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.