Christopher Petitt

The Crucible of Global War

And The Sequence That Is Leading Back To It

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The Economic Inequality Dilemma —
Do Americans Truly Appreciate the Ramifications?

January 8, 2016 Leave a Comment Print

Most Americans do not yet appreciate the magnitude of economic inequality. According to recent polls, two-thirds now at least acknowledge that there is something wrong and believe the economic system is advantaged towards the wealthy. But few probably grasp that the advanced world’s economic inequality is at the same level as the extremes reached during the Great Depression, the mid-nineteenth century pre-Nationalism era, and the global credit crises in the 1770s. Fewer still realize that America – the land of opportunity – is leading in inequality for most industrialized countries.

Income-InequalityJust as it retreated in the past, this recent bout of extreme economic inequality will also reverse. The advancement of democratic and capitalistic societies – especially those whose complex economies require mass consumption – cannot continue in its current state.

Unfortunately, the track record of previous corrections for inequality is not cause for hope – each reversal came on the heels of global conflict. But the conflict did bring an ensuing economic boom. The First Industrial Revolution, the Second Industrial Revolution, and the Space-Digital Age – all followed periods of worldwide conflict. Each new global productive era was the phoenix rising from the ashes of war. And, the subsequent boom times forced economic inequality down to more acceptable levels.

This is not a justification for global warfare. It’s an observation of an apparent causal relationship cycling through every four or five generations. With the end of each boom time, financial stagnation and crisis resulted, the amounts of consumptive credit and economic inequality grew to extreme levels, and divisive conflict followed – all happening in sequence before the next economic boom. Apparently, mankind has not figured out a way to bring on the next productive era short of global war.

In his 1951 memoir Beckoning Frontiers, Marriner Eccles, the former chairman of the Federal Reserve who served during the Great Depression and World War II and whose name is on the Fed building, described the financial inequality prior to the war as a “giant suction pump” drawing into the hands of the few an increasing amount of the produced wealth. “In consequence,” Eccles observed, “as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”

The causes of economic inequality are many, but at the destined ending of an economic boom, human nature does not allow for a loss in the standard of living so rightfully earned during the upswing. During the downturn, the standard of living is maintained and is artificially supported with cheaper costs of inputs (subsidized investment yields, outsourced labor, and resource surpluses), deficit government spending and ever increasing consumptive debt (banking on the next big boom just around the corner). Unfortunately, all have their limits and all have a tendency to distort the global economic balance.

During the last two decades, globalization, government debt, and inflation of the money supply have done just that – supported an artificial standard of living while also distorting the world’s economy in the process. And they now appear to be reaching their limits. “Rent-seeking” or the unbridled competition for a smaller piece of the economic pie has been on for some time now and its climate is best characterized by extreme economic inequality. Put into this light, it is easy to see that current level of unaided global productivity and wealth creation is insufficient to carry the average expected standard of living. But how much longer can the support continue and how much more strain can the average standard of living bear?

Remarkably, human nature not only causes the inequality but also obstructs its recovery. The need to advance and to evolve in the most efficient way possible is being impeded by the self-interest of those benefitting most from the current state of affairs. Regardless, wholesale change would be very difficult and is avoided at great length. Major change is feared as destabilizing for both the few and the many. It is naturally repulsed by the established power and also by the masses, but only up to some unknown point. Finally, when that point is reached, when reset can no longer be delayed, the cost of change seems more acceptable than continued pain.

Global volatility has heightened because the cost of change is now being evaluated by every nation. But the answers being arrived at are very much different than they were just a few short years ago. The status quo has cracked. The global economy has stagnated longer than expected, and meanwhile, nationalism has made a worldwide revival. So far, outbursts have been contained, partially by horrific memories of past global conflict. But these memories are fading and geopolitical restraints are becoming increasingly ineffective. The alternative of significant global transformation is becoming ever more likely.

For now, it’s business as usual and global restructure has been deferred or muted. As a result, least-bad solutions seem the only choice. Unforeseen consequences take place and economic imbalances continue to accrue. Given its current condition, the global economy cannot possibly move towards equilibrium unless by a fluke. And, as with any postponed and necessary transformation, the ultimate cost of the unavoidable reconciliation becomes more expensive with the passing of time.

It should be obvious that America doesn’t work well with extreme economic inequality. From any side of the argument, it eats at its very soul. Its democratic principles have been hard-fought and its Puritan work ethic and morals are deeply-rooted. Opportunity for achievement and success should not be bound. Wealth redistribution smacks of welfare and provides for free-riding.

But given America’s current economic condition, dissension is not surprising. The incapable are mistakenly lumped in with the free-riders, political equality and economic inequality are conflated, and symbolic targets are wrongly vilified by both the left and the right. Familiar opportunities are scarce and the attitude of “beggar-thy-neighbor” takes hold. Political divisiveness follows, becoming organized, fearful and entrenched. On a multitude of issues, economic and ideological, polarization is the result. Today’s political and social divides on immigration, healthcare, race, religion, returning to core values, etc. can all be directly traced to the nation’s extreme economic inequality and its cause – the lack of wealth creation.

The importance of this issue cannot be overstated. America is not likely to devolve into civil war over its economic inequality, but it cannot escape the impact of the global reckoning. Its society will remain divided and will not likely enter another period of high productivity and wealth creation (thereby reducing the current economic inequality and domestic discord) until the global economic and social imbalances are sorted out.

The political tensions felt in America are magnified in places like the Middle East, Africa, South America, and Southeast Asia. It is from these places that America can be drawn into chaos. Again, the track record of previous economic inequality reversals is bleak and increasing geopolitical volatility should be anticipated.

With a bias in realism in foreign policy, intelligence efforts, cyber defense, and military preparedness should have their priorities. Focus on domestic technological and economic independence should be renewed. Redistribution of wealth should only be seen as a partial and temporary remedy, not a permanent alteration to the American system. Finally, rational bi-partisan attitudes should prevail on domestic policies based upon a long-principled democratic heritage, accurate assessment of the state of affairs, and America’s centuries-old legacy of ethical leadership on the world stage.

Distracted by the U.S. economic “recovery,” myopic on the presidential campaign drama, and insulated from the global reality, the American public has yet come to grips with the larger global dilemma. There must be an acknowledgement of the extreme economic inequality as the principal symptom of the world’s current dysfunction. Then acceptance must follow – an acceptance that economic inequality must eventually subside from the extreme. If the past repeats, this result will likely be from a restructuring of the world’s operating code and its attendant volatility cannot be dismissed.

Christopher Petitt is the author of the book, The Crucible of Global War: And the Sequence that is Leading Back to It. It is available for sale at Amazon.com, Barnesandnoble.com and for order at bookstores everywhere.

Filed Under: Domestic Current Affairs, Global Economy, US Economy Print

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