The Impact of Income Inequality

Last week I wrote about verifiable outcomes. We should be making decisions based on the impact they have.  Well, it turns out that income inequality kills the economy. That isn’t a guess, or an idea, it’s a verifiable consequence. So … what are we going to do about it?

Joseph Stiglitz, a professor at Columbia University Business School, has written a great article about how income inequality kills the economy and what we can do about that. It’s worth reading, here is the link:   http://evonomics.com/joseph-stiglitz-inequality-unearned-income/

Here is the problem in a nutshell. Hoarding of wealth at the top means less wealth circulates in the economy. Wealth is the life blood of the economy. If the wealth stops moving, systems start dying.
There are several reasons why wealth gets hoarded and wealth inequality happens. But a lot of it has to do with laws and policies written by our government. To create more wealth equality, we have to change some of our laws.

For instance, minimum wages, help ensure that some of the wealth is shared and not hoarded. Places that raise their minimum wage see more vibrant economies. If you are in HR, you can encourage better salaries as a way to ensure that your company not only gets and retains good talent, but that you do your part to ensure that wealth isn’t hoarded. Keep reminding yourself wealth needs to be shared to be useful.

Stigilitz’s closing paragraph has a list of things we should be doing to correct course and end the wealth hoarding in America to get us back on track. He says,

“The economic policies required to change this are not difficult to identify. We need more investment in public goods; better corporate governance, antitrust and anti-discrimination laws; a better regulated financial system; stronger workers’ rights; and more progressive tax and transfer policies. By ‘rewriting the rules’ governing the market economy in these ways, it is possible to achieve greater equality in both the pre- and post-tax and transfer distribution of income, and thereby stronger economic performance.”

Interesting, one of the first things he suggests is more investment in the public good. In my course on Bridging the Generation Divide, it turns out that the level societal investment in our communities is one of the biggest differences in the generations and it directly impacts how much social trust a person has. More social investment in your youth equates to more social trust as you enter the workforce. Less social investment, means less social trust. Want to know why millennials don’t trust your company? It’s because society didn’t invest in them the way it did for boomers and gen x.

We are all in this together. We all benefit when our economies thrive. Our individual and collective decisions impact how much wealth is shared and how much is hoarded at the top. As I write this, congress is considering a bill that would give a tax break to the top 400 wealthy people in America. So that they can keep even more of their money. The trade off is less spending on public health. Less spending on the public good.  It is decisions like this that exacerbate income inequality and income inequality hurts us all. We as individuals and as a body politic need to start making decisions that are based on verifiable consequences and not on an ideology that has proven again and again to lead to bad outcomes and stagnating economies.

To learn more about how social investment impacts your employees – check out my Bridging the Generational Divide course

Reducing Income Inequality Through Shopping

Can shopping help us reduce income inequality?  Maybe - there is some research that says it can help - dramatically.

Here is the article: https://www.yesmagazine.org/issues/solidarity/shop-here-not-there-science-says-reducing-inequality-is-almost-that-simple-20171120

And here is a link to the research report - https://arxiv.org/abs/1604.08394

Here is the synopsis of the study

Socioeconomic inequalities in cities are embedded in space and result in neighborhood effects, whose harmful consequences have proved very hard to counterbalance efficiently by planning policies alone. Considering redistribution of money flows as a first step toward improved spatial equity, we study a bottom-up approach that would rely on a slight evolution of shopping mobility practices. Building on a database of anonymized credit card transactions in Madrid and Barcelona, we quantify the mobility effort required to reach a reference situation where commercial income is evenly shared among neighborhoods. The redirections of shopping trips preserve key properties of human mobility, including travel distances. Surprisingly, for both cities only a small fraction (∼5%) of trips need to be altered to reach equity situations, improving even other sustainability indicators. The method could be implemented in mobile applications that would assist individuals in reshaping their shopping practices, to promote the spatial redistribution of opportunities in the city.

The key point - if 5% of our shopping dollars were spent in poorer neighborhoods, income inequality can be drastically reduced.  In the cities studied - a 5% shift in the where geographically the money is spent reduced inequality up to 80 percent.

Why this works? "Rewiring shopping trips to cross those neighborhood boundaries can decrease the ghettoization that urban neighborhoods experience."

How can we use this information as individuals?  Well - this sort of solution is a bottom up solution, meaning, we the people need to cross the boundaries and make sure that none of the communities become ghettoized.  Meaning - we don't consider bad neighborhoods, bad neighborhoods and we cross and shift some of our shopping into places that we would otherwise neglect.  We intentionally take affirmative action to ensure that our shopping is diversified.

Part of this is transportation - making sure that people can get to place and feel safe in those spaces so they feel safe spending a portion of their money in those places.

It's an interesting idea and worth exploring I think.

Diversity is the Key to Effective Problem Solving

To me, humanistic management is about recognizing each individual - as an individual.  The good news is that doing this, is good for business and for society in general.

https://www.theatlantic.com/magazine/archive/2018/05/how-to-sway-a-baboon-despot/556892/ 

I was speaking with a friend the other day about science and humanism. Humanism encourages us to use science to better solve our problems and the science keeps validating taking a Humanist approach.

