Will Increased Income and Wealth Disparity Lead to Generational Class War?

US Income 2
Practitioners of a new statistical discipline called Econophysics have produced the curve above, showing US wealth data plotted logarithmically. They claim the richest 0.1% of the population’s income is described by Pareto’s Law — meaning that if you’re born into that kind of money, you’ll only get richer, no matter what you do. And they claim the poorest 99.9% of the population’s income is explained by Boltzman’s Law — describing random movement of gases in an enclosed area, and meaning that even if you’ve struggled up to the left end of the green curve, you’re far more likely to then get poorer than to make it to the 0.1% elite.

A recent survey in the UK shows that, between 1995 and 2005, the average net wealth of 18-to-24 year-olds remained at zero, that of 25-to-34 year-olds fell from $3000 to $995, and that of 55-to-64 year-olds tripled from $50,000 to $150,000, although their total debts actually rose during that period.

In the US, reports USA Today, all of the increased wealth since 1989 has accrued to those 55 years of age or older. Like in the UK, the big losers have been those who are now 35 to 50. This generation doesn’t look poor — they have as much stuff or more than previous generations at the same age, but their debts are astronomical. They are horrifically vulnerable to an interest rate spike (even a small one like the one that has, along with the US housing crash, created the current credit crisis). The disparity is expected to increase, and accelerate.

At a recent financial executives conference in Toronto, Peter Bernstein, one of the world’s most distinguished economists told the (mostly older) crowd that income and wealth disparity posed the largest single threat to economic security and political stability in affluent nations. The people I spoke to afterwards said they didn’t believe him. I wonder why.

I watched a program a couple of years ago that showed an astonishing correlation — community-to-community, region-to-region, country-to-country — between wealth disparity and violent crime. This is nothing new, as anyone in a country with a high Gini index like Brasil (or, now, the US) can tell you.

I’ve also reported on this blog that the belief that hard work or education is the road to upward economic mobility is a myth. The chart above demonstrates that if you’re born rich, you’re destined to get richer, and if you’re not, well, you’re in for a lifelong struggle with at least a 50% chance of actually ending up poorer for all your efforts.

Put these all together and you have a tinder keg. There are only three things keeping it from blowing:

  1. Ignorance: The majority of people think they’re financially better off than they really are. They don’t realize how vulnerable they are to economic downturn. Just listen to people who have just been laid off, or who realize (and this is the rich, older, boomer generation) that they can’t ever afford to retire.
  2. Shame: The propaganda machine, especially in the US, has convinced most of the poor that their situation is somehow their own fault.
  3. Economic Overextension: The economy is wound up tighter than a drum, with all the dominos propping up each other. It depends on sustaining high ROI on listed stocks, a continuing housing boom, perpetually artificially low interest rates, fuel costs and manufactured goods costs, and the continued and uninterrupted exploitation of labour and natural resources of struggling nations. None of these things is sustainable.

So when the economy unwinds, will the poor overcome their ignorance and shame and rise up in mutiny against the old rich elite that has hoarded 100% of the benefits of economic development for a half-century? Especially since for the most part this elite is also disproportionately responsible for the activities that has created global warming?

It seems unimaginable, doesn’t it? It just isn’t in the psyche of Americans, Canadians, Europeans to rise up in civil war, is it?

Your answer to these questions will depend on how well you have studied, and learned, the lessons of history. I suspect Peter Bernstein’s answers and mine are the same. He stole the show, andall he got was polite applause. What will it take for us to learn?

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6 Responses to Will Increased Income and Wealth Disparity Lead to Generational Class War?

