Why The Inequality Gap Is Growing Between Rich And Poor

Summary

Over the last 40 years, the U.S.-led global economy has significantly reduced extreme poverty, yet income and wealth inequality have surged, particularly in the U.S. The digital revolution and technological advancements have created wealth for the skilled while eliminating middle-skill jobs. Global competition, especially from emerging economies like China, has further impacted unskilled workers. The rise of superstar firms has concentrated wealth, while declining union power and a stagnant minimum wage have weakened the lower class. These economic shifts have not only exacerbated inequality but also fueled political discontent and social unrest.

Takeaways

• 🌍 The U.S.-led global economy has significantly reduced extreme poverty worldwide since 1981.
• 📈 Income and wealth inequality has surged in advanced economies, particularly in the U.S., where market forces are strongest.
• 💻 The digital revolution has created wealth for the skilled but eliminated middle-skill jobs, impacting those without college degrees.
• 📊 Technological progress has increased the value of abstract problem-solving and communication skills, while devaluing repetitive tasks.
• 🌐 Competition from emerging economies like China has reduced job prospects for less skilled workers, affecting sectors like textiles and furniture.
• 🏭 China's rapid rise as a manufacturing powerhouse has had a profound impact on U.S. manufacturing employment.
• 🏢 Breakthrough firms attract global revenue, creating economic winners and losers across different regions within the U.S.
• 🔽 The decline in labor union representation and the erosion of minimum wage purchasing power have hurt low-wage workers.
• 💼 The wealthiest have been further rewarded through policy changes and advantages in education and opportunity.
• 🏛️ Inequality and economic malaise have led to political instability and calls for systemic change in the U.S.

Q & A

What has been the impact of the U.S.-led global economy on human welfare over the past 40 years?

The U.S.-led global economy has significantly improved human welfare, with the proportion of the world's population living in extreme poverty falling from 42 percent to 10 percent since 1981.

How has income and wealth inequality changed in advanced economies, particularly in the U.S.?

Inequality of income and wealth has surged in advanced economies, with the U.S. experiencing the most significant increase due to its strong reliance on free market forces, which magnifies rewards for the top earners and leaves most others behind.

What is the effect of the digital revolution on job opportunities and income distribution?

The digital revolution has created enormous wealth for those with the skills to take advantage of it but has eliminated 'middle-skill jobs,' leading to a hollowing out of job activities available to non-college workers and downward pressure on their wages.

How has technological progress affected the value of different types of skills in the job market?

Technological progress has increased the value of abstract problem-solving, interpersonal communication, and organizational skills, which are often possessed by highly educated workers, while devaluing cognitively intensive but repetitive tasks, impacting non-college workers negatively.

What role has the rise of China played in the economic landscape and job prospects for U.S. workers?

China's rise has been a significant factor in the economic landscape, with its transformation into a frontier manufacturer using modern technology and skilled labor, which has reduced prospects for U.S. workers without advanced skills, especially in sectors like textiles and furniture.

How has the entry of China into the World Trade Organization in 2001 affected U.S. manufacturing employment?

China's entry into the WTO in 2001 accelerated competition in the U.S. market for manufactured goods, leading to a dramatic decline in U.S. manufacturing employment, with about 20 percent of all U.S. manufacturing jobs disappearing over seven years.

What are the economic implications of breakthrough firms like Apple and Amazon for the U.S. economy?

Breakthrough firms attract global revenue, producing immense jackpots for their executives and the cities they are based in, contributing to a growing divergence in economic outcomes across places in the U.S. and reinforcing the 'winner-take-all' economy.

How has the decline in labor union representation impacted workers' bargaining power and wages?

The decline in labor union representation has reduced workers' bargaining power, contributing to a drop in the buying power of the minimum wage as it has not kept pace with inflation, hurting the lowest-paid workers.

What are the consequences of the shifting power balance and the rewards it provides to the wealthiest in society?

