the same since 1979,then millionaire households would have over $800,000 less than they do today.
Every otherhousehold in America would have between $3,000 and $17,000 more than they currently do.
[Libby] So how do we close the wealth gap? [Robin] The most effective way to redistributewealth is through taxation.
This isn’t as simple as governments taking money from therichest and giving it directly to the poor.
Governments also provide services and protectionslike healthcare, transport and housing, that ordinary people can’t afford.
However, the current tax code is so complicatedthat corporations and wealthy individuals can exploit loopholes to pay as little taxas possible.
The IRS estimates that, every year, $460 billion is lost through tax evasion.
Incidentally, over a third of the money diverted for corporate tax avoidance goes through theUK and the Netherlands.
This raises the problem of globalisation:how do you tax companies and people who operate in many different countries, each with itsown laws? Nobel Prize-winning economist Joseph Stiglersays the super rich and corporations must pay their taxes and stop using tax havens.
Even so, the tax code is designed to be progressive and put the burden on the wealthy.
It doesthis by putting higher tax rates on higher earners, and offering tax exemptions to thepoorest.
In Britain and America nearly half the population pay no income tax; whereasone quarter of income tax revenue comes from the richest 1%.
This system leads many right-wingpoliticians to say the tax code is unfair.
They have the support of the public.
A 2017Pew Research survey found 56% of Americans think the tax code is unfair.
But unlike theRepublican party, 60% of Americans believe corporations and the wealthy aren’t payingtheir fair share.
[Libby] Not everyone believes wealth inequalityis a problem, though.
Political theorist John Tamny argues thatwealth inequality is essential for capitalism to work.
It’s the basis of the AmericanDream.
Individuals are inspired to work hard and take risks in order to better themselves.
Moreover, Tamny argues that the super rich are necessary to spread wealth around.
AmericanEnterprise Institute Scholar Edward Conard agrees, saying wealth inequality allows entrepreneursto create new industries and drive innovation.
According to Tamny and Conard, the super richcan invest in expensive new technologies that allow economies to grow.
For instance, inthe early 1980s, the first cell phone cost $4,000.
Today, you can buy them for $40.
Wouldsmartphones be available to the poor without the rich? [Robin] In fact, people expect there to beinequality.
A study by behavioral scientists Michael Norton and Dan Ariely found that peopleare perfectly happy with wealth inequality – provided the richest people have just threetimes as much as the poorest.
This obviously does not reflect reality.
The problem is, that some wealth is inherited,and not all of it is earned proportionally to our work.
Since 1948, the average American’sproductivity has risen by 243%.
But their hourly wage has grown by 108% – tens of timesslower than CEO salaries.
In general, wage growth has stalled.
92% of American childrenborn in 1940 went on to earn more than their parents; only 50% of children born in 1980will earn more than their parents.
Wealth inequality is more pronounced by raceand gender.
This is because opportunities are limited for people who have been historicallyrepressed.
In the West, this means the average woman earns just three quarters of what theaverage man earns; and ethnic minorities typically own one hundred times less than white people.
Opportunities are also denied to the pooras a whole, and this reinforces the wealth gap.
For instance, a 2017 study by the NationalBureau of Economic Research found that, adjusted for inflation, private school fees are fivetimes higher than they were 30 years ago.
As a result, the number of middle and lowerclass children going to private school has halved.
Consequently, less than a quarterof college degrees are given to students from low-income backgrounds.
But by 2020, two thirdsof new jobs will require a degree, forcing lower income families further into poverty.
Social mobility is therefore decreasing.
Ifopportunities were improved for these sectors of society – like affordable access to a goodeducation – then social mobility would be increased.
[Libby] With this in mind, billionaires likeBill Gates, Warren Buffet and Nick Hanauer say we need to strengthen welfare capitalism.
They advocate government that ensures minimum wages reflect living costs, that puts thetax burden on the wealthy and provides opportunities for people at the bottom of the ladder toclimb to the top – through affordable services like education, healthcare and loans.
[Robin] Workers are also consumers, so ifthey have more wealth, they will buy more goods, which will help the economy grow.
Thesuper rich can stay rich – just not as rich as they are.