The one percent: An analysis of economic inequality- by Juan M.S

In the last decades there has been an enormous increase in inequality in countries like the United States, who are close to achieve the endemic inequality of Latin American countries. But, leaving morality aside, Joseph E. Stiglitz, as well as other economists, have shown that unequal markets are detrimental to the economy. Equal markets, like the Scandinavian ones, make for healthy economies and development, while inequality leads to world economic crises.

To start with, it is important to remark that inequality is not inherent to capitalism, but it is a product of a political system that gives disproportionate voice to the wealthiest. In a healthy capitalist market, as described by Adam Smith, competition assures a fair market, as the private pursuit of self-interest leads to the well-being of all. Liberal economic policies promise to deliver on their promises of wealth that will eventually trickle down to the poorest in every society. Wealth without governmental redistribution is not only useless but harmful to a society. These laissez-faire economic policies not only create social instability and weaken democracy but also slow reduce economic growth.

The greatest cause of economic inequality is a distortion in the natural laws of the market that promotes the appropriation of wealth rather than its creation. This negative economic activity is called rent seeking, and it consists simply in getting as great a share of the production as possible, without any contribution to efficiency or productivity. One of the best examples of rent seeking is monopolization, that not only creates overcharged products but also destroys the value of the products by restricting its production.

An instance of economic distortion is the standard adopted to evaluate the economic performance of a country: GDP per capita, gives a distorted idea of the real situation in a given society. Inequality is not natural but man-made. The powerful have always tried to distort the market so as to reap greater benefits. The problem with Adam Smith’s idea of the pursuit of self-interests is that it assumed a market in which the social contribution of a company is equal to its private return, but this is not true in the case of bankers nowadays, for instance. This is due to the fact that competition is imperfect due to financial deregulation or lack of transparency and disinformation.

The financial sector, for instance, takes advantage of the lack of transparency to sell securities designed to fail, to speculate and expect that the government to bail them out in times of trouble, to get Federal money at low interests and to profit from the insolvency of the poorest. There is also a huge amount of regressive tax systems, which allow the wealthier to pay relatively less taxes than the poorer. In modern economies, it is up to the government of the different countries to set the rules of competition and ensure wealth distribution, directly by taxating inheritences and wealth and indirectly by educating the population.

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