Political Science. Inequality and Liberalism. Research Paper

Inequality and Liberalism
Name
Institution
Due Date
Inequality and Liberalism
The debate over rising inequality in the world has been in the mainstream media outlets for a long time now. The 2007/2008 financial crisis amplified the noise with regard to rising economic inequality. Poverty levels in the world have continued to reduce but inequality continues to rise. Some people attribute the above to globalization which continues to make the world more connected than it ever was. Giddens (1990) defined globalization as “the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa.” This definition proved to be true during the recent financial crisis because a high default rate in the subprime home mortgage sector in the U.S. affected the entire world. Countries all over the world had to develop measures to save their economies from collapse. The world did indeed bounce back but the lessons were quite clear. With countries willing to open their borders and embracing the idea of economic liberalism, wealth creation has been relatively easier but at what cost? Economic liberalism negates the presence of institutions and governments while yielding economic decision-making power to individuals and households. The results, however, have not been a world where low-income earners are earning more but a world where high-income earners are earning more which further increases inequality. So, to help shed light on the above, this paper makes use of economic liberalism in studying the trend of economic inequality since the 1970s.
First of all, before delving deep into the issue under study, it is crucial to note that before 1970, income in the United States grew almost at the same rate in the income ladder. Between 1940 and 1970, Stone et al. (2020) note that even though the gap between the top and bottom earners was still quite substantial, it did not fluctuate as it does today. However, the 1970s brought with it a few changes as economic growth slowed. With growth taking a gradual tone, the gap between the top and bottom individuals widened. Income concentration at the top became the norm, and the world is still privy to this state of events today. The onset of the 1970s meant a change in the way the U.S. economy was running.
Arguments for Economic Liberalism
Classic liberalism prefers the laissez-faire approach to economic policies. Advocates of this approach to political ideology are skeptical of the involvement of the state in shaping the economic landscape. It is an obvious fact that economic liberalism promotes inequality. However, Singh (2015) writes that advocates of economic liberalism “present the trade-off between equality and economic efficiency.” He continues to write that inequality is an obvious occurrence during the development stage. However, with continued growth, inequality reduces. On the surface, this may appear as a reasonable argument, and Piketty and Saiez (2003) further the above notion as they explain their stance using the Kuznet’s influential hypothesis. They note that “income inequality should follow an inverse-U shape along the development process, first rising with industrialization and then declining, as more and more workers join the high-productivity sectors of the economy.” However, the researchers appear skeptical of the above especially considering the state of the U.S. economy after the 1970s. Apparently, the U.S. economy has shown a sharp reversal in its trend since the onset of the 70s in spite of enhanced industrialization and technological innovation. The implication of the above is an increase in the number of people in the bottom area of the ladder.
However, there are still those who would argue that the U.S. has been on the right trajectory since the 1970s. Fabiano (2015) appears to argue that even though income inequality has been rising in the U.S., income increase in the U.S. has been higher compared to welfare states which are against the liberal economic model. The above point simply seeks to downplay the role economic liberalism has played in enhancing economic inequality. However, Fabiano does offer a few arguments that seek to support economic liberalism while negating the approach by welfare states which are mainly guided by the principles of wealth redistribution and equalitarianism. For example, he notes that in the U.S., the 5th percentile keeps on changing and is replaced by younger households as well as poor immigrants at a rate that is higher than what is being experienced in European countries. However, the above negates figures and statistics that appear to indicate that even though the 5th percentile has seen an increase in their income, the gap between those at the top and the bottom of the ladder continues to widen. Sargent (2019) writes that for the bottom 50%, average real annual income increased from $19,000 in 1970 to $27,000 in 2018. On the other hand, the average real annual income for the top 1% increased from $300,000 in 1970 to $1 million in 2018. Looking at the above figures, one is forced to be skeptical while assessing comments made by Fabiano regarding the American economy. So, while ...