Dignity & Development Series: Inequality, Dignity, and Despair

Author: Ray Offenheiser

This blog was first published on November 3, 2022 via the Keough School for Global Affairs' Dignity & Development series. You can read the original via their website.  


“An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” – Plutarch

For many Americans today, the American Dream is dead. 

They see opportunities for prosperity that previous generations benefited from slipping away, with many good industry jobs moving overseas to be replaced by minimum wage, service jobs at Walmart. They work two, maybe three, jobs and yet they are still being forced to make the choices between paying rent, filling their gas tank, or buying food for their children. There is never enough money; there is no savings; and what little equity they have has been undermined by two major recessions and inflation.

Americans today are angry, frustrated, and confused. They see the costs of a home, childcare, insurance, and medical care skyrocketing. They feel trapped by an economy rigged to keep them permanently in debt, and they have lost faith in institutions—their local political system, their employers, the federal government, and their churches. So where can they turn? Some have drifted into extreme politics or evangelical Christian nationalism, while others have succumbed to the toxic political discourse on social media which only stokes their deepest fears and leads to even greater resentment and occasionally, violence. Sadly, America’s political class seems unable to grasp or respond to the profound challenges facing tens of millions of Americans today. 

In their book Deaths of Despair, Nobel Prize-winning economist Angus Deaton and Anne Case present a stark picture of this America; one where employment rates are decreasing and suicide rates are increasing at alarming rates among white males with a high school degree or less. Deaton and Case attribute these startling trends to despair: a sense of being trapped in a world where one’s sense of self is undermined, dignity is compromised, and few options exist for a way forward.

The American Dream on life support

What has happened in America that has produced this malaise? Let’s review a few facts that might begin to explain what we are seeing.

First, real wages in the US have not increased since the late 1970s and yet the cost of living has risen dramatically. Based on real 1970s wages, adjusted for productivity increases, today’s minimum wage should be $24 to $28 per hour rather than today’s $7.50 federal minimum wage, which hasn’t been adjusted since 2007. Since the 1970s, worker productivity has increased by nearly 60 percent, but middle- and working-class wages have been delinked from those productivity increases. Meanwhile, there have been absurd levels of wage increases for corporate executives, driving increasing inequality. According to Josh Bivens of the Economic Policy Institute, “Every year lawmakers don’t raise the minimum wage is a year that they have effectively cut the purchasing power and living standards of the country’s lowest paid workers.”

America once ranked number one in ensuring social mobility for its working citizens. Today, according to the World Economic Forum Social Mobility Index, the US ranks twenty-seventh in the world and seems to decline further each year. Globalization and automation have seen the loss of some 7.5 million manufacturing jobs since 1980 and unionized labor, which fought for decent wages and benefits in the post-war era, has decreased to just 10.3 percent of the US labor force. 

In contrast to this dismal picture, the American stock market—despite wars, stagflation, and a global oil crisis—has until recently been booming. Federal Reserve data indicates that the top 1 percent hold 32.3 percent of the country’s wealth, while the bottom 50 percent hold 2.6 percent. The wealthiest 10 percent of Americans now own 89 percent of all U.S. stocks, worth an obscene $45.9 trillion, while the bottom 90 percent of Americans hold about 11 percent of stocks. 

The COVID-19 pandemic only highlighted this troubling paradox. While US essential workers were being paid minimum wage or lost their livelihoods, and the nation suffered 1 million COVID deaths, US billionaires realized a wealth gain of over 58 percent. 

A major underlying driver of these levels of gross inequality was the introduction of neoliberal market ideology by the Reagan administration in the 1980s. Government economists were at a loss as to how to respond to a stagflation crisis and opted to follow the advice of the University of Chicago economist Milton Friedman, privileging the market and shareholders over the common good and government sponsored programs. The promise of this approach was that it would stimulate growth and ensure shared prosperity for the country. It would lift all boats.

Forty years later, the evidence is clear that the promised growth rates and shared benefits were never achieved. Continuing to hold onto what is now being referred by Princeton economist Paul Krugman as “zombie economics,” Republican and Democratic administrations alike have sustained wage stagnation, slashed welfare programs, attacked unions, and introduced tax reform to favor the rich and corporations, foolishly expecting to see this magical equitable growth. After forty years we should know better. Only now is the Biden administration taking some modest steps to reverse this market idolatry and abandoning strict neoliberal approaches.

The American Dream lives in an offshore tax haven

The US first introduced the idea of income tax in the 1860s and it was largely charged to the wealthier class of citizens and corporations. In the early twentieth century, the elite classes lived off their wealth and took incomes to support their lifestyles, and that income was taxed on a progressive basis. During WWII, marginal tax rates on income were 90 percent. These high rates continued through the post-war 1950s when US business boomed. It was the Golden Age of Capitalism in the US from the late 1940s until the 1980s. The middle class grew and flourished to become the largest of any country in the world. Meanwhile, major investments were made in national highways, railways, parks, education, and health. Business prospered despite high tax rates and middle-class families were able to sustain a decent life.

