Income Inequality
Background & Context
A question during Tuesday night’s Presidential Debate stood very stark, is America facing a V-shaped or K-shaped recovery? link
While income inequality is nothing new link what has unfortunately become very clear is that COVID-19 has exacerbated long-standing seams of income inequality in America. Those with access to capital, and most importantly, access to capital markets, have fared far, far better than those struggling to make ends meet. link
While markets have become devoid of rational business fundamentals in the face of a global pandemic, reaching all time highs while incomes are crashing, millions remain unemployed, subsisting off of government stimulus in the face of layoffs, furloughs, and shut downs.
While COVID-19 has certainly shown the growing problem, there remains quite a bit of contention on what can actually be done to fix it. link
While some would like to say complete income equality is the goal, very few actually practice what they preach. Moreover, while income inequality is truly at historic levels, very few polled respondents believe the system is broken to a fault, with two schools of thought:
- Raise taxes and slowly claw back the losses of the middle and lower class, or
- Change the system. link. The topic, therefore, for this week is this:
Is income inequality in all forms bad, and if so, is the system so far broken, exasperated by 40 years of destruction of the American middle class and now COVID-19, to be fixed?
Is Inequality good or bad?
- Inequality is a symptom of an unregulated economy
- Does a truly equal system disincentivize innovation/driving factors/etc.
- Common critique of communistic society
- Very little to show whether this argument is valid; correlation vs. causation
- People want to create, want to innovate, etc.
- Disincentivizing work
- Potential Case Study: Norway
- Highly dependent on oil revenues; yields very high standard of living
- Norway has low innovation
Universal Basic Income
- Bezos’ basic salary is not significantly higher than normal individual
- Most people in an economy are consumers; very few people control vast majority of economic driving factors
- UBI can afford to provide bare minimum standard of living - working poor/subsistence workers would be covered, but any increase in standard of living would come from work
Is there a distinction between organic and artificial income inequality?
- Possible for some inequality growth to be organic
- Access to capital yields income with investments
- The rich have access to capital that the poor do not have, therefore the access to equality is lowered
- Inorganic inequality growth: Billions of dollars moved from the poor to the rich due to access of capital to buy distressed assets
- Profit off of arbitrage/non-value added transactions is purely synthetic
Is the stock market a synthetic inequality?
- Is buying stock tied to market fundamentals? If it is not, then it is synthetic
- If monetary capital is not directly used to fund growth, it is synthetic
Is there an issue if the floor is consistently rising?
- Ex: India - Base standard of living has significantly increased compared to 30 years ago even though income inequality is increasing
- Urbanization is good, increases standard of living for bulk of citizenry
Natural resource driven economies are prone to fitting into nationalization/wealth-sharing/more income equal economies
- Future economies are based likely based on idea-driven economies (thought based economy), likely to provide heavy inequality