Welcome back to my blog! This post is for the second Action Project of the STEAM class, Econ: Risking Value. In this second unit, Sustainability, we discussed thinking like a 21st-century economist. To help us with this investigation, we read Doughnut Economics by Kate Raworth. Raworth's book explains a new economic model, the Doughnut, focused on providing for every person's needs while safeguarding the living world on which we all depend. Using Doughnut Economics, we dove into each of the chapters and explored different ways of moving past the 20th-century economic model toward the 21st century. To gather different economic ideas throughout history, we created a timeline of influential economists starting with Hammurabi in the 1700s BCE to modern economists like Milton Friedman in the 20th century. For Field Experiences, we spoke with Pete Kadens, a philanthropist focused on providing education for underserved Chicagoans and looking toward a more sustainable future. This Action Project asks us to come up with the 8th chapter of Doughnut Economics. Below you will see a summary of what my chapter would look like and some additional commentary explaining more on my topic. I hope you enjoy reading.
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Chapter 8: Make Way for Wealth
Also increasing are the inequalities of wealth, further widening the gap between the wealthiest and those not as well off. As time passes, unequal distribution of wealth can be detrimental to economic welfare. For example, disparities in income have been linked to increased social unrest, increased crime, and decreased worker productivity. Additionally, growth concentrated in the highest income brackets contributes less to an increase in general economic well-being since the social advantages of affluent people's increased conspicuous consumption are less advantageous than those of poorer people's increased spending.
To close the wealth inequality gap between the rich and the poor, we must look for solutions past GDP as a measure and consider how to sustainably improve human well-being and the quality of life in all nations. While social and natural capital is under increasing stress, we must recognize that our consumption can reduce overall well-being and negatively affect our planet. We urgently need new ideals of a sustainable and desirable world and mechanisms to track our progress toward those visions. There needs to be more than isolated efforts to address our interrelated problems. So, envisioning solutions must be an ongoing process in which community members can collectively develop a plan to achieve common goals by identifying shared values and describing the futures they seek. To achieve these goals, finding methods of measuring progress that is as widely accepted and hence as powerful as GDP was in the past will be necessary.
Wealth Inequality, GS, 2022
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Even though Raworth gave this talk in 2014, the information told to us is still important for today’s society. Raworth explains that our well-being depends on meeting our human needs and the Earth. We use the resources from the planet to help us meet our needs, and we are lucky to have those resources. But over time, we have been taking more and more of the resources around us while not giving anything back in return. As a result, we have put pressure on the systems given to us by the Earth. Issues of climate change, food insecurity, and poverty are affected by consumption trends. With this in mind, efforts are being made to help mitigate the challenges, such as companies working toward reducing their carbon footprint or regular citizens cutting down on their daily water usage. And even if we’re late to the game, we are slowly making progress.
Wealth inequality is the uneven distribution of wealth from property, investments, or other assets. For many people, the wealth gap between regular citizens and the nation’s wealthiest capital owners continues to grow. This situation is an example of extreme wealth inequality, where most of the wealth is in the hands of a small group of people.
Wealth inequality is necessary and expected in any market economy. However, extreme wealth inequality can damage society because most wealth is concentrated at the top and in the hands of a few people. It can lead to a severe imbalance of power, higher crime rates, mental illness, or overall negative well-being in the population. It also makes it difficult for those with little to no wealth to build up wealth.
In the United States, wealth has been funneled from the pockets of the bottom 99 percent of citizens' pockets to the top 1 percent. Inequality levels have been climbing higher and higher for decades as part of a trend that could continue to be unchecked for multiple years to come. The graph below shows that as America’s wealthiest 0.1 percent have accumulated more wealth, they have paid a smaller share of total U.S. taxes. The tax share in 2018 at 4.9% was close to what it was in 1953 at 5.1 while their share of the nation’s wealth quadrupled simultaneously, going from 2.5% to 9.6%. As the wealthiest among us don’t pay their fair share of taxes, most people do not share that luxury.
A Washington Post article by Christopher Ingraham discusses how inequality is bad for everyone, not just those with less. “Some of the pain is economic: The studies suggest that the inequality depresses economic growth, leaving less for society to divvy up - regardless of how its members decide to do so. And some of it is social: Studies have found that inequality, particularly the high level seen in the present-day United States, gives rise to criminal behavior.” But it doesn’t stop there. The Organisation for Economic Co-operation and Development (OECD) found in 2014 that rising inequality in the United States from 1990 to 2010 reduced cumulative GDP per capita by roughly five percentage points. Similar results were observed in other wealthy nations. The OECD also found that “The main mechanism through which inequality affects growth is by undermining education opportunities for children from poor socio-economic backgrounds, lowering social mobility and hampering skills development.” Ingraham adds to this by saying children from a significant portion of the population are missing out on pricey educational opportunities, which can lead to them becoming less productive employees, meaning lower wages and lower overall participation in the economy.
But we can’t keep the inequality gap growing. Leading economists and economic organizations are beginning to accept that there must be significant controls on income and wealth inequality if we maximize income and wealth for everyone, even the wealthy, in society.
