Income inequality breeds resentment

Sunday, April 20, 2014    

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Inequality of income and wealth is not good for societies because the disparity in standard of living and opportunities breeds resentment and antisocial behaviour. Of course, equality of income is not practical because of the differences among people in talent and skills.

In socialist societies, governments make an effort to avoid extreme income and wealth differences. In capitalist societies, governments tolerate inequality of income and wealth, viewing that as the natural order in the market system.

Still, in both systems there is poverty, and if the society is developed it has relative poverty, while if it is developing it has relative and absolute poverty which is measured against the basic needs of human beings.

Roughly 50 per cent of mankind, or 2.8 million people, exist on less than two dollars a day. Another 20 per cent of the world's population, or 1.2 billion people, live on less than $1 a day.

Relative poverty is a relative and comparative concept measuring the lowest incomes versus the highest incomes. A poor person in some countries has a per capita income of US$365 per annum whereas a poor person in the US is defined as somebody with an annual income of $11,484.

President Obama, in his remarks in December 2013 on the inequality of income in the US, went on to bemoan the fact that statistics showed that US levels of income inequality rank near countries like Jamaica and Argentina.

Ironically, the US may have a more unequal distribution of income and wealth than Jamaica. The top 20 per cent of the population of Jamaica has averaged between 50 and 54 per cent of national income over the last 20 years, while the top 20 per cent in the US receives 60 per cent of national income.

In addition, income and wealth distribution has become progressively more unequal in recent decades. President Obama pointed this out when he said the top 10 per cent no longer takes in one-third of income but, instead, half.

Whereas in the past the average CEO made about 20 to 30 times the income of the average worker, today's CEO now makes 273 times more. A family in the top one per cent has a net worth 288 times higher than the typical family, which is a record for this country.

The reality and perception of inequality may diverge significantly. In the US the perception is of an egalitarian society where all share in the benefits of economic growth and the "middle class" is getting better off, whereas Jamaica is seen as a society of "haves and have-nots" in which the rich are getting richer at the expense of the majority who are "sufferers".

Both the US and Jamaica have highly unequal distributions of income and wealth. The perception of inequality of income and wealth is a potentially destabilising sentiment depending on how societies explain these differences.

In the US, potential resentment is defused because the differences are rationalised as the natural results of the working of the market system and that those who are poor have only themselves to blame but with all having the possibility of becoming rich.

In Jamaica, social and class resentment festers because the rich are blamed for the plight of the poor, and moving from poverty to being rich is only possible for a few criminals, entertainers and athletes.

We would do well as a society to keep our eye on this ball.





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