How growing inequality and widening income gaps will lead to social unrest and chaos

Monday, February 15, 2016 by

( You’ve heard a great deal these days about “income inequality” from politicians who are promising to reverse the trend of the “rich getting richer and the poor getting poorer.” Regardless of your political leanings (or maybe you have none at all), there can be no doubt that the so-called income inequality gap is widening, and that has occurred regardless of which major political party has been in the White House or dominated Congress.

In practical terms, according to an August 2014 analysis by Standard & Poor’s, as the income gap has widened, it has created an undercurrent of social unrest that, should the trend continue, will worsen – perhaps even to the point of civil unrest.

“A degree of inequality is to be expected in any market economy. It can keep the economy functioning effectively, incentivizing investment and expansion–but too much inequality can undermine growth,” the analysis notes.

“Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring,” it continued. “Keynes first showed that income inequality can lead affluent households (Americans included) to increase savings and decrease consumption (1), while those with less means increase consumer borrowing to sustain consumption…until those options run out. When these imbalances can no longer be sustained, we see a boom/bust cycle such as the one that culminated in the Great Recession.”

The analysis also noted that sustained income inequality over long periods can dramatically harm growth, and, S&P noted a year-and-a-half ago, “the United States is approaching that threshold.”

Part of the problem has been government. Transfers of wealth via programs like Medicare, Social Security and Obamacare “have done little to reduce income inequality–and may have contributed to a further widening of the gap,” the analysis notes. But today’s political leaders and presidential contenders all seem intent on doubling down on these harmful policies, thereby assuring that the gap will continue to widen and with it, the incidence of widespread social unrest.

But would attempts to grow income at lower levels by reversing government policy help? If Greece is any indication, the answer is a resounding “no.”

Consider that in recent years, the heavily socialist Greek economy, with its high taxation and high level of social spending, had so-called “austerity” measures imposed on it by Germany, the International Monetary Fund and the EU so that the east European nation could cut its expenses and pay back loans it had taken in order to stay afloat.

The result? Rioting in the streets and other violence. Average Greek citizens, hoodwinked by decades of socialist leaders who convinced them that the government gravy train would never run out, are now so dependent on Athens for survival they can’t abide by any changes to the current system.

In fact, similar protests took place just days ago, as “anarchist protestors” perpetually angered by Greece’s creditors to stop spending money the government doesn’t have to subsidize the people lobbed rocks and gasoline bombs at police outside the country’s parliament.

The problem is, Greece can’t get out of its cycle of decline because it has entered an economic deal spiral: The country’s tax-and-income base is shrinking as talented Greeks leave for greener shores and businesses fail due to a lack of customers.

Could that happen in the United States? It’s already happening.

President Obama and Congress have added nearly $10 trillion to our national debt since he’s been in office, essentially doubling it, and the newest budget adds hundreds of billions more.

As long as the United States dollar is the world’s reserve currency, the Treasury Dept. can print us out of trouble, but what happens if other currencies rise to take over the dollar’s prominence (because our debt is getting too high to pay)? That, too, is already happening.

For the U.S. worker, wage growth has been nil, essentially – given the rise in the cost of living versus rises in wages – for decades, as the Pew Research Center notes. Half of Americans, on average, earn less than $30,000 a year, while since the last recession the income gap has dramatically widened.

Finally, there is this: We’ve got some ways to go until the presidential election, but already Americans have been attracted by the tens of millions to a pair of candidates – one from each major party – considered “outside the mainstream,” and that is Sen. Bernie Sanders for the Democrats and billionaire real estate mogul Donald Trump for the Republicans.

Each have distinctly different economic approaches to public policy. Sanders is a socialist – he has said so – and would essentially adopt Greek economic policies writ large: free college, free housing, free health care, free daycare. Trump has been less forthcoming about his economic plans but Americans are attracted to him because his economic focus has been “America first, foremost and always,” which most believe is not a view held by “mainstream” politicians too willing to cut deals and listen to corporate donors.

The winning economic ideology may very well decide the future of the United States – whether it will prosper again and lift millions out of poverty, or whether our leaders will continue to pursue tax-and-spend policies that are simply unsustainable.

What is certain, however, is that the latter policies will, without a doubt, lead to social chaos. We’re already seeing that in the struggling countries of Europe (and, perhaps soon, in China).

See also:

US News


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