Alternatively, we explore different models that have had success with lowering inequality. One example is the Nordic Model, an economic standard followed in the Nordic countries that focuses less on GDP and more on equality and well-being. It captures the combination of free-market capitalism and a generous welfare system of social benefits such as free education and healthcare or guaranteed pension payments for retirees. While still encouraging creative destruction and preserving the benefits of capitalism, the Nordic model reduces the gap between the rich and poor through redistributive taxation and a healthy public sector. The benefits are funded by taxpayers and administered by the government, requiring a high degree of trust in policymakers and government officials to make the system work.
It is essential to recognize those smaller nations in the Nordic countries can be directed by citizens of small enterprises, all facing the same set of challenges. In this way, “solutions that benefit one member of society are likely to benefit all members,” says James McWhinney from Investopedia.
Given the size of the United States and other wealthy countries, the Nordic Model would need to be adapted to become successful. So what needs to be done? What needs to be worked on or improved? The Nordic model faces a few challenges to its sustainability, and two of the most significant concerns are an aging population and an influx of immigrants. For an aging population, the ideal scenario is a larger percentage of young taxpayers and workers, with a smaller percentage of older citizens receiving services. However, citizens of the model have demonstrated abilities to work through their differences for the greater good of all. Regarding immigration, the public benefits sound rewarding to newcomers, and the willingness to participate in the workforce can burden the system of immigrants and native citizens. Again, however, this matter can be resolved when newcomers are given the proper resources to help them adjust to a new environment and lifestyle.
The Nordic model is criticized for high taxes, a high degree of government intervention, and a lower GDP, all coming down to economic growth. Accordingly, the citizens willingly choose to pay higher taxes in exchange for the benefits they and others can receive. The government intervention has been successful due to a citizenry that trusts its government because it is led by citizens who are looking to better the lives of everyone. And as this chapter has touched on, GDP is slowly dying out as the end goal for nations. It just needs a push to get us going in the right direction.
Here, the advantages outweigh the disadvantages. The article states, “The Nordic model yields equality and social mobility. Everyone has free access to decent public services, including some of the best education and healthcare in the world, and people appear happy to pay their taxes to make sure that this continues.” Well-being is essential to growing our economy and society. This model can achieve that while redistributing wealth and lowering the inequality gap, which we have left unchecked for too long. “In any event, …the Nordic countries themselves make no effort to induce or coerce other nations into adopting the Nordic model. Rather, they seem content to work through their problems together in a collective manner that consistently results in them topping global surveys of the happiest people in the world.”
The bottom line is our means of measuring economic growth must change. The wealth inequality gap will grow if we continue using Gross Domestic Product. In wealthy nations like the United States, high inequality only becomes more detrimental to the economy. We, like many others, struggle with extreme wealth inequality and the imbalance of power that threatens our communities. Moving forward and making room to redistribute wealth will be no easy task, but it is necessary for the 21st-century economic era.
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Thank you for reading about my chapter, I hope you enjoyed it. I liked the idea of creating the 8th chapter for Doughnut Economics. For a while, I had trouble finding what I wanted to talk about, and then I came upon wealth inequality which seemed to speak to me. Reading further about wealth inequality and the extreme version of it was very interesting and made me think about how long we have been leaving it unchecked. I was also invested in the Nordic model when I found out about it because I had heard of it before in conversation but never actually looked it up. Obviously, as a nation, it would be difficult to make an immediate switch from our current economic model to the Nordic model, but I think we should begin changing it up to be more relevant to the economic needs of the 21st century. Thank you for reading, and I hope to see you in the next post!
Sources:
Frisby, Dominic. "Wealth inequality is soaring - here are the 10 reasons why it's happening." The Guardian, 12 Apr. 2018, https://www.theguardian.com/commentisfree/2018/apr/12/wealth-inequality-reasons-richest-global-gap. Accessed 5 Nov. 2022Ingraham, Christopher. "How rising inequality hurts everyone, even the rich." The Washington Post, 6 Feb. 2018, https://www.washingtonpost.com/news/wonk/wp/2018/02/06/how-rising-inequality-hurts-everyone-even-the-rich/. Accessed 5 Nov. 2022
McWhinney, James. "The Nordic Model: Pros and Cons." Investopedia, 26 Jan. 2022, https://www.investopedia.com/articles/investing/100714/nordic-model-pros-and-cons.asp. Accessed 5 Nov. 2022
Professor Dave Explains. "Understanding Wealth Inequality." YouTube, 28 Feb. 2022, https://www.youtube.com/watch?v=6c21XMMH5Vg. Accessed 5 Nov. 2022
Robert, Costanza, et al. “A Short History of GDP: Moving towards Better Measures of Human Well Being.” The Solutions Journal, 8 July 2020, https://thesolutionsjournal.com/2016/02/22/a-short-history-of-gdp-moving-towards-better-measures-of-human-well-being/. Accessed 5 Nov. 2022
TEDx Talks. "Why it's time for 'Doughnut Economics' | Kate Raworth | TEDxAthens." YouTube, 14 Dec. 2014, https://www.youtube.com/watch?v=1BHOflzxPjI. Accessed 2 Nov. 2022
"Wealth Inequality in the United States." Inequality.org, https://inequality.org/facts/wealth-inequality/#richest-americans. Accessed 5 Nov. 2022
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