Equality and Prosperity
August 25, 2021
This post was written by Jacob Frazier. Jacob is a blog editor with the Alhambra US Chamber.
In modern history, periods of relative equality and prosperity gradually decay into inequality, eventually leading to collapse. Since 1819, we have faced a significant economic downturn about every 100 years, and these recessions are often caused by speculation that exposes the structural economic problems caused by inequality. When governments make a continual effort to increase equality and thus prosperity, they can prevent the problems that lead to collapse in the first place. The governments of today should take this historical lesson to heart and promote equality for the sake of their current and future citizens.
Most people have heard the adage “a rising tide lifts all boats” but actually the opposite is true: equality leads to prosperity, rather than prosperity leading to equality. In fact, prosperity tends to increase inequality, so we need to create programs and institutions that work actively against concentration of wealth and power, especially when times are good. Equality leads to prosperity, which eventually leads to inequality; equality sows the seeds of its own destruction and must be actively maintained, like a busy kitchen that needs constant cleaning through the onslaught of daily life.
For examples of this necessity, one must only look at the history of the United States: one of the first major world economic collapses occurred right after the Napoleonic wars, during a period of speculation at home and in Europe. Hilariously, one con man even convinced parts of British society to invest in the government bonds of a completely fictitious Latin American country, Poyais. The panics of 1819 and 1825 did not nudge the country to seek the good of citizens who were lower on the economic ladder, but following the Civil War in the 1860s, the policy of land redistribution in the form of the Homestead Act enabled a wide range of settlers to build a new life for themselves. Unfortunately, the land distributed through the Homestead Act, alongside the social equality brought by emancipation after the war, could not continually promote equality, as the usable land was eventually used up and the practice of sharecropping took root after Reconstruction was abandoned.
Inequality began to grow out of the prosperity that the land redistribution had brought, leading to higher inequality as well as trusts and monopolies like the meatpacking trust, Rockefeller Steel, and Standard Oil. Eventually the government stepped in and broke up many of the trusts, but failed to redistribute the funds that had been earned by them. Not long after, in 1929, the stock market crashed again and caused a downturn that was hard on everyone, especially those who had less.
This time, however, the government did step in to take an active role in redistributing funds to those who needed them most. It created jobs programs, Social Security, the GI Bill, and massive payments to workers assisting with the war effort. Taken together, these New Deal changes created prosperity in the United States for decades, and downturns were avoided for decades more. Later, during Lyndon Johnson’s War on Poverty, more programs were implemented to redistribute wealth. The biggest of these, Medicare and Medicaid, are still active today.
However, many New Deal programs and War on Poverty programs were slowly dismantled during the 70’s, 80’s and 90’s by Republicans and Democrats alike. This gradually allowed the level of inequality to rise to where it had been before the New Deal. Because the government reduced its efforts to promote equality, inequality began to grow out of the postwar prosperity. During the post-Civil War era we had Standard Oil, and in the post-WWII era we got Amazon and Microsoft. We encountered the Dot-com bubble and the housing bubble of 2008, which burst and exposed the fragile economy created by the growing inequality of the previous decades.
Unfortunately, we have so far failed to catalyze the challenges of the recent recession into a renewed effort to address inequality. If we fail to focus on that problem we will be at risk of encountering another grave economic crisis, possibly even in the next decade. As anyone who has managed a kitchen knows, it is better to clean proactively rather than let things pile up until they become overwhelming.
President Biden is trying to implement a redistribution plan that he describes broadly as “human infrastructure”--it has a focus on expanding sick leave, health care, transit and highway infrastructure. It is massive, costing a proposed $3.4 trillion, and might be adopted in a modified form, but only time will tell if the funds are allocated in a way that will effectively promote equality. Regardless, we need to return to promoting economic equality to create lasting, stable prosperity.
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