The Inequality, the Wealth Concentration, and the Super-Rich
1. The Rise of Economic Inequality in America
2. The Economic Inequality across the World
4. The Consequences of Inequality
5. The Plutocrats or the Global Super-Rich
6. The Popular Myths About Wealth and Poverty
The Rise of Economic Inequality in America
For most of the 20th century, inequality in the United States was flat or falling [1]. After the Second World War between 1947 and the early 1970s, all income groups, particularly the poor, benefited from the national economic growth and experienced growth in real annual income [3]. During this period, government policies were linking productivity to workers’ compensation, full employment was a priority, unions were strong, and fiscal policies were equitable [3]. As a result, for much of the period between the1950s and 1970s, inequality was either stable or declining. Things changed since the late 1970s when economic inequality started to rise rapidly. During the past four decades, the economic inequality has constantly risen and currently, it has reached to the levels not seen since the late 1920s [9, 4, 5, 6]. The share of American top 1 percent from the national income jumped from 8 percent in 1979 to more than 18 percent in 2007 meaning an increase of 125 percent. If we include income from capital gains in the calculation, the share of the top 1 percent of the national income reaches over 23 percent, implying a much sharper increase in the economic inequality [2]. Between 2000 and 2008 when George W. Bush was in the White House, productivity grew faster than ever, but the real compensation of all Americans except the top 20 percent was either flat or declining [3]. In other words, gains in wages benefited mostly the rich. In fact, over the last 30 years, the growth in the incomes of the bottom 50 percent has been zero, but incomes of the top 1 percent have grown almost 300 percent [25]. The top 1 percent of Americans control one-third of the assets in the United States. According to Forbes magazine, 492 billionaires in America own more than $2 trillion in different types of assets [52]. The median family income in the United States has been stagnant for over two decades. While the rich get richer, the poor are getting even poorer. What is more, this growing economic disparity is happening despite greater productivity per worker in all sectors [10]. The rich have distanced not only from the poor but also from the rest of society including the middle-class citizens. It is interesting to note that the United States is the most unequal member of developed countries. The data collected from OECD, a club of mainly rich countries, show that the United States is marked by the third-highest level of inequality. What is even more striking is that the U.S. tax system does little to mitigate the economic inequality [7, 11]. For example, tax rates on top incomes have continued to fall in the recent years. The top rate of income tax was 70 percent in 1980, but it is now 40 percent [30]. The rich not only accumulate wealth, but also hand over some colossal assets to their heirs, and thus make the economic inequality even worse. Another trend in economic inequality is the widening gap between the privileged professionals, managers, and business owners and the regular white-collar and blue-collar employees [15] (see Figures 9.1, 9.2, 9.3, and 9.4).
The signs of widening economic inequality and the associated socioeconomic segregation can be seen everywhere across the nation from cities and neighborhoods to public schools, colleges, and hospitals. It is estimated that about 50 percent of retirees will run short of their planned financial needs and might have to continue to work after their 60s [9]. The number of bankruptcies, mortgage foreclosures, and car repossessions skyrocketed between 1970 and 2001 [8]. Job loss, medical expenses, and divorce have been reported as the main factors that push the middle-class citizens to file for bankruptcy [7]. Most of the middle-class Americans have insufficient savings or are highly indebted. Compared to the early 1970s, Americans spend 21 percent less on clothing, 22 percent less on food, and 44 percent less on major appliances [9]. Many families are hardly staying afloat with two parents working [13]. They live paycheck to paycheck. Based on a recent survey conducted by the Federal Reserve Board, almost half of Americans would have trouble finding as little as $400 to pay for an emergency [18]. The United States as the richest country in the world has the highest rates of poverty among the developed nations mainly due to the public and fiscal policies. The poverty rates of American children are on average three or four times greater than in other developed countries [16]. According to the Federal Reserve surveys, the percentage of household disposable income spent on debt services including mortgage, auto loan, and credit card debt has constantly risen in the past 30 years [9]. The average household owes about $176,000 including $29,000 in auto loans and $17,000 in credit card debt. Furthermore, 44 million Americans are burdened by student loan debt. As of 2016, the total of student loan is estimated over $1.3 trillion implying that the average American graduate has $37,000 in student loan debt. To put things in perspective, it is important to mention that the median household income in the United States has fallen from $67,673 in 1999 to $62,462 in 2014, suggesting that the minimum income needed to be a middle-income household fell from $45,115 in 1999 to $41,641 in 2014 [17]. At the same time, the share of American adults in middle-income households has fallen from 55 percent in 2000 to 51 percent in 2014 [17]. The most conspicuous form of economic inequality is seen along the racial lines. Minorities including African Americans, Hispanics, and women who head families are particularly feeling the financial pressure. The typical white household possesses 12-fold more wealth than the average black household does. More than 61 percent of black and 50 percent of Hispanic households do not possess any type of financial asset, compared with 25 percent of their white households [15].
