Tuesday, September 10, 2013

Top Earners' Income Slices Social Stability

The top 1% are collecting a larger slice of the nation's total income than ever, or at least since just before the Great Depression.  This is only good news for celebrity journalists and high-end retailers who cater to the rich and famous.  The rest of us have cause for concern.

The Cato Institute once entertained an endorsement of income inequality, with the caveat that it may lead to social instability.  I get the argument that enormous talent deserves enormous rewards.  It does not necessarily follow that lesser talents deserve no compensatory training whatsoever.  Not every profession has the winner-take-all income distribution of professional sports or pop music.

Researchers in the late 2000s first started noticing degradations in the quality of health care as income inequality increased.  The ideal policy solution should have included curbs on litigation and drug development monopolies.  These would have made health care more affordable for the lowest earners.  Instead policymakers opted for the Affordable Care Act's protection of high-cost health care monopolies.  This is the expected outcome of a captive policy elite.  Income inequality supports plutocratic public policy that generates further income inequality.

Middle Eastern countries with income inequality became unstable in 2011 when price inflation put food staples out of the reach of the poor.  Dr. Nouriel Roubini nailed the causes and symptoms of income inequality in a sweeping 2011 assessment of the developed world's economic models.  The Fed's unlimited quantitative easing since then places food security at risk for millions of Americans if a run on the dollar leads to immediate hyperinflation.

Nature tends to correct imbalances.  An income distribution skewed this far from historical norms does not last forever.  The distribution of income towards the top of society only continues if every other socioeconomic indicator resides at a historic norm.  Americans are not living in normal times.