Income inequality has suddenly become a hot topic. Think tanks worldwide are releasing studies on the issue. In this country, the president has made it a political issue in the mid-term elections. This week in Davos, the World Economic Forum will take up the gauntlet as well. It’s about time.
Two years ago readers may recall my four-part series on the growing inequality here at home and throughout the world. You were shocked to learn that America ranks last among all developed countries in income equality. As a nation, our income inequality is about equal to that of the Third World, sandwiched between Uruguay and Cote D’Ivoire. States such as Massachusetts rank about equal to Mexico, Connecticut with Venezuela, New York with Costa Rica and New Hampshire with Cambodia.
This week Oxfam, a non-profit confederation of 17 organizations in 90 countries, released a study that indicates that 85 of the richest people in the world own as much as the poorest 50 percent of humanity. Think of it, a double decker busload of one percenters control $1.7 trillion, equivalent to the combined wealth of 3.5 billion people. Seventy percent of the world’s population lives in a country where inequality has increased over the past 30 years.
In the United States, the gap betweem the haves and have-nots has grown at a faster pace than in any other developed country. The top 1 percent captured 95 percent of all the post-recession growth since 2009, while 90 percent of us became poorer. Oxfam’s report mirrors several other studies, including a University of California Berkeley study, the Pew Research Center’s findings and the IMF. The results are essentially the same.
At the tiny Swiss town of Davos, 2,500 participants from almost 100 countries will be flying in on their private jets and arriving in limousines. In years past, attendees were largely billionaire tycoons, business executives, the rich and famous, in essence a genteel gathering of the world’s one percent. Supposedly, this year, they will be joined by some of the rabble. Representatives from international non-profit organizations, members of civil society and spiritual leaders, academia and the media have been invited.
This will allow for a larger cross-section of political, cultural and societal views, but -- excuse my cynicism -- it is still essentially a rich man’s club. As such, how serious will its members address income inequality when it is they who have profited the most from the trend? Granted, the fox may express its concern and sympathy over events in the hen house, but do we really think he will stop eating the hens?
In our own country, politicians on both sides of the aisle are honing their stump speeches. The Republicans will be preaching how free markets are the answer to income inequality, while conveniently ignoring the failure of 30 years of "trickle down" economics. The Democrats will argue that the nation needs more social programs and even greater distribution of income in order to level the playing field. Of course, they will dodge the fact that three decades of government-sponsored social initiatives have failed to even slow the growth rate of inequality in the nation. Could it have something to do with the fact that the average elected official in this country is a millionaire and this part of the one percent?
Riddle me this, reader: What happens to societies when inequality reaches a critical mass? The think tanks use words like "explosive," "serious damage" and "instability" in explaining the outcome. They are all code words for revolution, armed conflict and massive upheaval. Usually a leader appears to lead the revolt, maybe a Robiespierre or a Hitler or someone else.
It surprises me why more people fail to see the connection between the growing inequality and recent global uprisings in the Middle East, Asia and other places. I’m hoping this recent concern is more than a passing fad or a sop for the masses because the stakes are high, ladies and gentlemen, and getting higher every day.
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management, managing more than $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the view of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article in intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought or held by BMM. Direct your inquiries to Bill at 888-232-6072 or e-mail him at Bill@afewdollarsmore.com. Visit www.afewdollarsmore.com for more of Bill’s insights.