Figure 9.1 A historical overview of the distribution of household income in the United States
Source: Congressional budget office|Graphic: Hagit Bachrach
Figure 9.2 A historical overview of the change in share of total income in the United States between 1967 and 2012
Source: Census Bureau
Figure 9.3 Pretax national income shares of the top 1% and the bottom 50% between 1962 and 2014
Figure 9.4 The share of total U.S. wealth owned by the top 0.1% and the bottom 90% in the past 100 years
Source: http://gabriel-zucman.eu/files/uswealth/AppendixTables(Aggregates).xlsx
The Economic Inequality Across the World
The global distribution of wealth both among and within nations is highly skewed. According to the World Bank, those nations with gross national income (GNI) per capita of $12,476 or more are categorized as high income while those with a GNI per capita of $1,025 or less are classified as low-income countries [19]. High-income countries constitute 16 percent of the world’s population but produce almost 55 percent of global income [19]. By contrast, low-income countries that account for 72 percent of the world’s population generate around 1 percent of global income. Most of the high-income countries are located in North America, the Western Europe, or East Asia. The very poor countries are located mostly in the Sub-Saharan Africa and Asia. Due to high economic growth in China in the past three decades, hundreds of millions of Chinese people have been lifted out of poverty [25]. If China is excluded from calculations, it is found that international income inequality has increased significantly between 1980 and 2000 for most of the world’s countries. During this period, Latin America, Sub-Saharan Africa, and most parts of the Eastern Europe experienced sharp drops in the level of their gross national income per capita. Between 2000 and 2010, the income inequality between the poor and rich countries has been falling mainly because of the fast economic growth across the world and particularly in the low-income nations. Nevertheless, the absolute income gap between the rich and the poor countries has increased from $18,525 in 1980 to close to $32,900 in 2007 [19].
At the individual level, the world is marked by a striking level of economic inequality where 1 percent of humanity controls as much wealth as the bottom 99 percent [32]. According to Credit Suisse, the poorest 50 percent of the world’s population collectively have less than a quarter of 1 percent of the global wealth [26]. This outrageous concentration of wealth is part of a long-term trend that is constantly aggravating. In the past four decades, the economic inequality within nations has been growing faster almost everywhere in the world. For instance, between 1988 and 2011 the income of the poorest 10 percent of people increased by less than $3 a year whereas the income of the richest 1 percent surged 182 times [27]. The growing inequality within nations is not limited to the United States. In the United Kingdom, France, China, and India economic inequality levels are at all-time high. In China, the top 10 percent of the population earns almost 60 percent of the income. South Africa is becoming one of the most unequal countries, even more, unequal than it used to be at the end of apartheid [42]. Across the world, the incomes of the top 1 percent have increased 60 percent in 20 years and the great financial crisis of 2007 has made the rich even richer [37]. In the years after the Great Recession (2007, 2008), the luxury goods market has shown a strong growth across the globe, indicating the growing purchasing power of the rich (Figures 9.5 and 9.6)
To figure out the level of economic inequality in the world, it is interesting to note that only “eight individuals” own the same amount of wealth as the poorest half of the world [28]. A typical chief executive officer of an FTSE-100 company could earn as much in a year as 10,000 Bangladeshi workers [29]. In Vietnam, the rich could earn more in a day than the poor persons earn in 10 years [20]. What is particularly disturbing about the distribution of wealth is that the children, the youth, and the women often fall in the poorest income quintiles. Due to an abject level of poverty, a large number of women and children are exploited by multinationals and are forced to work under inhumane working conditions. For instance, the lowest-paid workers in the garment industry in Asia are mostly women and girls [30].
