Are the Rich getting Richer and the Poor getting Poorer still Today?

Institutional Affiliation
Are the Rich getting Richer and the Poor getting Poorer still Today?
While discussing economic disparity, “The rich get richer and the poor
get poorer” is a maxim and slogan that is at times stirred up, with
distinctions in wording. Mostly, it is used as an abridgment of a
socialist disparagement of capitalism (free market system), signifying
the Law of Increasing Poverty as put forth by Karl Marx. Capitalism is
defined as an economic system that is founded on private enterprise and
property and it is compelled by profits for companies and personal gains
(Dietz & Cypher, 2004). Capitalism is said to promote innovation and
enterprise. Most economists have criticized capitalism because of its
many weaknesses that nations are supposed to remedy or address. This can
be attained through the provision of business conditions including
national defense, law and order, education, infrastructure, as well as
market regulations. The major responsibility of nations is to remedy the
primary predicament of capitalism that encompasses the propensity
towards inequity amongst diverse groups of persons in the society.
Studies indicate that the failure of the state to help the working class
and the poor with social services can result to social enmity and
material deprivation, thus, causing violence and deeds that are damaging
to capitalism (Reiman & Leighton, 2009).
The democratic socialism, the welfare state and the mixed economy employ
a particular underlying principle towards capitalism. The rich
acknowledge that through their wealth, they are able to assist the
underprivileged through government taxation. However, the amount that
should be allocated to the poor from the rich with an aim of preventing
the society from breaking into mayhem is a major issue. The answer
however relies on social justice and governance philosophies. Research
has shown social pathologies blaming the victim, for instance, the
reason why the poor are poor is for the reason that they refuse to work
and thus the rich has to part with a larger amount of their income to
pay tax (Dietz & Cypher, 2004). Whichever the case, it is apparent that
in the contemporary society, ‘the rich are getting richer while the
poor are getting poorer’. This claim is the main focus of the paper
and has been illustrated both in theory and statistics.
Income inequity has existed for a long while, even prior to Adam Smith,
the father of capitalism wrote about the Wealth of Nations (Saez &
Piketty, 2003). It is a major concern in many states and the concerned
bodies are working towards addressing and fixing it. They argue that the
rich continue to accumulate more wealth at the expense of those who are
unfortunate, and particularly the top one percent (Saez & Piketty,
2003). This is very obvious in America and most individuals are
insisting for the interference of capitalism and calling for
redistribution programs that are run by the government in order to
lessen the income disparity. Meeting these demands with government
actions can result to considerable impacts, and taking this into
consideration, it is important to scrutinize the specifics that surround
income disparity before taking radical action concerning policy change.
Most critics of income inequality, which they consider has created the
gap existing between the poor and the rich call for income
redistribution. They base their argument on statistics from the United
States Department of the Treasury that reveal the extent of income
disparity. For instance, in 1960, the top ten percent income earners
received 31.7 percent of the entire national income, and increased to
44.3 percent in 2005 (Government of the United States, 2012b). The
income share earned by the top one percent amplified from 8.4 percent to
17.4 percent during the same period. On the other hand, the bottom 20
percent of the population received 4.2 percent in 1960, which dropped to
3.4 percent in 2005 (Government of the United States, 2012b). Most
politicians and occupiers make use of these statistics as proof to
support their arguments that ‘the rich are becoming richer whilst the
poor are becoming poorer. Although these statistics fails to tell the
entire story, it is true that the income difference between the rich and
the poor is apparent as shown in the graph below.
(Reiman and Leighton, 2009)
Real economy is a versatile and dynamic system, rather than a stagnant
element as viewed by some. This implies that it has a tendency of
growing from time to time. Without a doubt, the Gross Domestic Product
(GDP) of the United States has amplified numerous times more, and in
spite of the 2007/2008 downturn, it was over fifteen trillion U.S.
dollars (World Bank, 2012). Bearing this in mind, some scholars argue
that the poor are becoming richer but at a low pace as compared to the
rich. The United States Census Bureau between the years 1967 to 2011
show that average household income has amplified by 1.3 percent for the
lowest income earners, and by 69.7 percent for the highest income
earners (Government of the United States, 2012a). Supporters of income
redistribution also ignore the facts of income mobility or the
capability for persons to move to lower of higher income levels. The
possibility of income mobility motivates persons to work harder,
including those in lower income classes. Research indicates that between
the years 1996 and 2005, over half of the Americans shifted to a
disparate income class implying the likelihood of the lowest income
earners to have shifted to higher income levels. For instance, between
2004 and 2007, more than 30 percent of United States residents shifted
to higher income classes (Government of the United States, 2012a). The
equality of capitalism can be evidenced in this case, although most
supporters of income redistribution have ignored the same. The economy
is not made up of Middle Age style upper crust or lasting class
structures.
