Inequality - Does It Really Matter?

"I hope my ship comes in before the dock rots." - Anonymous

The great American heritage is one based on opportunity.  Come to America the land of the free and you can achieve anything your heart desires.  As an immigrant to the United States more than 20 years ago I bought into that dream.  Over the years I have had my share of success and failure but I persevered through thick and thin on a hairline budget in order to break through to the other side.  It has not been easy and even now I have not completely achieved all of my goals and ambitions but then nothing in life worth obtaining is easy, or should be. 

Having arrived in the late 1980's with nothing but a backpack on my back and a few hundred dollars in my pocket it did appear that life was easy and that if you took a chance you could win, however year after year it seemed to be getting more difficult and these past few years have been worse than anything I have experienced.  Now economic problems aside there are numerous studies that have shown that the inequality or the divide between the haves and the have nots has grown to an unimaginable level and that the playing field has been shaped so that the haves can keep theirs while the have nots continue to spiral south.  Is this inequality all it is hyped to be and should we care?

Having come from one of the most economically skewed countries in the world, the South African apartheid economy, I have witnessed first hand inequality.  I have also witnessed that it is unsustainable and that if it is not addressed sooner rather than later that it all ends poorly for the haves.  That is not to say that the United States is anywhere near what South Africa was under apartheid but I use it simply as an example of what can occur.  For other examples look at Russia or other communist societies to see just how skewed wealth can be and how fragile those leadership regiments are.  People will only put up with inequality as long as there is the hope of prosperity (China) but once it becomes clear that there are two sets of rules there is no way to stop the avalanche of change.  Furthermore it makes no economic sense to enforce a level of rigidity to keep the masses down as studies have shown that economies grow far quicker when they are balanced than when they are divided.

During my 20 plus years here numerous changes have shaped America so that it now is the most divided of the world's prosperous democratic countries.  Not what you would expect from the land of the free.  This does not happen over night but happens as laws are crafted to institutionalise the advantages.  There are numerous examples and I will go through a few of them:

1. Tax inequality - high taxes on income tax but low taxes on capital gains.  As the majority of citizens do not own their own businesses or stocks it serves to reduce the burden on the tax to the higher income classes.  The counter argument is that this is a stimulant to investing but if you do not have access to the dollars needed to start then you cannot play.  Take a look at the majority of tax receipts and you will clearly see who pays tax and who does not, in fact 80% of the tax receipts come from payroll and individual taxes while only 9% come from corporations.  Note that I am not suggesting that this should be switched but you can see that getting ahead is not going to come from earning your way out of poverty.
2. Bankruptcy laws - you cannot declare bankruptcy on a student loan but you can walk from a poor investment.  In order to get ahead many get schooled and many of those schools do not provide gainful employment to their students however the student now cannot get rid of that loan while the bankers can walk away Scot free from their poor investments.  Worse still is that small businesses are left to fail while certain too big to fail institutions are propped up with tax payer money and we saw whose money that was!
3. Business regulation - the same laws apply to large businesses as to small businesses.  This burden has kept many people from starting a business.  The costs of complying with all the red tape are overwhelming and the thought of all the expenses associated with hiring a new employee are just too burdensome.  I have met with hundreds of small entrepreneurs and many are considering throwing in the towel as the costs to run a businesses suck the life out of them and in the end they earn less than what they could working for someone else.  This is not a platform that fosters growth or innovation.
4. Health care reform - increasing the payments on health care hurt the small business and the middle class far more than big business and the wealthy.  This is another burden on small business and while I believe that the law was crafted out of concern for those who cannot afford health insurance it has added another layer of expense onto an already over burdened small business owner.
5. Capital mobility - capital is mobile while labor is not.  Once you have accumulated your millions you can leave the mess behind you.  Take your money and run so to speak and there are plenty who have done just that.  Labor however cannot move.  They do not have the resources and are therefore stuck to bear the burden which is why inequality is unsustainable.
6. Printing money - the present methodology of extracting the United States out of its doldrums by printing money directly benefits the haves.  Money printing is not a targeted solution.  Creating money out of thin air does not create jobs it creates inequality as most of that money ends up in the hands of the bankers, speculators and large businesses which once again skews the playing field.  This is why the inequality has grown so fast since 2000 when Greenspan started on this printing racket.  As a simple example look no further than the stock market which continues to plow higher benefiting the rich and large business at the expense of small business as they do not have access to capital.

I am sure there are plenty more examples and I am sure that a lot of you will have a counter argument but it is clear to me that unless the playing field is made level things are not going to improve very quickly in the United States.  Making it easier and less burdensome to start a business encourages entrepreneurs to take the chance.  Some will work and some will not but it will plant the seeds to growth.  From this growth comes hiring and this alleviates the unemployment problem.  Paying people to sit at home for 99 weeks does not and wastes tax payer money.  Give people the opportunity to grow and they will, take that away from them and at some point in the future they will retaliate.

To me this is a relatively easy fix but the question is do we have the leadership to get it done?  It is not long now to see who will take us forward for the next four years and I pray that whomever it is has the vision to get this done but then again I doubt it!