Running head: CAPITALIST INEQUALITY Topic: Capitalist Inequality Student name: Instructor name: Course name: Date: Capitalist Inequality 2 Table of Contents Introduction ..................................................................................................................................... 3 Country focus .................................................................................................................................. 3 Causes of capitalist inequality ........................................................................................................ 4 Unequal distribution of wealth .................................................................................................... 4 Decline of middle class on economic importance ....................................................................... 5 Working class has insufficient capital to live healthy and complete lives .................................. 6 Little chances for a family moving from an income class to a higher one ................................. 7 Unequal capital ownership .......................................................................................................... 8 Solution to gap between rich and poor ........................................................................................... 9 Elimination of social barriers .................................................................................................... 10 Tax and benefits system ............................................................................................................ 10 Redistributing income ............................................................................................................... 10 Cash benefits ............................................................................................................................. 11 Direct taxes ................................................................................................................................ 11 Indirect taxes ............................................................................................................................. 11 Benefits in kind ......................................................................................................................... 12 Conclusion .................................................................................................................................... 12 References: .................................................................................................................................... 13 Capitalist Inequality 3 Introduction The focus of the research is the reasons why the rich become richer and the poor get poorer. The nation of focus is America that’s remembered for undergoing a gloomy economic recession. The economic inequality gets worse each single day in the United States. It’s reported that the richest people in the United States have wealth that’s higher than the wealth of the entire world combined. Various issues add to the economic disparity between the rich and the poor, for instance the economic culture embraced. The article focuses on causes of the problem then recommends some of the best reasons that might help in the recovery of the issue within the United States and implemented in other parts of the world experiencing a similar case. Country focus The research conducted studies in North America, where it’s believed that the “sixtyfamilies” that control nearly all wealthy live. The gap between the rich and the poor in the region is extensive and it’s not preempted to reduce at any moment in the future. The government could implement policies aimed at reducing the gap that’s making the little or no income earners suffer the most. It’s easy to implement the easy ones, while the difficult ones come later. Progressive measures are so far the best methods of improving the lives of low-income earners. According to Hall, and Rosenberg, (2012), economic inequality is probably created by capitalism as reported in most regions where people don’t get satisfied with the distribution of wealth and income, in lieu of monopoly. The rich work doesn't want their wealth divided to the poor, thus the poor are set to remain poorer. The result becomes the disproportionate sharing of most wealth remaining with the rich, few families and large corporations that are sometimes owned by individuals. Capitalist Inequality 4 The research is set to dwell on certain issues that relate to the capitalism in the United States and many parts of the world. Unequal distribution of income is seen as fundamental towards the wealth disparity between the rich and poor. The economic relevance of the middle class declined in the United States. The presence of barriers between socioeconomic classes makes it hard for families to move from one class to another. The working class barely gets substantial income that can sustain their lives and health. Wealth ownership is highly unequal because in the United States for instance, “the sixty families” own a substantial amount of wealth than that owned by the entire population. Monopoly is another reason that makes it hard for a free enterprise to succeed, and exploits both workers and consumers. Causes of capitalist inequality Unequal distribution of wealth Reports illustrate that the income distribution is relatively less equal. For instance, a comparison between the 1949 and 1941 indicated that income distribution became equal. The income which the poor obtained in both years remained the same while that of the rich reduced by at least 8%. Perfect wealth distribution in each population class would let a fifth of the entire population get a fifth of the income. However, in the case of absolute inequality the first fifth of the population would take home an entire 100% of the salary.（is this the time frame for your study?） Distribution of income Percentage of Total Income 1935-36 Poorest 20% 4 Second 20% 8.9 Third 20% 13.7 Fourth 20% 20.4 1941 3.9 9.6 15.6 22.1 1944 4.5 11 16.6 22.5 1947 4 10 16 22 1949 4 11 17 23 Capitalist Inequality 5 Richest 20% 53.4 48.8 45.5 48 45 60 50 40 Poorest 20% Second 20% 30 Third 20% Fourth 20% 20 Richest 20% 10 0 1935-36 1941 1944 1947 1949 Decline of middle class on economic importance The report doesn’t illustrate the capital items sold during the period such as business interests, real estate or securities because they get associated with wealth rather than income. The impact of net income on one’s wealth isn’t easy to assess because individuals don’t become wealthy according to net salary and not all wealthy are formally employed. Salaries alone can’t assess the net gain in the categories. The capital distribution table illustrated below indicates that certain individuals within the low-income groups have large capital amounts which indicate a variation in capital distribution. The table illustrated that there is no overall improvement in the poorest 20%, their incomes staggered in the past fifteen years. The salaries dedicated