Income and wealth inequality are problems that do not fix themselves. Without intervention, they tend to get
worse over time, and this is because wealthy people use surplus income
to buy income generating assets. Meanwhile, poor people spend their income
just to survive and cannot get ahead. Over time, the already wealthy take
a greater portion of national income. Private owners gradually increase
their control over the society's productive assets, establishing
oligopolies and monopolies. From this position, it becomes easier
to raise prices due to a lack of competition, taking an even greater
proportion of national income. Assets and income is then hoarded by fewer
and fewer increasingly rich individuals. If allowed to, they continue
amassing more of society's wealth until the poor have almost nothing. When large segments of society
are excluded from sharing this national wealth, it leads to
mounting economic grievances. The concentration of wealth reduces
economic activity, innovation, growth, and opportunities. The middle class shrinks, the poor
become poorer, but the wealthy continue taking a larger share of income. They use this money to then influence
politics, consolidating their economic interests at the expense
of poor citizens that are already disadvantaged in so many ways.
Wealthy interests fund the politics
of division and distraction to suppress class consciousness, but
this can only work for so long. Technological changes like automation
and economic changes like offshoring tend to make these things even
worse for the poorest workers. The lack of opportunities and rising cost
of living undermines public confidence in public and private institutions. Rising inequity produces social
discontent and polarization. It erodes the social contract because
society is no longer serving the needs of a growing number of its citizens. The poorest workers often react by calling
for some form of socialism or communism. The wealthiest non workers often respond
by moving the country towards fascism to preserve their privileged positions. Tensions tend to then increase
alongside growing class consciousness. The probability of public unrest,
violent uprisings, or civil wars increases over time if income and
wealth inequity continue rising. Countries like this are
not politically stable. They're not economically resilient,
and they're not socially harmonious. At some point, enough people will
be so desperate and disenfranchised that rebellions can be triggered
by seemingly very minor events. A country with unchecked rising income
inequity is a country with a burning fuse. It is just a matter of time before
grievances explode into violence.
Countries must define tax regimes
in their constitutions rather than in their legislation. This is very important because
legislation is too easy to change. Governments are vulnerable to
capture by special interests that want to lower their taxes. For example, when wealthy
individuals donate money to help a political party win. The party then passes laws
to reduce the tax rates paid by those same wealthy donors. Tax regimes that can be
changed will be changed. This process will disproportionately
benefit the wealthy over time. It leads to rising inequity levels
with widespread negative effects. Taxes on both annual income and
accumulated wealth must remain high for the wealthiest members of society. Progressive tax rates and related laws
must then be embedded within constitutions to make them very hard to change. This part of the constitution must
be protected by severe, mandatory penalties for anyone that publicly
advocates for changing tax structures. Publicly advocating for lowering
taxes on the wealthy must come with mandatory sentencing. Punishments for doing so must be based
on a percentage of an individual's global income or wealth, whichever is higher. Each successive offence must
then double the penalty amount.
People who continue to publicly advocate
for lowering taxes on the wealthy or who encourage others to do so, must not be
permitted to influence public opinion. Tax structures can only be debated
by a randomly selected and nationally representative citizens assembly. The citizens parliament would
vote on any proposed tax changes. Changes to the tax code must also
then be put to a national referendum. This makes government harder to
capture and it ensures that tax regimes are difficult to change. The consequences of rising income and
wealth inequality contribute to the downfall of societies and civilizations. This process repeats
itself throughout history. The period preceding rising inequity
usually coincides with calls for greater economic freedom for private enterprise
and individuals, or some version of a kind of market economy with deregulation and
the allowance of private personal gain. Entrepreneurial individuals want
opportunities to innovate and build their own individual wealth. This logic has some merit, but policy
and legislative changes are often reactive to the previous conditions
and they overshoot a middle ground. People do not consider the
predictable long term consequences. People that have obtained
wealth, power, and status do not usually give up peacefully.
They have the resources and the
ability to suppress the early calls for greater equality. Because of these earlier successes,
it is pursued with greater confidence. However, the underlying process
of rising inequity continues. Eventually, the pressure for
change increases until it can no longer be suppressed. The leveling of income and wealth
inequity is usually a time of unrest, instability, and violence. The poorest segments of society will
eventually win some concessions, and inequality will decrease. Often this coincides with a move
towards public ownership and certain aspects of socialism and communism. After a period of political
stability however, and often after a generational change, the rich, once
again, begin relentlessly seizing a greater share of society's wealth.
Without intervention, the level of
income and wealth inequity starts rising over successive generations. The social contract is gradually broken
as many people struggle to maintain their standard of living in the face of
widespread wealth hoarding by the few. The cycle eventually starts all over
again with widespread violence, some concessions won by the poor, and
then a move towards some form of socialism or a lot of social help. So this cycle has repeated itself
throughout history, and the challenge is in breaking this cycle to create
a society that maintains a middle ground between too much and too
little inequity or inequality. A limited amount of income
and wealth inequality may be unavoidable in complex societies.
But it must not go to extreme levels. A good society must learn from the
mistakes of past failed societies. It must put robust mechanisms in
place that prevent income and wealth inequality from getting too extreme. Addressing income and wealth
inequity requires a balancing act to avoid negative consequences from
going too far in either direction. On one side, excessive income
taxes will motivate skilled workers to leave the country. It will deter people from pursuing
training or education to get ahead. An excessive wealth tax will cause
capital flight and dissuade investments. It will also stifle economic improvements
and infrastructure developments. On the other side of things,
excessive income and wealth inequity will lead to a host of negative
outcomes and societal breakdown. It produces monopolies that stifle
innovation and entrepreneurship. It weakens consumer demand
and hinders economic growth. It will decrease economic mobility
for individuals, and eventually it reduces funding for social
services and public investments. Too much income and wealth inequality
undermines the health and education of lower income groups, which
takes a toll on all of society.
Extreme wealth inequality leads to
corruption of the democratic process. It erodes social cohesion and trust. It increases crime and violence. And all of these come together to
intensify political instability. In other words, some inequality
is desirable to reward people for working hard or being very
innovative or very entrepreneurial. It's needed for people who delay
work to gain valuable skills that are needed by society. It's needed for people who want
to save and invest their earnings. But too much inequality undermines the
social contract and erodes the very fabric of society that keeps us all together..