In 1980, this introduction of the new, neoliberal economics created two parallel economic universes in the US. In one, Joe and Mary earn a wage, pay taxes to Uncle Sam and their state government based on that annual salary, and get audited and fined when they do not.

Hiding wealth has become a major industry in the US.

In another, Elon Musk is so wealthy he does not need or receive a salary and therefore he takes no income that can be taxed. Instead, to cover his lavish lifestyle and avoid taxes, he never liquidates his wealth. Rather, he borrows money against his wealth which is not taxed as income. Guided by armies of wealth managers and lawyers, he benefits from all variety of gimmicks in US tax code that reduce his tax exposure. The current law protects his inherited wealth and allows for the revaluation of wealth should he die, to ensure the bulk of his fortune is passed onto his children at a highly reduced, and perhaps negligible, tax rate. These reduced rates at death contribute to the creation of a new class of dynastic billionaires with extraordinarily real and ascribed power.    

Hiding wealth in this fashion has become a major industry in the US, which is currently considered the most non-transparent economy in the world. As the Panama papers revealed, many individuals are hiding their wealth in complex layers of shell companies with mailboxes located in offshore tax havens, making it almost impossible for tax purposes to establish the actual beneficial owner of the assets. The variety of tax avoidance loopholes available to shrewd lawyers are endless, making all this tax avoidance entirely legal. Republicans have slashed IRS budgets for decades to limit its capacity to audit wealth. Biden has recently tried to restore the IRS staffing and skill sets.

But these highly subsidized tax avoidance and evasion games are very costly to a modern democratic society that, in theory, relies on a progressive tax system to build the social and physical infrastructure needed to drive economic growth and equity. The tax cutting fever that started in the 1980s has gutted state and municipal level budgets and undermined already fragile health, education, and social service programs. Our national social and physical infrastructure is rotting and in need of a massive investment of federal resources. The market guided by neoliberal theory has done nothing to build or support this important public infrastructure. Biden’s Inflation Reduction Act is a bold departure from neoliberal orthodoxy.  

The battle between legal and moral

The question facing America today is not about whether wealth is good or bad—there has always been and always will be a certain level of wealth inequality in any capitalist society. The question is rather about extreme wealth inequality and its impact on the institutions and social cohesion of society. Pope Francis in Fratelli Tutti is very clear that contemporary hyper-growth, materialist capitalism is not a “moral capitalism” and is on a collision course with creation, democracy, and the survival of our species. It undermines the institutions that provide the protections that ensure human dignity. He argues for an integral human development approach that would give primacy to human dignity and guarantee a shared prosperity as a reality rather than a false promise.  

He captures the tragedy and cruelty of this neoliberal economic model when he states: “Almost without being aware of it, we end up being incapable of feeling compassion at the outcry of the poor, weeping for other people’s pain, and feeling a need to help them, as though all this were someone else’s responsibility and not our own. The culture of prosperity deadens us . . . ” 

Much more must be done to define a twenty-first century ‘moral capitalism’ that resets the balance between the state and the market.

The good news is that the debate about growing inequality is on the table, although hotly contested by those committed to sustaining neoliberalism. The COVID-19 pandemic has lifted the curtain on the inequities and damage that more than forty years of neoliberal economics has wrought on our society, economy, democracy, and on the dignity of millions of Americans. The market did not save those millions of Americans facing hunger, health crises, student loan indebtedness or homelessness during the pandemic—the American government did. The federal government had to respond, once again, to market failure, just as it had to during the 2008 financial crisis, and as it will have to do constantly in the coming years to deal with the impacts of climate change across our nation and the world.  

While President Biden has made modest strides to address these issues, much more must be done to define a twenty-first century “moral capitalism” that resets the balance between the state and the market, recognizes the existential challenge of climate change and the limits to growth, and reinstates equity, fairness, and the common good as central pillars of the American social contract.  

Given the current fragility of our political system, there is an urgency to address these issues in very practical terms that can be seen and felt by the American people. Those in support of the status quo have assumed a “win at all costs” mentality, according to which ends justify the means. They would offer us a version of Victor Orban’s Hungarian authoritarian model as their ideal end-state: institutionalizing inequality is of no importance and consequence to them. 

 So, the stakes are high. Our liberal democratic system is at risk. Confronting the challenge of inequality and salvaging the dignity of millions of Americans is a multi-year, if not multi-generational, project that will require a significant change in our public discourse and politics. It likely will generate much rancor and conflict, but the struggle must be engaged and won if we are to build a more just and equitable society.  

 Ray Offenheiser is Professor of the Practice and the William J. Pulte Director, Pulte Institute for Global Development in the Keough School of Global Affairs at the University of Notre Dame. 

This article is part of a series of blog posts published by the Keough School of Global Affairs. Dignity and Development provides in-depth analysis of global challenges through the lens of integral human development.

Photo: “Wall Street” by Sjoerd van Oosten is licensed under CC BY-NC-ND 2.0.