Figure 9.5 Share of income earned by the top 1% in seven advanced economies
Source: World wealth and income database.
Figure 9.6 A comparison of child poverty rate among advanced economies
Source: http://www.unicef.irc.org/publications/pdf/rc12-eng-web.pdf
Many empirical analyses confirm that in the past three decades, economic inequality has increased in most of the societies across the world particularly in all transitional and postcommunist societies [44]. The majority of developed countries experienced rising levels of inequality since the 1970s [45]. Currently, economic inequality is higher than during the 1980s, and it is substantially sharper in the developing than in the developed world [45]. Relying on the Gini index, we find that Eastern European and the former Soviet countries have experienced the highest levels of economic inequality between 1990 and 2008. Moreover, across the world, the middle-income countries are marked by the highest levels of economic inequality. Despite some recent improvements, Latin America is categorized as the region with the highest level of income inequality. The patterns of inequality vary across Africa, but Sub-Saharan Africa is recognized as extremely unequal [46].
The Causes of Inequality
The deepening economic inequality in the United States and across the world can be attributed to a wide range of political, fiscal, technological, and demographic factors. In the past three decades, technological development has increased the demand for skilled workers to the detriment of less-skilled workers, pushing up the income of more-educated workers and lowering the income of less-educated workers [2, 47]. Advances in telecommunication and transport technologies give a small number of qualified workers the opportunity to expand their local markets and receive higher wages and benefits [49]. Therefore, technology not only lowers the income of uneducated workers but also creates more opportunities for the educated workforce. In addition, globalization has interconnected the world economies and has put the less-educated workers in developed countries in direct competition with their counterparts in low-wage developing countries [2]. Another important factor that could explain the increasing inequality is sectoral shifts. According to this view, the shifts from agriculture to industry and then from industry to service in the past three decades have led to an increase in economic inequality [49]. One explanation is that the service sector usually has a lower union density than industry and manufacturing [49].
The cyclical nature of capitalistic economies and the recurring financial crisis often hit the low and middle classes hardest and bring them the highest levels of indebtedness [50]. On the contrary, the rich not only are immune to periodic financial crises but also can take advantage of economic downturns to acquire assets such as real estate and equities at discount prices. The super-rich have the sufficient capital to spend on the best investment, on the tax or legal advice, and on the estate planning. The wealth held by the super-rich since the financial crisis of 2007 to 2008 has been growing annually by an average of 11 percent [32]. Despite their donations, the super-rich exert a destructive impact on the society simply by pursuing the higher levels of capital accumulation. Debt and fortune both grow exponentially; once a fortune or debt is accumulated it gains momentum and grows automatically. That is why the gap between the rich and the poor tends to grow over time unless some effective policies are put in place.
The economic inequality, particularly in the United States, is an outcome of government policies regarding minimum wage, income tax code, health care, education, and social programs. According to the Urban Institute-Brookings Institution Tax Policy Center, tax cuts that benefit the most affluent are one of the main culprits of the deepening economic disparities [3]. For instance, during the 1980s due to Ronald Reagan’s policies, income taxes became less progressive. A few years later under George W. Bush presidency, some major tax cuts allowed the households with incomes more than $200,000 to receive bigger write-offs for their mortgage interests. The International Monetary Fund reports show that tax systems in the United States and around the world have become gradually less progressive since the early 1980s, via the lowering of the top rate of income tax, cuts to taxes on capital gains, and reductions in inheritance and wealth taxes [23]. Indeed, many countries are continuing to reduce their taxes on the rich in order to attract more investment. The rich can buy the right to permanent residency in many countries such as the United Kingdom, the United States, Canada, Australia, and Malta with $500,000 to $2 million. In addition to tax cuts, the U.S. governments under Ronald Reagan and George W. Bush have taken measures to reduce the funding for social programs that benefit the poor such as Medicaid, food stamps, affordable health care, and more importantly education [3]. Education yields higher returns in advanced societies and thus plays an important role in creating a more egalitarian society. Nevertheless, the access to higher education has become even more difficult and more expensive in the recent years.