The shifting power balance has led to policies and practices that reward the wealthiest even more, such as tax changes and preferential college admissions, which can exacerbate inequality and limit opportunities for less affluent individuals.

How does economic inequality affect the dynamism and potential dynasticism in American society?

While some level of inequality is necessary for economic dynamism and risk-taking, excessive inequality can lead to dynasticism where the next generation's opportunities are not equal, potentially reducing societal productivity and fueling political and social unrest.

What are the political implications of economic inequality and the perception of a rigged system in the U.S.?

Economic inequality and the perception that the system is rigged against ordinary people have led to increased political contention, with voters frequently changing the party in control and a growing belief that the capitalist system needs to be upended.

Outlines

00:00

🌐 Economic Inequality and Technological Impact

The script discusses the paradox of global economic progress and rising income inequality, particularly in the U.S. Over the past 40 years, extreme poverty has significantly decreased, yet income disparity has surged. The digital revolution has created wealth for the skilled but eliminated middle-skill jobs, favoring the highly educated and leaving less educated workers in less secure positions. Technological advancements have increased the value of abstract problem-solving and interpersonal skills while devaluing repetitive tasks, leading to wage pressure and economic insecurity for the less educated. Global competition, especially from emerging economies like China, has further reduced job prospects for unskilled workers, contributing to economic disparity.

05:03

🏭 The Erosion of Labor and Economic Consequences

The script highlights the decline in labor union representation and its impact on workers' bargaining power, leading to a drop in the real value of the minimum wage. It discusses the consequences of this erosion, including reduced employment rates among less educated men and the widening economic gap. The script also touches on how policy changes and market incentives have disproportionately benefited the wealthiest, contributing to a dynastic cycle that undermines social mobility. The increasing perception of a rigged system and the resulting political and economic turmoil are also explored, emphasizing the potential for a significant overhaul of the capitalist system.

Keywords

💡Extreme Poverty

Extreme poverty is defined as living on less than $1.90 per day. The video script highlights the significant reduction in the proportion of the world's population living in extreme poverty, from 42 percent to 10 percent since 1981, showcasing an improvement in human welfare. This term is crucial as it sets the stage for discussing economic progress and its disparities.

💡Income Inequality

Income inequality refers to the unequal distribution of income among a population. The script emphasizes that while global poverty has decreased, income inequality has surged, particularly in advanced economies like the U.S. This concept is central to the video's theme as it discusses the widening gap between the rich and the poor and its societal implications.

💡Free Market Forces

Free market forces describe an economic system where supply and demand determine prices with minimal government intervention. The video notes that the U.S.'s strong reliance on these forces has magnified rewards for the top earners while leaving others behind, illustrating the impact of economic policies on income distribution.

💡Digital Revolution

The digital revolution encompasses the rapid and widespread adoption of digital technologies. The script explains how this has created wealth for those with the skills to leverage it but has also led to the elimination of 'middle-skill jobs,' contributing to economic disparity by favoring highly educated workers.

💡Technological Progress

Technological progress refers to advancements in technology that improve efficiency and productivity. The video discusses how it has increased the value of abstract problem-solving and interpersonal skills while devaluing repetitive tasks, leading to a hollowing out of job opportunities for non-college workers.

💡Emerging Economies

Emerging economies are nations that are rapidly progressing from developing to developed status. The script uses China as an example, highlighting how its rise has increased competition and reduced job prospects for less-skilled workers in advanced economies, particularly in sectors like textiles and furniture.

💡Breakthrough Firms

Breakthrough firms are innovative companies that disrupt industries and achieve global success. The video mentions firms like Apple and Amazon, which have attracted worldwide revenue, creating immense wealth for their executives and the cities they are based in, exemplifying the concentration of wealth in certain sectors and locations.

💡Labor Unions

Labor unions are organizations that represent the collective interests of workers and negotiate employment contracts. The script notes the decline in union representation, which has reduced the bargaining power of workers, particularly the lowest paid, contributing to wage stagnation and economic insecurity.