Diversity is a case in point. Problem solving is difficult. To do it well, we need diverse opinions. Because when we don't have the full range of options available, we end up choosing the best of bad options. 

The Atlantic Magazine had a short article about this - titled: How to Sway a Baboon Despot, which is about democratic decision making in the animal kingdom. And yes - lots of animals make democratic decisions, including ones ruled by despots - like baboons.  https://www.theatlantic.com/magazine/archive/2018/05/how-to-sway-a-baboon-despot/556892/

The 2 big take aways from the the article are this:

1) Lack of diverse options leads to bad decisions and bad outcomes for the group, and 

2) "Group decisions need not come easy—in fact, clashing perspectives may lead to superior outcomes. ...As long as animals share the same broader goal, a diversity of viewpoints does not tear their society apart but strengthens it, leading to better results for all."

When democratic decision making goes wrong, it's because there was a lack of diversity in proposed solutions. The article uses bees deciding where to make a nest as the main example, but it's clear - this is true in all species. 

The lesson? We need diversity and democratic decision making to get good results. And the key to making diversity work - is having shared goals and objectives.   Sounds A LOT like Humanism to me.

It isn't just animals who make better decisions with diverse democracy. It's Humans too. 

The same day I read the impact of democratic decision making and diversity on animal decision making outcomes. I also read an article about why democracies seem to be unable to deal effectively with income inequality.  

This is an opinion piece in the NY Times and it is well worth reading the entire thing because, it ultimately has to do with democratic decision making and the impact lack of diversity has on outcomes, which is what we are talking about here.  It is long - but worth the read. https://mobile.nytimes.com/2018/02/15/opinion/democracy-inequality-thomas-piketty.html

As a Humanist, I desire a society where everyone has the ability to thrive. This is not about equal outcomes, but about equal opportunity, which in turn requires a stable foundation on support. 

There has been a lot written about the negative impacts income inequality have on our society and on our economies. I'm not going to go back into that here and will instead, just provide a link to a couple of my articles on the subject. 

https://humanisthappiness.blogspot.com/search?q=income+inequality

The point is - we, as a society, need to be less unequal in order for our society, economy and individuals to thrive.  How we do that - is a problem that requires solving.  We have not only not solved it, our attempts to solve it - have made it worse. 

What are we doing wrong and how can we fix it? 

The article does a good job of discussing this from a variety of scientific and sociological perspectives. The consensus is though, that poor and marginalized people aren't having their voices heard. 

I want to point out that this is not a partisan problem. It's not one party vs the other party. There are a variety of reasons why this is happening and there is not one single fix to the problem. This is what is called a "wicked problem." There are a lot of dimensions to why diverse viewpoints are not being taken into account in our democratic deliberations. There is the fact that money amplifies voices.Racism and bigotry. Propaganda and false information. Partisan/tribal thinking and more. The point is - this lack of diversity is causing bad problem solving on a wide variety of topics on a societal level.

The solution, is to make sure we not only make space for more diverse viewpoints, but that we demand that diversity. Because the lack of diversity - is hurting everyone, which is why everyone is upset. 

Taking a Humanistic approach - is not only scientifically validated, it's also a moral and pragmatic necessity. Take diversity seriously.

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Because creating diverse work teams is difficult, we also need to take a scientific approach to dealing with the barriers to creating a diverse workforce - where everyone is respected. To that end - check out my training on how to use behavioral science to help with conflicts, harassment and more.

And yes - I do do group trainings.

https://humanistlearning.com/category/bullyingharassment/

The Problem of Unearned Income

Humanistic Business Management as it applies to tax policy.

I subscribe to the Evonomics Blog. And if you don’t, you should.  Joseph E. Stiglitz, winner of the Nobel Memorial Prize in economics, has a great essay on how unearned incomes are killing the economy - http://evonomics.com/joseph-stiglitz-inequality-unearned-income/

The gist of it is this. Income inequality is bad for the economy. Capitalism is driven by demand. Demand comes from consumers and consumers are by and large workers otherwise known as people who make things.

The problem is that our tax policy rewards unearned income, meaning income that isn’t derived from making things, but income that is made just by pushing money around or receiving rents on things that other people have made. This rewarding of unearned income distorts the economy and takes money away from projects that actually make things and gives it to people who provide no real value.

Now I realize that people in banking will argue that they do create value. But they really don’t. All they are doing is facilitating the creation of things and sometimes, they aren’t even doing that.

There is an assumption that the people who are the most rewarded contribute the most. But that’s an assumption and it isn’t always true. This is the lie behind trickle down economics. And it is a lie. If you give more money to the people at the top, it does not create more jobs or better paying jobs. What creates more jobs is demand.

If you are interested in this as a policy issue area, read the article. It is dense but totally worth reading.

Inequality causes instability. 

The bottom of this essay contains a lot of policy proposals that are about how to reduce inequality and they range from investments in education, to changing the tax code by redefining what economic performance means.  If you are concerned about the health of the economy – this is an essay worth reading.

