On the Election

Challenging times lie ahead, due to increasing inequality

For the past 70 years or so - since the end of World War II - the United States has dominated the world and operated an aggressive economy with free markets, relatively low taxation, and little or no regulatory barriers to financial and business activity. This worked well for a long time, because key innovations in areas like technology, manufacturing, healthcare and finance tended to happen first in the United States.

But free markets, low taxation, and little regulation also have a negative effect: while creating great wealth, over time they concentrate wealth and power in the hands of fewer and fewer people. This concentration isn’t a result of some sort of human tendency or moral corruption - it a physical law, akin to entropy in thermodynamics. You can more about the interesting math behind the phenomena at this Scientific American article. Free markets always concentrate wealth, unless you counter-act that concentration by taxing richer people and then distributing the taxes back to everyone. And this is precisely what long-term stable countries do - they counterbalance free markets with progressive taxes that make their way back to everyone roughly equally.

But there is a geopolitical game going on when there are many such economies, and many different ways to play that game: If you reduce taxes, you will grow faster than your neighbors, but at the cost of rising economic inequality. If you increase taxes, you will have a stronger and happier population, but at the cost of decreased competitiveness and bigger government. Your choices will be greatly affected by other countries with whom you are most competing and cooperating.

At some point, if you keep maximizing growth, the economic inequality reaches a point where there is a revolution of some kind that resets wealth to be more equally distributed. As a sidenote, at this point you might object and ask “If overall prosperity is going up, who cares if there is inequality?”. The answer is that because for cooperative pro-social mammals - animals who work together in groups to help each other - fairness is an evolutionary requirement. We (and our monkey relatives) are intensely sensitive to fairness, as this amazing TED talk demonstrates. So, anyway - poorer people at some point no longer believe that wealth will ‘trickle down’ fairly from the richer people, and they become more and more distrusting of each other until eventually they are only willing to back candidates who claim they will somehow restore their seat at the economic table and level the playing field. That is where we are right now - we’ve elected a president, for a second time, who has campaigned on the promise that he will restore economic equality.

But will he? No. The problem is that the policy choices on both the right and left sides of the house have always been to allow inequality to increase - all the way back to the end of the Second World war. Wealth inequality has steadily and steadily increased, and it will only get worse now. Again: reducing taxes and reducing government maximizes growth but also maximizes the rate at which inequality increases. With a Harris administration we might have seen a “rip the band-aid off” moment where a lot of civil unrest or even violence would lead to some reductions in inequality. With a Trump administration we will instead see a return to boiling the frog: isolationist changes that generate some temporary gains, but with the wealth from those gains going only to the richest people and companies, with overall inequality increasing further until some new breaking point is reached.

It isn’t clear how we go forward from here, politically. Creating stronger local communities of interdependent, compassionate people able to weather the storms together will certainly be part of the solution.