Besides, most of the jobs are created by small business owners who are
certainly not rich. Repudiations of the catch phrase often disregard two
facts including at a particular given time, the supply of money is
limited, and the usefulness of money is that though everyone has been
turned into a millionaire, they could end up being destitute and poor at
some point. This is due to the fact that prices often inflate to be at
par with the incomes (Saez & Piketty, 2003). Therefore, awarding
everyone a million dollars annually will make the cost of living to
inflate forcing all into poverty at some point. Naturally, money
economics must work on this principle. In order for some people to be
raised into wealth some have to be pushed into destitution. It is the
existence of an impecunious group that stop the cost of living from
going up to weaken the next income group.
Observation has borne out the phrase that no capitalistic system has
ever succeeded in preventing the heightening wealth inequality without
involving the government. At the end of it all, the inequality destroys
the system (Reiman & Leighton, 2009). Individuals have a restriction of
the much they can consume. For instance, there is so much of everything
that one can use be it food or toothpaste. This means that the rich have
a restriction of the demand they can produce. Therefore, when the wealth
inequality has grown to a situation where the majority denotes a
minority of consumption because of the foresaid inflation of the living
cost or the reduction of wages, it means that the system collapses as a
result of lacking demand (Saez & Piketty, 2003).
Ultimately, the disparities in wealth destroy the very system that
creates it. The final result is that there are few wealthy people and
more destitute people (Reiman & Leighton, 2009). Since time in memorial,
this has always ended up in aggressive revolution as well as wealth
redistribution. However, with the contemporary implementation of the
military and militaristic law, it has become hard for any revolution to
take place without loss of lives.
In a free market economy, income disparity, which is adding to the gap
between the rich and the poor, is forever going to exist. In spite of
the weaknesses surrounding this disparity, it is what compels the
society at large. The motivation to earn a higher income, amplify
one’s living standards, is what inspires individuals to endeavor in
their work, innovate, save as well as invest. The contemporary society
is not struggling with the issue entailing the rich becoming richer and
the poor becoming poorer, but to a certain extent, it is coping with the
issue of deceptive oratory and misinformation (Saez & Piketty, 2003).
Most young people are engaged in protests and this can be linked to the
reason that they have worked for shorter periods and thus lack the
experience of rising economic mobility which has been achieved by most
of the older persons. In the contemporary economically tough periods,
the youthful demographic is effortlessly swayed to consider that they
can only get ahead by taking from those at top, instead of putting
effort in their work and taking advantage of the available
opportunities. Against this backdrop, proponents of capitalism argue
that both the rich and the poor are becoming richer. Provided that
nations offer opportunities to their citizens, then there is high
possibility that income mobility flourishes and prosperity increases.
Apparently, there is a tremendous inequality growth of wealth and income
across the universe. The inequality is quite eminent in widely differing
societies such as China, the United States of America and Sweden. The
proportion for the national income for the richest Americans has doubled
over the last two decades (Dennis, 2002). Tendency is apparent in the
poor nations. For instance, India has a total of 48 billionaires but the
richest person in the universe is from Mexico. The richest one percent
of adults is in possession of around 50 per cent of the assets in the
world while over half of the world’s adult populace barely owns even a
percentage of the world’s wealth. Besides, the gap amid the richest
and the poorest nations has grown tremendously over the last two and a
half decades. The graph below shows the gap between the rich and the
poor is widening.
(Saez & Piketty, 2003)
The richer are becoming richer while the poor continue to get poorer.
Despite the fact that people will continue to be poor in the universe,
the world itself is becoming richer, and as such, is in a position to
alleviate global poverty. It is worth noting that charity is good and a
noble act to the unemployed. Nonetheless, this menace can only be
reduced by resolving the underemployment and unemployment issues. The
resources to facilitate this should come from the rich and those getting
richer by day (Saez & Piketty, 2003).
Governments can be able to attain this without denying capitalism the
driving force of private gain and private initiative. The main challenge
however is that there has to be a society agreement that the living
standards of all individuals will be raised. There is need to respect
those who raise this issues without viewing them as people who are
undermining capitalism. This means that the spirit of the community
members needs to be revived. According to economists, inequality
resulted to financial crisis (Reiman & Leighton, 2009). Evidently, the
politicians tried to address the gap amid the rich and poor by enhancing
the poor to acquire more credit. Furthermore, inequality distorts
politics. A good example is the case of the influence by Wall Street in
Washington of the unwholesome clout of a plutocratic privileged.
Some studies have shown that internationally, the disparity amid the
poor and the rich is becoming minimal, due to the fact that the poorer
nations are developing rapidly (Dietz & Cypher, 2004). For example, in
Latin America, known as the home to the most unequal societies in the
universe, many nations including Brazil have at least become somehow
equal. The government has been able to attain this by boosting the
incomes of the poor with a rapid growth as well as a revamp of the
public spending to enhance the safety net and not raising the proportion
of the taxes paid by the rich.