  1. I almost broached this subject in your post on being closer to nature and the environment, and why more people don’t do more about it. I think they’re too busy earning a living and making ends meet. After that, and little to moderate time left to spend with their families, most people have too little energy left over to even educate themselves about the environment, let alone take action.I don’t think the disparity between age groups is nearly as great as that between the haves and have-nots, and between the super-wealthy and everyone else. My understanding is that the top 400 wealthiest have incomes that are so phenomenal compared to even the average top 1% earners that most people can’t comprehend it, if they’re aware of it. As people become less able to make ends meet in greater numbers (poverty is growing in California, one of the higher cost-of-living states in the US), I think people will rebel in some way. It’s not clear how — and I won’t speculate as to how it will happen or whether it should. One would hope the wealthiest would see into the future a little, and care a little about their children’s future enough to put not just a token but a great deal of their income toward fixing the real problems of the world. How much wealth, after all, does any one person and their family need for personal security? But they seem to only want to put their energy and money into making more and protecting what they already have, from what I can see. One could argue that in the US the so-called representative government has been purchased, and that an alien from another world would look at Earth’s massive economic disparity and call this a slave planet.

  2. lugon says:

    Do people rebel against the top 1% or against the (10 times more numerous) top 10%? (Looks like a multiside game to me)And what do the richest inherit, other than money? Intelectual laziness? Fear?http://www.ludism.org/posrev/

  3. Mariella says:

    People will react and rebel (as it is already happening ) according to their own capacities and knowledge. — Andean people is reacting against the mining companies and not allowing them to work. But one can clearly appreciate their difficulties in understanding all the options of the game : ONG´s (that no one knows what are they really after – not all of course), the churches, the communist party, the mining canon (“LOTS” of money given to the community), the environmental impact, the goverment, the regional goverments… etc and of course the memories of the awful 20 years of terrorism….. How to choose?—- I was thinking… we humans are humans everywhere the same… Will North Americans (USA and Canada) and Europeans find a better way of playing this twister game?-¿Can countries with so different realities learn from each other? ……………¿What are the capacities needed to do a creative and constructive rebelion….. one that starts with a road to follow….. maybe it is my own perosnal fear about chaos…. maybe, as countries like mine live in continuos chaos…. I don´t remember “who” said that first there was chaos…. and then….

  4. Doug Alder says:

    Dave – I’ve said for a long time that you combine wealth disparity with the coming economic collapse due to the effects of global warming and over extended US economy etc. there is going to be wholesale riots then civil war if not outright anarchy.I don’t think many people really understand the destruction that is coming due to global warming and how quickly it will be upon us. The melting of the Greenland ice cap is progressing far more rapidly than predicted even in the last IPCC report (when they release the next one in the Spring people are going to be very shocked) – the rate at which ice is melting is constantly speeding up. What was thought a year ago to be a century or more away in now looking more like 10 to 20 years. When droughts or excessive rainfall cause crop destruction in the US food belt can you imagine what will happen when starving people see the Über Rich still able to feed themselves because they can afford the enormous prices for the scarce food. There are major social and economic disruptions hovering on the horizon and that doesn’t even begin to take into account the affects of disease vectors (flu pandemics etc) and peak oil.

  5. Mt57 says:

    Although you and I would likely agree on many intergenerational issues, I thought some of the statements you make to frame the issue are wrong and pernicious. “All” of the gain in wealth in the past 18 years has gone to the 55 and over crowd? Absurd. My own life (thankfully I am still under 55) and those of many in my cohort are proof that is wrong. We are a lot better off than we were in 1989. Similarly, the statement that it is a “myth” that you cannot achieve upward economic mobility through hard work and education is disproved by millions of people who have done just that; while I won’t be so immodest to claim that I have worked “hard”, the education I worked to obtain is hugely responsible for the fact that I have achieved far more wealth than my parents, my siblings, or my childhood friends, none of whom reached the same educational level as I did. And I can look around at my friends and the one I know who did inherit money is no better off than he was in 1989. His inheritance led him to pursue less lucrative careers and thus he has simply burned through, rather than built up his wealth.

  6. Jake says:

    Although this artical is just a little overbearing and doomsday alarmist in my opinion, the points are still very real. We are a selfish bunch, and we’re are going to squander our big brains by destroying ourselves with ignorance and greed, but somehow I still think we will survive. Maybe a few centuries, or millinia, in the dirt again will help us to evolve a bigger frontal lobe, the part responsible for reason, foresite, and compassion. A part of the brain a lot of these reptiles in places of power seem to have shut off.

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