In general, the government policies have focused on fighting inflation and unemployment and finance has played a central role in the American economy. As a result, manufacturing jobs have declined, labor unions have weakened, and the link between workers’ productivity and compensation has become less relevant. Workers’ unions aim at maintaining consistent wage differentials between skilled and unskilled workers. Therefore, the rapid declines of unionization in the UK and the United States since the 1980s have contributed to the rising levels of economic inequality [48]. While many high-ranking managers have seen colossal rises in their revenues, wages for frontline workers have hardly increased. The big businesses continue to benefit the rich and deprive the poor of the positives outcomes of economic growth and wealth creation [22]. The frontline workers who are responsible for much of the productivity are not compensated proportionately to their contributions. By contrast, many chief executives receive generous compensation packages equivalent to the wages of thousands of their hardworking employees [32].
In an era of business globalization, low-wage workers across the world see their wages pressed by global supply chains where suppliers compete to provide consumers with the lowest prices. Using the new information technology, the corporations are able to closely monitor their workers, increase pressure on them, and squeeze down the cost of production. All workers particularly blue-collars are facing harsher working conditions and less bargaining power as the proportion of the unionized workforce has fallen by nearly 50 percent in the past four decades [12]. Such savings are passed to the top executives and shareholders, while the ordinary workers do not benefit at all. In other words, the big corporations are enriching the rich to the detriment of the poor and thus are contributing to the economic inequality [25]. Furthermore, corporations use their connections to secure lax regulations and lower tax rates that benefit the rich at the expense of the rest. While ordinary people pay more than their fair share, the crony capitalists are accumulating wealth and power.
Though the rich are actively spending a lot of money to influence the political process, the poor often do not participate in elections to exert their most basic right as citizens. The rise of economic inequality has disappointed the poor and underprivileged voters [14]. For example, 9 out of 10 individuals in families with incomes over $75,000 vote in presidential elections while only half of those in families with incomes under $15,000 reported voting [14]. Therefore, American elections are becoming the privileges of the rich to elect those who protect their interests.
The economic inequality could be linked to culture, as some societies attach importance to egalitarianism whereas others accept and even promote disparity. For example, there are significant cultural differences between the Europeans and Americans with regard to economic inequality. The Europeans tend to be more egalitarian and see the high levels of economic disparity with suspicion. By contrast, Americans fully support private ownership and tend to see economic disparities as the natural consequences of differences in individual talent and effort. These cultural differences may explain why the United States is ranked as the most economically unequal nation among the Western industrialized countries.
The Consequences of Inequality
On the one hand, the rising levels of economic inequality could create incentives for the majority of people to work harder to materialize their financial objectives and ultimately get richer. According to this premise, economic inequality leads to efficiency, creativity, and entrepreneurship. On the other hand, the higher levels of inequality imply that the rich are better positioned to take advantage of economic opportunities than the rest of the population do. As the rich actively aim at increasing their wealth, they use their power to create exclusive entitlements and privileges for themselves and deprive the rest of the society of similar opportunities in the job market, education, and investment. Extreme inequality necessarily reduces the social mobility, so if you are born poor you will end your life in poverty (Figure 9.7). As Krugman (2007, p. 249) noticed: “A society with highly unequal results is, more or less inevitably, a society with highly unequal opportunity, too” [51]. Therefore, we may suggest that, while a certain level of inequality motivates economic growth by rewarding hard work and innovation, the extreme levels of inequality could curb the economic growth and cause inefficiencies [33].