The disparity is also eminent in emerging nations such as India and
China and the regions with a reputation of being egalitarian such as
Germany. This however has differing reasons. For instance, in China the
disparity is as a result of the hukou system of residency permits that
restricts internal migration to the towns. By some measures disparity
has peaked as rural labor has become scarce. The disparity in the United
States started widening in the 1980s, for the reason that the poor
lagged behind those in the middle class (Saez & Piketty, 2003). In
recent times, the shift has been significantly because of a rise in the
distribution of income being earned by the richest especially those
working in the financial system. The living standards of most Americans
are stagnating, and the disparity between them has not changed.
The disparity between the rich and the poor is as a result of a number
of factors. To begin with, tax rates favor the rich. Evidently, on
average, income tax rate from the federal government for those having
high incomes has been declining in the last six decades. In the United
States, the Bush tax cuts reduced the top marginal tax from 36.9% to
35%. Naturally, low tax rates ensure that the high income earners keep a
large portion of their income, and this widens the gap amid the rich and
the poor. Lower tax rates also acts as an incentive for high income
earners to parley higher compensation. In essence, the lower the rate of
tax proportion, the more income an individual gets to enjoy.
Capital gains also lead to the disparity between the rich and poor. The
Bush tax cuts reduced taxes on capital gains usually the profits earned
from the sale of assets including real estate and stock. The rate of
capital gain in 2012 was seen to be 15% down from 20% in the 1990s
(Government of the United States, 2012b). Similarly, the high income
earners get to pocket a large portion of their income from the capital
gains. The top income earners made 38% of their income from the capital
gains, an increment from 31% a decade ago. In case of a higher capital
gain, the richest families increase their earnings rapidly as compared
to the poorest families.
Lastly, shifting social norms also result in disparities amid the rich
and poor. Shifting social norms are harder to quantify compared to tax
policy and technology. However, it plays a significant role in income
disparities. Basically, the society is quite appalled at elevated
salaries compared to before. Scholars argue that after the Second World
War as well as the New Deal, the national frame of mind inclined towards
egalitarianism of pay, as well as more humble and community-oriented
executives (Dietz & Cypher, 2004). However, in the 1970s, those norms
began to unravel, causing greater social reception for the sky-high
executive compensation currently in the world.
Essentially, individuals, nations and governments need to embark on
strategies to reduce the gap between the rich and poor while increasing
mobility. To begin with governments should mainly focus on pushing or
enabling those at the bottom and the middle level without dragging those
at the bottom. This they can achieve by investing in and confiscating
the barriers to education, getting rid of the rules preventing the well
established from moving ahead, as well as refocusing the spending of the
government on those in its dire need. Strangely though, the importance
of these reforms in greatest in the developed nations, where projection
of the less-skilled is falling or stagnant. Secondly, regimes should
abolish rigged rules as well as subsidies that are in favor of
particular insiders or industries. The best way to address the chubbier
felines of Wall Street is to put pressure on the banks so as they can
hold more capital disburse for their embedded government safety-net.
Besides, in the contemporary world, there ought to be a dynamic assault
on the monopolies, as well as a renewed dedication towards eliminating
worldwide trade barriers. This is because there is nothing that enhances
competition while loosening social barriers in a better way than free
commerce.
Although these developments would not curtail the entire income
inequality, in a capitalist society, intellect and skill would be
rewarded well. Nevertheless, the reforms are directed towards the, most
unfair and harmful kinds of income disparity thus permitting more
persons to climb the ladder, rather than only the top one percent of the
population. In view of this, nations that are worried about income
disparity and ‘the rich becoming richer while the poor are becoming
poorer’ should implement these reforms as in addition, they can result
to a more stable economy by encouraging economic growth.
References
Dennis, G. (2002). American Class Structure in an Age of Growing
Inequality. Wadsworth
Dietz, J. L. & Cypher, J. M. (2004). The Process of Economic
Development. New York, NY: Routledge.
Government of the United States (2012a). Income Mobility in the U.S.
from 1996 to 2005. US Department of the Treasury.
litystudy03-08revise.pdf>, as of October 4, 2012.
Government of the United States (2012b). Income, Poverty, and Health
Insurance Coverage in the United States: 2011. US Census Bureau.
, as of September 24,
2012.
Reiman, J. H. & Leighton, P. (2009). The Rich Get Richer and the Poor
Get Prison: Ideology, Class, and Criminal Justice, 9th ed. Allyn &
Bacon.
Saez, E. & Piketty, T. (2003). Income inequality in the United States:
1913–1998. Quarterly Journal of Economics, 118(1), 1–39.
World Bank (2012). World Development Indicators and Global Development
Finance-Google Public Data Explorer. World Bank.
, as of
September 25, 2012.
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