Economics/Class Relations

US Set to Become the Newest Third World Country

By Kerry Anne


Aerial view of Detroit

The United States, the home of Capitalism, is about to demonstrate its ultimate failure, as the cannibalistic economic system consumes the nation’s economy from within.

The US economy is rigged toward the 1% of wealthiest citizens and corporations, this radically skews outcomes to the detriment of the economy as a whole.

As CJ Werlhman writes over at Alternet:

America has the most billionaires in the world, but not a single U.S. city ranks among the world’s most livable cities. Not a single U.S. airport is among the top 100 airports in the world. Our bridges, roads and rails are falling apart, and our middle class is being gutted out thanks to three decades of stagnant wages, while the top 1 percent enjoys 95 percent of all economic gains.

US income inequality is at its greatest for nearly a century and is rising, as the income gap between the bottom 90% and top 1% of Americans reaches its largest since 1928.  When compared globally, the US is the second most economically unequal society (behind Chile).  But what does economic inequality mean for average Americans?

Income inequalities within a developed country result in radically skewed life outcomes, including poorer health, and vastly reduced social mobility. And this is in spite of the fact that once a nation reaches the absolute economic development of the OECD countries, the income differentials between countries do not amount to much. It is absolutely the economic inequality within a country such as the US, not how rich that country is overall, that dictates the quality of life for the majority.

According to research by UC Berkeley, 1928 saw the top 1% of American’s receive 23.9% of all pre-tax income, and the bottom 90% get 50.7%.  By 1944, the impacts of redistributive efforts such as Roosevelt’s New Deal, saw this gap close dramatically; the share of the top 1% fell to 11.3% and the bottom 90% saw their share of income grow to 67.5%.  The gap continued to close until the late 1970’s, with the increasing gap since returning the US to 1928 levels this year.

So what changed?

Primarily, the ascendance of neoliberal economic policies put forward by the likes of US neoliberal economist Milton Friedman and the Chicago School, who considered redistributive policies, and other state interference in markets as a barrier to, not bringer of equality.  Friedman once wrote:

“A society that puts equality—in the sense of equality of outcome—ahead of freedom will end up with neither equality nor freedom.… On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality.[1]

Friedman was wrong. Economic inequality matters, because inequality of income translates to inequality of outcome.

The UC Berkeley research supports the view that Friedman’s assertion was incorrect.  This point is underscored by evidence of economic inequality produced by the Organisation for Economic Cooperation and Development (OECD). What is particularly useful about the OECD data, is that it compares countries before and after redistributive policies such as taxes are applied.  

In the case of the US, the gap in absolute income compares favourably with other developed countries – the US being 10th most unequal.  But after accounting for taxes and transfers, the US rose to the second most unequal society.  Conversely, Ireland begins with the largest gap in incomes, yet applies redistributive policies to draw it down to 10th most unequal. 

001(click image to enlarge)

As Friedman argued that freedom was synonymous with equality of outcomes, not incomes – his point might still stand, except that inequality of incomes can be shown to equate to inequality of outcomes.

In The Spirit Level, Richard Wilkinson (Professor of Epidemiology at Nottingham University, UK) charts data that proves societies that are more equal are healthier, happier societies. By comparing life expectancies, mortality rates and other health indicators, Wilkinson demonstrated a correlation between inequality of income and inequality of health outcomes.

Wilkinson’s paper, and a replication of his findings by the Joseph Rowntree Foundation, characterised those outcomes as an inequality in life expectancy, rate of death and overall physical and mental health. Additional indicators of quality of life and social mobility, highlighted in both papers, were unequal outcomes in educational attainment, likelihood of conviction and incarceration for crimes, and an array of others, which might point to a causal link between income inequality and inequality of outcomes.

Proving such a causal link is notoriously fraught with complexities and uncertainties, however, several studies have sought to assess the independent impact of inequality on health and social problems. One such study (Lynch et al, 1998) suggested that loss of life as a direct result of the impacts of income inequality in the US during 1990 was equal to the combined loss of life due to lung cancer, diabetes, motor vehicle accidents, HIV-related causes, suicide and homicide.  

Economic inequality is also hereditary; a social inheritance passed from parent to child.  Research by Gregory Clark of the University of California, found data to suggest that in the same time period that neoliberal economic policies expanded the economic inequality gap, the rate of social mobility (increased incomes and outcomes by successive generations) declined for the first time in 1000 years.

For Americans, and citizens across the world, outside the economic elite, rising economic inequality means rising inequality of health and wellbeing; and their inherited disadvantage is proving a barrier to improving not only their circumstances, but those of generations to come.

This doesn’t just impact us as individuals, but it has devastating impacts on national economies.  As Thom Hartman writes for Truth Out:

It’s not just a coincidence that during a time when the American middle-class is the smallest it’s ever been our economy is also in the gutter.

That’s because middle-class consumption is the demand engine that drives an economy.

This has eaten away at US society in various ways, resulting in the kind of systemic issues that one would associate with a third world country.  Sean McElwee recently penned a piece for Rolling Stone which laid out the six ways the US can be considered a thir world country;

  1. Criminal Justice – the US imprisons more people than any nation on earth, and poverty and race are significant factors in a person’s likelihood of arrest, charge, conviction and severity of punishment.
  2. Gun Violence – The U.S. leads the developed world in firearm-related murders, and the difference isn’t a slight gap – more like a chasm.
  3. HealthcareA study last year found that in many American counties, especially in the deep South, life expectancy is lower than in Algeria, Nicaragua or Bangladesh. The U.S. is the only developed country that does not guarantee health care to its citizens.
  4. Education – The U.S. is among only three nations in the world that does not guarantee paid maternal leave (the other two are Papua New Guinea and Swaziland). This means many poor American mothers must choose between raising their children and keeping their jobs.The Department of Education has confirmed that schools with high concentrations of poor students have lower levels of funding.
  5. Inequality – as explored in this piece.  You can read more on US inequality here.
  6. Infrastructure – The United States infrastructure is slowly crumbling apart and is in desperate need for repair. One study estimates that the nation’s infrastructure system needs a $3.6 trillion investment over the next six years.  There is no sign of where this money is going to come from as the state prioritizes business-friendly policies of tax cuts and corporate subsidies, while the private sector refuses to invest outside of narrow and short term profit interests.

Rather than Capitalism being the bringer of progress, it is the harbinger of our own demise.  A rigged game that gets less fair with every generation and takes the economy down with it.

3 replies »

  1. “That’s because middle-class consumption is the demand engine that drives an economy.” Statements like this cannot be taken seriously. Production and consumption exist in a positive feedback loop with each other. One is no more important or essential than the other.

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