Figure 9.7 Attaining the “American Dream” has become more difficult over time
The concentration of wealth in the hands of a small number of people depresses spending, demand, and economic growth [34]. When wealth is more evenly distributed across the population, it would provide a large number of people with spending power, which in turn would boost economic growth and wealth creation [43]. There are some indications that the extreme levels of inequality could lead to financial crises [53, 54]. The recent academic research has shown four major paths by which inequality can cause the economic instability and financial crisis: (1) weak demand, (2) rising household debt and asset bubbles, (3) debt-led growth and international imbalances, and (4) financial speculation [53]. Income inequality often causes a sluggishness of demand since lower income groups do not have the sufficient resources to spend and consume. Extreme inequality implies that a large number of people rely progressively on debt to pay for their essential needs. As the levels of individual or household debt increase, the financial system becomes unstable. In other words, poverty or insufficient income creates unpayable debt that ultimately shakes the financial system. Furthermore, the debt-led growth in countries such as the United States and the United Kingdom fueled economy artificially and created asset bubbles that were essentially unsustainable. Furthermore, the concentrated wealth at the top generally is more likely to be spent in speculation activities that in turn could involve financial instability.
Wealth is power and, like any form of power, it causes corruption. The bigger the wealth, the bigger is the level of corruption. The rise of economic inequality creates opportunities for the super-rich to abuse of their wealth directly or indirectly. The extreme levels of economic inequality pose a substantial threat to democracy and the rule of law. Even in the democracies such as the United States, the rich spend large amounts of money on shifting the elections outcomes, lobbying politicians, and affecting the political process [42]. Joseph Stiglitz, a prominent American economist and a professor at Columbia University, examined the relationship between the financial industry and the centers of political power in countries such as the United States and the United Kingdom [35]. His analyses reveal that the conservative parties are highly affected by the donations from the financial industry [36]. In the U.S. elections, billionaires provide funding to influence the political decision making and support their favored candidates. Other wealthy individuals openly support some political causes and intervene in the political process. For example, the Koch brothers, two American billionaires, have exerted a significant influence over the Republican Party in the United States and have supported Tea Party movement [32]. Some wealthy individuals directly have run for office in countries such as Georgia, India, Italy, Lebanon, the Philippines, Russia, Ukraine, and the United States [52]. Simply put, the rich can buy votes. The elections represent the dollar values, not the voters’ numbers. The impact of the rich on the political process is much more widespread in developing countries due to their weak institutions and rampant corruption. So, it is obvious that inequality has some grave consequences for democracy and the rule of law. A strong middle class is a prerequisite for a stable democracy because, when the majority has insufficient resources to support its demands, the cost of oppression is reduced for the rich [9, 54]. In other words, a more equitable distribution of wealth and property empowers the majority of the population to defend their legitimate rights through democratically established institutions.
The rich afford a better education, an excellence health care, and superior professional services. Thus, they are more likely to occupy higher offices and enrich themselves even more, while the poor flounder to make a living as they go deeper and deeper in financial obligations. The super-rich evade taxes by putting their wealth in tax havens or tax-sheltered accounts. They might also rely on secretive services or legal loopholes to dodge taxes and deprive the government/nation of their fair share. It is estimated that $7.6 trillion of wealth is hidden offshore in tax heavens [31].
Extreme inequality dents social cohesiveness and reduces the social mobility. In the past three decades, the social mobility has sharply fallen in the United States, so one could attain the American dream much easier in Sweden than in the United States [52]. Extreme inequality causes various sociocultural problems such as crime, gun violence, mental disorder, and obesity [38]. Simply put, economic disparities leave more people living in fear and fewer in hope [25]. Empirical studies have shown that inequality has some negative implications for the health and well-being of people at all levels of income and wealth brackets [39]. For example, it is reported that the risks of infectious diseases and heart-related problems are higher in the countries marked by extreme levels of economic inequality. By contrast, the health status of people in the more egalitarian countries tends to be better at all income levels [9, 55]. In addition, extreme inequality has significant damaging effects on the environment. Some studies have shown that the egalitarian countries are more likely to reduce carbon emissions and protect the physical environment [40]. According to a recent report by the World Bank, countries with more equal distribution of wealth enjoy a more sustainable growth [41].