💡Minimum Wage

The minimum wage is the lowest pay rate employers can legally pay workers. The video discusses how the buying power of the minimum wage has decreased due to lack of government increases to match inflation, exacerbating economic inequality and affecting the livelihoods of low-wage earners.

💡Dynasticism

Dynasticism refers to the concentration of wealth and power within families across generations. The script warns that the current economic dynamism could lead to dynasticism, where affluent families perpetuate their advantages, limiting opportunities for talented individuals from less affluent backgrounds and potentially reducing societal productivity.

💡Economic Malaise

Economic malaise describes a period of economic stagnation and dissatisfaction. The video connects economic malaise with social and political unrest, suggesting that the growing sense of a 'rigged system' and the decline in mainstream economic success are fueling political contention and calls for systemic change.

Highlights

The U.S.-led global economy has significantly improved human welfare over the past 40 years.

The proportion of the world's population living in extreme poverty has fallen from 42% to 10% since 1981.

Income and wealth inequality has surged in advanced economies, especially in the U.S.

Free market reliance in the U.S. has magnified rewards for the top earners, leaving most others behind.

The digital revolution has created wealth for the skilled while eliminating middle-skill jobs.

Technological progress has increased the value of abstract problem-solving and devalued repetitive tasks.

Competition from emerging economies like China has reduced prospects for workers without advanced skills.

China's rise has been a significant economic story, affecting global manufacturing and U.S. job markets.

Breakthrough firms attract global revenue, producing immense jackpots for executives and their cities.

The share of workers represented by labor unions has dropped, shrinking their power.

The buying power of the minimum wage has dropped as the government hasn't increased it to keep pace with inflation.

Fewer than 70% of men with a high school degree or less are working.

The shifting power balance has rewarded the wealthiest even more through policies in government and private institutions.

Inequality creates market incentives for hard work and risk-taking, but also imposes costs on society.

Dynasticism in the U.S. is preventing the next generation from getting an equal footing.

The political turmoil in America is fueled by a growing belief that the system is rigged against the average person.

Economic and social malaise are leading to calls for upending the capitalist system.

Transcripts

For 40 years, the U.S.

led global economy has produced an enormous

improvement in human welfare.

Since 1981, the proportion of the world's

population living in extreme poverty on less than

a $1.90

per day has fallen from 42 percent ,to 10 percent.

But in countries with advanced economies,

inequality of income and wealth has surged.

And nowhere has it surged more than in the U.S.

where reliance on free market forces has been

strongest. That magnifies rewards for those at

the top and leaves most others behind.

The trend helps those with higher levels of

education and hurts the less educated.

It lifts residents of major cities while leaving

those in small towns behind.

For growing numbers of Americans it's just harder

to get ahead.

Why is this happened and what are the

consequences? Here are five causes.

The digital revolution creates enormous wealth for

those with the skills and preparation to take

advantage. But it eliminates what economists call

"middle-skill jobs."

Computer software and industrial machines now

fill roles from clerical tasks to routine

manufacturing that once produced middle class

incomes for workers without college degrees.

One of those forces is technological progress that

has increased the value of an abstract problem

solving, interpersonal communication or

organizational skills.

Things that highly educated workers tend to be

very capable of and has simultaneously devalued a

lot of cognitively intensive but repetitive tasks

in offices and production lines and so kind of

hollowed out the set of job activities available

to non-college workers and sort of pushed them

arguably downward into personal services, food

services, cleaning, security, transportation,

repair where their skills are more

interchangeable with other workers and where

there is less of a return to experience over the

lifecycle.

And so that has contributed downward pressure and

wage pressure and economic insecurity for the

less educated.

So it's really kind of created a great world for

the highly educated and a much less economically

secure and inviting world for people who don't

have high levels of education.

