I write frequently on the blog about inequality and how current monetary policy has a significant regressive wealth distribution profile but I want to take the time to explain the reasons why I think wealth inequality is damaging to societies, especially persistent long term wealth inequality. In this week’s blog post I will argue that excessive wealth inequality leads to low trust in society and a cemented socio-economic stratification, and these outcomes makes people more partisan and makes societies markedly less meritocratic. That being said, I don’t mean to be alarmist and say that unless this imbalance is solved soon we’re necessarily heading towards disaster, but the West has had historically low levels of inequality between world war two and the eighties and while things have gotten worse for the last forty years it’s not too late to reverse the trend.
I believe that inequality will lead to a lower trust in society as increased inequality makes it more difficult for people to relate to others due to how different their lives are. It’s much easier to socialise with and relate to someone who you’ve shared a common experience with but what does someone from the upper class and the working class have in common in terms of experiences? This problem is magnified in societies where private schools are common and where there’s no conscription. Some of the best opportunities to make friends with someone from an entirely different background arise when one is forced into a social context with a diverse bunch of strangers, like going to school or during conscription. If there are no circumstances which force people from different classes to interact in a social context then it’s much easier for stereotypes to spread and for those stereotypes to be believed. If one never naturally encounter people from a certain walk of life then it’s less likely that you would trust them, and trust in your fellow men and women is a prerequisite for a functioning democracy. When inequality increases the number of shared experiences for two people from different walks of life likely decrease making it harder for them to understand and relate to each other, which makes it less likely that they would trust each other. Trust is also a key factor in partisanship, as trust in others decrease then it stands to reason that partisanship increases as political cooperation must be based on trust and as it might be more difficult to understand the other sides’ views if one doesn’t trust them.
Another danger of a clear socio-economic stratification of society is a decrease in meritocracy as inequality can lead to less avenues for social mobility leading to positions being given to those of the right class instead of those with the right skills. This is especially likely to occur in places with unreasonably high tuition fees for higher education as higher education is one of the most common vehicles for upwards social mobility.
There are more downsides to high levels of inequality but those two are some of the most important on a macro scale and the ones I personally think the most about. I know this isn’t the kind of blog post I usually write but I think it’s important to motivate one’s standpoints and I’ve taken standpoints against QE on the basis that it increases inequality without adequately explaining why I think inequality is a problem. It might seem obvious and trivial to oppose inequality but it’s always important to be clear and thorough.
If you liked this you can read my other blog posts on topics like economics or quantitative easing here. If you have any ideas for future posts you can send me those via Twitter, and please come back next Monday for the next blog post!
Written by Karl Johansson, Founder of Ipoleco
Cover Photo by Suzy Hazelwood from Pexels
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