Oligarchy vs. Capitalism

I was asked about this the other day.  Are people confusing oligarchy with capitalism and blaming capitalism for the excesses of oligarchy. I'm not an expert - but yes. 

The problem with oligarchy is that decisions are made to benefit the oligarchs - not to benefit the proletariat. And yes - I am going to go into Marx here. His model of how capitalism functions is still the most accurate ever produced. There are several things that happen that are bad over all in an oligarchical system.

1. abusing anyone is bad. There is no other justification required to demand it not happen. It's harmful. Period.
2. 2nd. When the people creating capital (the workers) do not get a share of the capital they create - that is inherently abusive and therefore bad.
3. 3rd - we start moving into economic issues. When workers cannot afford to consume the goods they create - the market for the goods is necessarily reduced. Businesses only exist if there are customers to purchase the goods and services being offered. No customers - no business. From a purely economic standpoint (if we ignore the moral problems with abusing people) - to create a healthy economy - we need to create consumers. Enough consumers to help fuel the economy. Paying workers too little means they don't have the means to consume basic goods and services. And this depresses the economy and collapses it. Workers must make a living wage or the economy suffers from lack of consumers as there are never enough oligarchs or bourgeoisie to fuel growth or consumption.
4. 4th - hoarding of wealth means money doesn't circulate. Think of money as the lifeblood of the economy. A healthy body is one where the blood flows freely throughout the body. If blood starts pooling and collecting in one part of the body - it's a toxic life threatening situation. The same is true of wealth. It has to flow and be consumed and move in order for the economic system to be healthy. When wealth starts to accumulate and get hoarded - it's been taken out of the system entirely. You are basically draining the system of it's life blood. The money cannot be used to create more wealth or goods or services. This happens because - hoarded wealth is not being distributed to the people people who helped create the wealth and who would actually spend it - the members of the proletariat. Basically - wealthy hoarding is stealing. It's inherently abusive.
5. 5th The income inequality that occurs by design in oligarchical systems creates income inequality - which is one of the leading drivers of societal violence. The more inequality there is - the more violence. The more equality there is - the less violence there is. Hoarding of wealth through oligarchy is bad not just because it restricts the flow of capital and harms the economy, and not just because it necessarily requires the exploitation of workers, but also because all of this increases the general levels of violence in society.

Oligarchies are not capitalist systems. They may look like unbridled capitalism - but a capitalist system is also a system of laws - laws that dictate the flow of capital. Oligarchies are systems of laws that allow for the hoarding of wealth - the exact opposite.

Basically- think of oligarchies as systems of legalized theft. The reason Russia has oligarchs - is they literally stole 52% of the wealth of the country - and took it out of the country. It's legalized theft.  A form of kleptocracy.

Capitalist systems allow for the flow of capital. Not the hoarding of capital.  Capitalist systems can be abusive, but they can also be humanistic.  Wealth creation is good for everyone, assuming the wealth created is equitably distributed and used to help improve society.  If wealth is created and hoarded and used to abuse - it's bad.

So - let's recognize wealth hoarding for what it is - abusive theft and start insisting that capital flow to everyone and be used to create and improve society - humanistically. 

Reducing inequality through shopping - it may be that simple.

New research shows that shuttling even 5 percent of consumer transactions to poorer neighborhoods can reduce income inequality by up to 80 percent

Here is the article - https://www.yesmagazine.org/issues/solidarity/shop-here-not-there-science-says-reducing-inequality-is-almost-that-simple-20171120

And here is the research study - Crowdsourcing the Robin Hood effect in cities
https://arxiv.org/abs/1604.08394

To summarize the research - which was done in France and Spain  - by crossing neighborhood boundaries - and intentionally shopping in poorer neighborhoods - you transfer some of the wealth from the wealthy neighborhoods into the poorer ones.  The other thing you do - is you reduce ghettoization by increasing cross boundary movement of peoples, products and ideas.

I live in a very segregated area in the south. It was segregated intentionally. White supremacists used the law to dictate where people could live, what sort of businesses they could run where and more. And when that didn't work  - they used violence to enforce segregation. While the overt violence is no longer a thing, the continued impact of housing segregation and transportation segregation (no - the buses do not go into those neighborhoods), and food segregation and shopping segregation is still with us.

A friend just moved here from California and was shocked at how long it took her to find a Mexican restaurant. They are everywhere in California. But here - you have to go to a migrant farmworker area to get real Mexican food. Where she came from - was not segregated! Where she lives now - is.

I love this idea of crowdsourcing the Robin Hood effect. As individuals - we can divert some of our shopping and food purchases - to poorer neighborhoods and spread the wealth around better. The bonus for us - is we get to eat better food and have more diversity in shopping and everything available to us.

The benefit to the community - is less ghettoization, and less poverty. 

So - why don't people do this more? Fear. Plain and simple. Rich people are scared of poor communities because they think there is more crime there. And sometimes there is more crime. But the more we cross boundaries and shop in places - the less scary those places are.

If we want more diverse, more integrated communities - we need to be leaders and cross those boundaries.