Competition from emerging economies like China's

combined with reduced trade barriers have further

reduced prospects for workers without advanced

skills. That's had devastating consequences in

sectors such as textiles and furniture and

leather goods.

The biggest economic story of really of the

century and certainly of the last 50 years has

been China's rise.

China going from a poor and backward country in

perpetual political and economic crisis to a

frontier manufacturer with pretty well-educated,

highly available skilled labor using modern

technology. So China marched up the productivity

technology frontier between 1980 and the present

at a rate almost unseen in history and because it

was so vast, because it had so many people, so

many resources, so much land, it could become you

know a manufacturer for now at this point more

than 20 percent of all world manufacturing value

added. And that's not just a function.

That's not a function of trade deals.

That's primarily a function of internal

developments in China.

The decision to allow free mobility of labour to

adopt Western technology and foreign direct

investment and to start trading with the world.

And that had a big effect on United States even

in the 90s.

But when China joined in 2001 that further opened

the floodgates.

And that had a dramatic accelerant effect on the

rate at which competition entered the U.S.

market for manufactured goods.

And the rate of decline of U.S.

manufacturing employment as a result of that.

Over the course of just seven years about 20

percent of all U.S.

manufacturing jobs disappeared.

And then they fell it fell by another cumulative

eleven percentage points during the Great

Recession. So effectively one-in-three

manufacturing jobs no longer existed that had

existed around 2000.

Breakthrough firms such as Apple and Amazon now

attract revenue across the world, which produces

immense jackpots for the executives who lead

them. And for the American cities they call home.

You create the innovation and you have the global

product market.

You're going to have much larger earnings than in

a previous generation.

There is increasingly divergence and economic

growth and economic outcomes across

places in the U.S..

And so there are just you know along with these

superstar workers and these superstar firms when

you have superstar cities in our increasingly

winner take all economy.

Meanwhile, the share of workers represented by

labor unions has dropped by half, shrinking their

power. The lowest paid workers have seen the

buying power of the minimum wage drop as the

government has not increased it to keep pace with

inflation.

Fewer than 70 percent of men with a high school

degree or less are working.

The eroded value of the minimum wage in many

cases, the decline in unionization, things that

have otherwise sort of hurt workers bargaining

power in ways that amplified their weakened

bargaining power are just coming from these

external forces where they were already competing

with technology or workers from lower wage

countries for example.

The shifting power balance has rewarded the

wealthiest even more through policies in

government and private institutions.

From tax changes that increased their income to

college admissions procedures that opened doors

for their children above others.

Actresses Felicity Huffman and Lori Loughlin are

headed from the red carpet to federal court.

13 parents and one coach who have pled pleaded

guilty.

The market incentives inequality creates for hard

work and risk taking helps make America's economy

dynamic but it also imposes costs.

You need some inequality.

The problem is when that dynamism at a point in

time gives rise to dynasticism such that the

next generation doesn't get an equal footing. Such

that kids of affluent parents even if there are

mediocre talent get to go to the best schools and

get access to the you know the most after school

investment, the most training and so on.

And you know talented kids from less affluent

families don't get to go to these schools.

They don't get invested in in the same way.

And that's a loss for all of us.

That's not just a loss for them.

That means our society will be less productive.

And it fuels the nonstop turmoil in American

politics. Voters have thrown out the party in

control of the White House or one chamber of

Congress in six of the past seven national

elections.

2020 promises to be just as contentious.

I think we're seeing that loud and clearly in the

sort of politics of the past few years.

People are increasingly likely to report that

they believe the system is rigged against them.

This is damaging both for the functioning of our

democracy. But I actually think also for the

functioning of our economy.

We're going to see people in increasing numbers

sort of dropping out of our mainstream climb to

economic success and so we've got this economic

malaise. And now we have this social malaise

going along with it.

And and it's leaving the political I mean large,

loud political cries for completely, I think,

upending our capitalist system.