Income Inequality: The Fundamental Reason It Is Growing

Introduction

Growing inequality is a hot topic. There has recently been an explosion of new books on the subject. The following have been published in 2014 alone:

• “Capital in the Twenty-First Century” by Thomas Piketty and Arthur Goldhammer;
• “The Price of Inequality: How Today’s Divided Society Endangers Our Future” by Joseph Stiglitz;
• “Divided: The Perils of Our Growing Inequality” by David Cay Johnston;
• “The Divide: American Injustice in the Age of the Wealth Gap” by Matt Taibbi and Molly Crabapple;
• “Degrees of Inequality: How the Politics of Higher Education Sabotaged the American Dream” by Suzanne Mettler.

Many of these books draw on history for explanations of inequality with citations of Simon Kuznets – “Toward A Theory Of Economic Growth”, Karl Marx – “Das Kapital” and  Joseph Spengler – “Decline of the West”. Others view the widening gap as a reflection of the growing influence and power of the “moneyed” classes. And some talk of conspiracy.

In my view, these are all secondary. The single primary reason for the growing inequality is “labor saving” resulting from the Information Revolution. New information technologies are replacing large blocs of middle class jobs and with more people out of work, wages have plummeted. Weaker unions? Maybe, but there is very little unions can do when the demand for their members falls as much as it has.

What has already happened coupled with future applications of information technologies will make an even larger segment of middle class workers redundant. And this raises a larger question: if the “work” of a large portion of the middle class is not needed, where does their income come from? This is a serious problem because the global societal norm is that people earn income by working. In what follows, I offer documentation of my claim and discuss the broader question.

The Information Revolution

Remember the 1995-2000 “dot-com bubble”? It was based on the belief that the new information technologies had arrived and were going to revolutionize how we lived and worked. It failed. Nobody questioned the potential of the new technologies, but there were two problems:

We had not yet really figured out how to use the new technologies effectively, and the history of science tells us it takes humans a while to adapt to new technologies. That was back then. It is now a decade later, and the new technologies are now being effectively utilized in all aspects of life and work. And remember too that recessions/recoveries give employers a great chance to rethink how they operate and whether they need to hire all their workers back. What in essence are the new technologies providing? Two things:

• the ability to perform manual labor better and more efficiently than humans, e.g., factory work, and
• the ability to process information better and more efficiently than humans, e.g., bill pay.