to the richest 20% however, decreased. The middle-class individuals obtained a salary increment, more so the second and third classes of 20%. It’s therefore, not true that the rich get rich while the poor get poor. The report reveals that the middle class is the greatest beneficiaries in the income distribution table. Capitalist Inequality 6 Working class has insufficient capital to live healthy and complete lives (you write about incomes but do you know what the standard of living was for the poor in this era? given the average income for someone in the lowest or any other quintile, could they have enough food and reasonable shelter? how is the second world war not figuring into this scenario? why did you choose this time frame?) Income position changes in a family are common, which makes it easy for them to move from a single economic class to another. The report alludes that no barriers occur which reduce their potential to move from a class to another. The data reveals that the economic importance of the middle class has a high potential to increase. From the table, at least 70% of the middle class in 1949 expressed a different income compared to that of 1948. Most of the middle-income earners had lower income compared to the one they earned in 1949. Income increment of about 25% was evident in certain sectors and jobs like sales and clerical jobs. According to Hall, and Rosenberg, (2012), the middle class, therefore, expressed the highest increase income levels. The salary increment in the middle-class income earners elevated them to higher levels within the class. Half the poorest income class got income increments that elevated them to the middle-income class. Inflation didn’t cause the income rise, because if it were so then, all groups would experience an increase. It therefore, means that as the years move, it’s more likely that most people in the low class would grow into the middle-class income category. According to Hall, and Rosenberg, (2012), causes of income changes might not be obvious, because most people gave varied reasons for the changes in their salaries. The individuals give reasons like they worked steadily, or their business improved, or their family members got better jobs. Apart from the causes of the salary changes are controlling elements, namely, the age of the income earner and the state of the economy. Capitalist Inequality 7 The market conditions change all the time, for instance the prices of commodities drop or rise depending on production costs or climate factors, or just taxation. The prices of one commodity affect the prices of other commodities like clothing, furniture, food and transportation. The selling prices of the commodities are likely to change, if their raw materials change. Therefore, provided the prices of the commodities fluctuate, then the incomes of individuals are bound to change on the same note. Economies of the kind where prices of commodities fluctuate, then other people might earn more than others, because they quickly adapt to the price changes. The younger individuals are the most speculative in that regards, and would adapt to the production and consumption conditions. Age and income have a special relationship, since one’s income is set to increase as they grow old towards 50 years. Little chances for a family moving from an income class to a higher one Real income rises each time despite getting less unequally distributed. The working class position has been growing in time, and the industrial workers don’t fall into the category of the poor economy. The weekly dues of manufacturing industry workers rose from $46 to $62 between 1936 up to 1950. The increase in real wages between 1941 up to 1951 was 25%. The report focused on the working class income in place of community members’ income. In the modern world, the poor individuals in the society are considered workers at some point. According to Mokyr, (2015), the poorest in the year 1949 were those that earned below $ 1000, and the poor during the time involved in farming activity than any other activity. More than two third of those considered the poor had no basic education which could allow them to classify grammar. Negros had the highest poverty levels compared to the whites and resided in the rural areas. Capitalist Inequality 8 According to Hall, and Rosenberg, (2012), the 10% richest individuals during the era of 1949 had incomes above $7,500, though others in the category earned ten times more. The richest people were mostly in the managerial posts and self-employed in the age of 45 to 54. The richest in the managerial jobs had a college education in the least. The income of the managerial post holders originated from salaries. Salary income differs from that obtained from capital ownership; therefore, capital income doesn’t qualify as a base to determine national income composition. Incomes obtained from salaries might be over three times higher than that from capital ownership. The apparent inequity is based on talent, skills, and access to high salary and wage markets. The government could reduce such inequality through taxation despite having limits. Unequal capital ownership Information on capital distribution is relatively inclusive and meager. The national wealth isn’t easy to estimate, owing to the fact that a given portion of the wealth gets controlled by certain families in America. The sixty leading families in America are quite influential when it comes to dominating the wealth of the Americans. Wealthy Americans are those classified into net worth above $ 25,000. The very wealthy Americans are those whose salaries are above $ 7,500 and they are in managerial posts, self-employed or farming. However, those in the salaries above $ 7,500 could be aged over sixty-five years. The poorest are those engaging as service workers and unskilled workers and their incomes are between 18 to 24 years. The middle class earns between $ 4,000 to $ 3,000 and their ages fall between 25 to 34 years. The information reveals the importance of age when it comes to determining the income distribution of individuals. Wealthy families spent most of their time generating and storing wealth for their later years. However, the ones that fail to accumulate wealth remain quite poor. The aged Capitalist Inequality 9 individuals are most likely to get polarized as either very rich or very poor depending on the level of wealth that one accumulates. According to Mokyr, (2015), the rich class focuses on tangible forms of wealth that are revealing. The wealthy own liquid assets such as a house, bank accounts, government bonds or business interests. Corporate wealth lies within the hands of few individuals giving the impression that the economy gets controlled by few families. Income, however, is the best means of determining the wealth of individuals. The economy is based on spending power, which in turn gets determined by income that one obtains. Capital ownership contributes to income of an individual. Solution to gap between rich and poor The gap between the rich and the poor is growing worse each given day, however, capitalism is considered one of thepreferable solutions that can bring an end to the mess. The introduction of a free market enterprise is the best method that can reduce the menace and enhance equity within the society. Capitalism is considered a solution to the myriads caused by the gap between the rich and the poor. Capitalism market is based on five aspects namely, the corporation itself, shareholders, employees, customers and the community that a business serves. The importance of using capitalism is that it would create job opportunities to others in the society. Fair wages is synonymous to creating equality. The present people utilizing capitalism use it their benefit rather than the benefit of the society and the workers.