The Plutocrats or the Global Super-Rich
Beyond the top 1 percent of the richest people who are mostly multimillionaires, there is a new group of super-rich billionaires or “plutocrats” who are representing only 0.1 percent of the population. According to the 2016 Forbes list, 1,810 billionaires own between $6.5 and $7 trillion or as much wealth as the bottom 70 percent of humanity [21]. Wealth continues to accumulate for the super-rich as their returns on investment often surpass economic growth. The distance between the super-rich and the rich (multimillionaires) has been widening fast for the past three decades. Ironically, the deepening divide is no longer between the rich and the poor; rather it is between the rich and the super-rich [57]. The gap between the rich and the poor is obviously very huge, but the one between the super-rich and the rest of the population is even much bigger. For instance, while the average earnings of the top 1 percent are 15 times the income received by 90 percent of the population, the average earnings of the super-rich is 124 times higher [57]. This is a major socioeconomic shift because the super-rich can put pressure not only on the middle-class citizens but also on the multimillionaires, on the rich!
It is estimated that half of the super-rich individuals are from the United States and the rest of the Western Europe or countries such as China, Brazil, Mexico, Japan, and Saudi Arabia [56]. The super-rich often originates in two parts of the world namely Western countries and emerging markets. According to Forbes magazine, there are almost 492 billionaires in America with a combined net worth of more than $2 trillion. The number of billionaires in Europe is estimated at 468 including 85 in Germany, 47 in the United Kingdom, 43 in France, 35 in Italy, and 26 in Spain with a combined wealth of $1.95 trillion [52]. Most of the super-rich have benefited from a combination of the technological revolution and globalization. The super-rich may consist of the technology elite in Silicon Valley, Wall Street financial sharks, Russian oligarchs, and investment geniuses [57]. The CEOs and CFOs are at the top of the list. Indeed, 40 percent of Americans making over $30 million per year come from the corporate and financial sectors. The recent revolution in telecommunication technology has been a key driver in the rise of the global super-rich who are often self-made, highly educated, and mainly young. The super-rich have the privileges and the abilities to effectively take advantage of the emerging social and economic trends and maximize their fortunes. Mark Zuckerberg, Steve Jobs, Jim Rogers, George Soros, Jeff Bezos, and Bill Gates are the prime examples of those who detected the opportunities and responded quickly. For these entrepreneurs, the crises are translated to the best business opportunities. More importantly, the super-rich take advantage of economic and political systems thanks to their proximity to the centers of decision making. In general, the rent-seeking activities do not contribute any values to the economy but serve as shortcuts to wealth accumulation. India, Russia, Brazil, Mexico, South Africa, China, and many other emerging markets are the favorite places of the super-rich rent-seekers. For example, Carlos Slim, one of the richest men in the world with a wealth of more than $50 billion, built his fortune by using his telecommunication companies to influence and exploit the Mexican privatization process [57]. In the United States, the rent-seekers include bankers, hedge-fund managers, CEOs, CFOs, and all those who use their privileged positions to exploit the stock-market imperfections or to commit insider trading.
The super-rich have generally benefited from strong business connections, have studied at prestigious schools, and have accumulated their wealth in their youth. Most of them lead major charitable organizations designed to take advantages of new opportunities, to dodge taxes, enhance their reputations, and above all to twist the rules and regulations. The super-rich aim at influencing the world and all aspects of social and even personal life comprising economics, politics, education, culture, art, and nutrition. Emboldened by their vast personal wealth, the super-rich are convinced that their opinions are necessarily beneficial to the society, are engaged in social activities, and seek to promulgate their own worldview. They purchase major news outlets and provide considerable funding for political organizations [52]. The Bill & Melinda Gates Foundation, the Chan Zuckerberg Initiative, and the Soros Open Society Foundations are examples of the super-rich organizations that are intervening in all spheres of our personal and social life. In 2015, Mark Zuckerberg and his wife Priscilla Chan vowed to donate 99 percent of their Facebook shares to “the cause of human advancement” [58]. Pursuing the cause of human advancement is a euphemism for accumulating more power and wealth. The political and social activism of the super-rich does not receive enough coverage and remains mainly secretive. As the super-rich get more powerful and aim at influencing different aspects of political and economic systems, they represent a significant threat to the democratic rule and the stability of our societies as a whole [57]. The super-rich, whether they are value-creators or rent-seekers, is becoming too powerful to be subject to an effective supervisory structure and legal framework. Simply put, the super-rich are changing the rules instead of abiding by them.
The Popular Myths About Wealth and Poverty
There are certain popular myths about wealth, poverty, and inequality that should be debunked as they continue to mislead the ordinary citizens. The first myth is about the function of the market. In undergraduate textbooks, students often learn about the rule of supply and demand and make the false assumption that there is a wise and invisible hand behind every market; therefore, the market is always right and self-sufficient. Based on this wrong assumption, some suggest that the role and involvement of government in business should be eliminated or at least minimized. Indeed, no market operates in a vacuum. Every market consists of different participants that affect the prices by their interests. During the past decade, we have witnessed how greed, fear, corruption, cronyism, and abuse of power have led to financial crises and led to government intervention [25]. If unregulated, businesses in the areas such as telecommunication and the Internet, finance and banking, health care, aviation, education, infrastructure, and public safety could severely stifle the small competitors and harm the underprivileged customers. The collapse of the American banking system in 2007 and 2008 pushed the Federal Reserve to hand out colossal amounts of money to the ailing banks and bail them out by the taxpayers’ money [59]. If the markets were self-sufficient, then why did the government intervene in the market and bail them out? Some may answer that the American banks were too big to fail and their failure could have triggered a worldwide depression [60]. This argument refutes the principle of market self-sufficiency because it implies that governments should intervene in the market and regulate the banks by preventing them from becoming too big. At any rate, in banking, we need the intervention of government, either by regulating the banks and preventing them from becoming too big or by bailing them out when they are too big to fail.
Another prevalent myth about wealth and poverty is the idea that extreme economic inequality is justified because individual wealth is a sign of success and hard work. Despite abundant evidence, this wrong assumption is strongly supported by most of Americans [24]. Obviously, some degrees of economic disparity are normal as they correlate with individual success and effort, but extreme levels of economic inequality are the results of a dysfunctional economy where individual effort does not lead to success and prosperity. The super-rich gains too much power that can undermine the institutions, the rule of law, and democratic systems. Because of the extreme degrees of economic inequality, a large number of citizens are deprived of their basic needs like a decent level of education, health care, training, housing, and nutrition. Furthermore, the extreme degrees of economic inequality reduce social mobility and affect the economic productivity negatively. The super-rich often abuses their vast resources to increase their wealth and influence. They continue to enrich themselves without any effort or value creation.
Another popular myth is the notion that businesses exist to maximize their profits at all costs. While the profit maximization is the raison d’etre of any business, it is important to pay attention to all stakeholders including customers, communities, suppliers, and workers. No business is sustainable unless it has access to reliable workforce, institutions, communities, and customers. When businesses are involved in rent-seeking activities, they may excessively boost the shareholders’ gains to the detriment of all other stakeholders. Therefore, the economic inequality rises as the shareholders and managers get richer whereas the ordinary workers and customers continue to get poorer.
A false assumption about the concentration of wealth and economic inequality is the notion that business and trade are not zero-sum games and everybody can become rich. According to this perspective, we should not criticize the economic inequality; rather, we should avoid envy and instead focus on hard work. The fact of the matter is that everything including wealth is relative and business is essentially a zero-sum game that has some losers and some winners. The accumulation of wealth on the one side necessarily causes poverty on the other side.
Another prevalent assumption is the idea that minorities and women can become as wealthy as others do. In other words, economic inequality is not about race, ethnicity, and gender. As mentioned earlier, the minorities, women, and children are the main victims of economic inequality. In 2007, the median wealth for single women between the ages of 18 and 64 was $15,210 or 49 percent of the median wealth of their single male counterparts. Single women of color and women with children are in a worse financial situation. Despite significant progress in the recent years, there are enormous obstacles to the full participation of minorities and women. In many countries, women continue to receive lower salaries than their male counterparts do. Therefore, the extreme economic inequality is not a matter of effort or talent only; it is deeply rooted in race, ethnicity, gender, and birthplace.
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[28] Oxfam Calculations Using the Wealth of the Richest Individuals from Forbes Billionaires Listing and Wealth of the Bottom 50% from Credit Suisse Global Wealth Databook 2016.
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