(isn't capitalism creating the equity problem by supporting a system with unequal economic power between the rich and the poor? are these your recommendations? they should appear after the conclusion) Capitalist Inequality 10 Elimination of social barriers The article proposed getting away from a collective comfort zone and indulging in conversations that span different income divides. Elimination of bridges that separate the rich and the poor must get eliminated by all costs. If the rich and poor interact continuously it’s easy for them exchanging ideas and learning a lot about the other. The poor might learn new methods that improve their activities and save money that’s important for their future. Tax and benefits system Government institutions can increase equity using the tax and benefit system. The progressive tax aims at giving the poor lower taxation schemes compared to the high-income earners. The individuals that earn more could pay more tax compared to those that have little income sources. The government can put taxes based on one’s income that’s a good manner of controlling the disparity between the rich and the poor. The poor or those with low income can use the opportunity to save their income or put their excess income to better use. Companies that get excessive high profits could pay the government high tax that’s in turn used to offer fundamental services to the poor. Redistributing income The government could redistribute the income for various groups in favor of the lowincome earners. The core intention of the redistribution aims to alter post-tax income based on one’s income. One’s original income gets taxed and he or she gets entitled to benefits from the government. The individual gets subjected to cash benefits like unemployment and pension benefits. The gross income gets subjected to direct taxes such as income tax among others. The disposal income gets subjected to indirect taxation. The final income gets subjected to benefits in kind that ranges free education and free health services. The provision of free medical and Capitalist Inequality 11 education services intend to increase the amount that the low-income earners get to their disposal. Cash benefits Cash benefits intend to allow those with zero or low original income. The cash benefits could offer the low-income earners with non-contributory and contributory benefits. The contributory benefits range from job seeker’s allowance, pension allowance which the employees make contributions during their employment tenure. The non-contributory benefits range from income support, housing benefit, child support and carer’s support. An individual entitlement to non-contributory requires no previous contributions by the individual. An individual requires undergoing a test to assess their viability for enrollment to those benefits. Child benefits are universal benefits that require no mean test and it’s availed to all families whether from the low income and high-income categories. Direct taxes The government ought to implement a progressive tax that’s aimed to redistribute the income of individuals. The government can let the individuals earning little or no income pay no income. The government can put a standard personal allowance of $ 10,000 that’s not taxable. Beyond the $ 10,000 the amount becomes taxable at 20% or more depending on the congress rules. The individuals that earn high income might have to part with as high as 40% tax rates. An individual that earn over $ 150,000 that’s the people working on senior posts might pay taxes of up to 45%. The intention of the tax categories intends to reduce the gap that exists between the rich and the poor. Indirect taxes The government could impose regressive taxes because they are regressive. The regressive nature of the taxes means that the percentage of tax deducted from an individual Capitalist Inequality 12 reduces as one’s incomes increase. Indirect taxes put the tax burden to the poor in most cases; therefore, indirect taxes might widen the rich-poor gap. However, the government doesn’t have to apply indirect taxes everywhere; instead they get applied in special circumstances to let the rich also get relief from the huge taxes that they pay. The intention of indirect regressive tax is to cancel the direct progressive tax. Benefits in kind The government can offer benefits in kinds such as free education and medical services or if one has to pay, and then they get offered at huge discounts from a basic consumer perspective. The benefits intend to impact one income, especially in the low-income groups because it would translate into a salary increment for a poor person or a low-income earner that’s seeking the services. The gap between the rich and the poor would thus reduce. Conclusion The report suggested different methods that could cause an increased gap between the rich and the poor to get wide. The causes related with widening thegap between the rich and the poor include decline employment rates and jobs for the less-skilled individuals that have increased the number of homes that have children but lack a male breadwinner. The number of college graduates increases annually surpassing the available jobs in the market. The income for the 1% top earners increase and they don’t pay as much tax because of speculation and globalization within the industry. The government could reduce the gap through theenactment of policies that reverse inequality, for instance, lessening the debt pressure on college students, revision of the tax code so that people pay progressive taxes, increase the minimum wages and focusing on improving K-12 education system so that students get personal advancement. (youseem to be reporting to a great degree on what the authors of your sources said) Capitalist Inequality 13 References: Hall, B. H., & Rosenberg, N. (2012). Handbook of the economics of innovation: Volume 1. Amsterdam: Elsevier/North Holland. Mokyr, J. (2015). The Economics of the Industrial Revolution. Totowa, NJ: Rowman &Allanheld. Wessels, W. J. (2016). Economics. Hauppauge, NY: Barron's.(will I be able to find this and the other sources with the information which you have provided) Capitalist Inequality 14
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