Resource Curse and Rising Inequality - Jon Erickson on Reality Report

Today on Global Public Media's "The Reality Report", Jason's guest will be University of Vermont Professor Jon Erickson who will discuss the global credit crisis in the context of the resource course and rising inequality. Jon and Jason will discuss how to possible change our institutions to be more aligned with our biophysical and psychological realities.

Jon is one of Nate's advisors at the University of Vermont. The Reality Report airs today at 12:10 EST on

According to pre-recording emails, some the discussion may be about the following:

The economic growth path that the U.S. has been on over the last 30 to 40 years has lead to greater inequality and less well-being. This was not by accident. It was designed and supported by economic theory that said high growth comes from higher inequality. This path is biophysically bankrupt and socially undesirable.

Should we go back to this path of growing economy and shrinking well-being? What might another way look like?

It was designed and supported by economic theory that said high growth comes from higher inequality.

My understanding of US economic development was that the increase in middle class incomes resulted in increased demand for goods and services and it was this general equality of incomes that was America's strength. Even as far back as Jeffersonian democracy each citizen was to own their own means of production, the farm, and therefore have a stake in the decisions of the state.

each citizen was to own their own means of production, the farm

The folks over at Fox News (which a good 50% of the U.S. follows religiously) would call that "Communism" and lambast you for wanting to "punish success". Ditto for anyone who's not on board with paying CEOs 400X the wage of an average worker bee. They work 400X as much and are 400X smarter than average, so they deserve it all, right?

If it was really "Capitalism" they wouldn't need bailouts from the Treasury then, right?

Sorry, responded to wrong post, see down thread

Good lord, I hope 50% of the US doesn't watch that yellow-journalism B.S.

Let me take a step back and ask some basic questions. I am continually perplexed as to why inequality is a problem. I can't jump like Michael Jordan, swim like Michael Phelps or spout like Michael Savage but so what? They have skills that I don't have. When they monetize their skills and become rich, I am happy for them. I don't expect them to give me a chunk of their money, or hold themselves back so I can somehow "catch-up". Why is inequality a bad thing?

As you might have guessed, the problems that concern people about inequality have little to do with the thoughts that make you happy or how you expect famous athletes or assholes to behave.

Presumably the show will cover this. Is someone going to record it and post it on the web?

If you can't wait, why don't you check Google, Wikipedia and the other usual suspects?

Let me take a step back and ask some basic questions. I am continually perplexed as to why inequality is a problem. I can't jump like Michael Jordan, swim like Michael Phelps or spout like Michael Savage but so what? They have skills that I don't have. When they monetize their skills and become rich, I am happy for them.

Yikes! Where to begin? You're not really talking about these guys -- you're talking about the bankers and CEOs. What is it precisely that they do better than I do? I can see at least one thing they do better than say Bernie Madoff, i.e. know how to get away with it, but other than that it escapes me. But even on you own turf, the jumping and swimming and stuff is only 10 or 20 times better than mine. The money beyond that is for something else entirely different. (When I dance, people offer me money to just sit down.)

But the real problem is not just that. It's that the whole system is guided by maximizing profit, and that everything is geared to that. The result is that we are trashing the planet, trashing the next generation, trashing the future, and condemning millions to poverty and starvation. Why are millions of competent and hardworking people being thrown on the trash heap? Because they have all of sudden been infected with laziness and incompetence? No more than elite are grabbing billions because of their sterling performances. Has the gap widened so greatly because the elite have become smarter and the worker bees dumber? Ridiculous.

Global capitalism is in the dock. It provided a middle class way of life for at most a billion people. It has left 2 billion hungry every day, and a few billion more with lives that totally lack things we take for granted. Many of these people work for harder than any of us, and take risks, not with their assets, but with their very asses, every day they go to work. It is, or rather was very nice for us in the middle classes. But it's coming to end. Energy and other natural resources are peaking, and the party's over as Heinberg says.

We need to adjust. But we are unable to adjust because of global capitalism. I don't begrudge the elite their yachts and palaces -- who needs it. What I begrudge them is control -- they are going to take us all down with them. A decent and comfortable existence for the species is possible if we could but make the necessary adjustments in facing a new reality. But the money and power junkies still have their hands on the tiller (and in the till) and we are headed for the bergs. That's the deepest problem, not inequality itself.

Amen, davebygolly. Very well put.

Why are millions of competent and hardworking people being thrown on the trash heap? Because they have all of sudden been infected with laziness and incompetence? No more than elite are grabbing billions because of their sterling performances. Has the gap widened so greatly because the elite have become smarter and the worker bees dumber? Ridiculous.

Well said.

What is it precisely that they do better than I do?

Have powerful friends in rich places. Close friends.

Inequality per se is not always a problem, and naturally we don't want to penalize high achievers. However, when society is richly rewarding non-productive, parasitic activities (financial alchemy, derivatives paper-swapping, Ponzi schemes, etc.) while those employed in truly necessary productive activities go begging (engineers, teachers, scientists, etc.) then you have an economic incentives problem. One that over time tends to grow credit/asset bubble and other misallocations of capital, both human and financial.

And when that inequality reaches a certain level while basic need of average citizens are not being met (think costs of medical insurance, higher education crumbling bridges & roads, homelessness, etc.), you tend to have social unrest (think Great Depression, pre-revolutionary Russia & France).

It's not about "punishing the successful", it's about incentivizing productive, socially beneficial activities over activities that, while highly profitable to an elite few, are non-productive or outright harmful to the rest of us. And regardless, we do not live in a pure meritocoracy. Despite the rare, notable exceptions to the rule you listed, the rich are on average, no smarter or better than the rest of us. For the most part, they are simply born lucky, and greatly benefit from the current system which is largely designed to preserve and enhance inherited wealth.

Inequality per se is not always a problem, and naturally we don't want to penalize high achievers.

What do you mean when you talk about penalizing high achievers? Suppose we lived in a cooperative society where everyone works about the same amount of hours and the total economic output intended for domestic consumption is approximately equally shared. If my talents make me more productive than average in what sense am I being penalized? Of course if I am working long hours and other people are loafing then the situation is quite different.

Certainly rewarding exceptionally productive people with the right to consume excess economic output is one way to encourage innovation, but I am not convinced that it is the only one or even the best one in a situation where productivity is constrained by the availability of natural resources.

Also, it is important to realize that relative productivity in a specific job (i.e. how well engineer A performs relative to engineer B in the same job) can be fairly well defined, but that the absolute productivity of an individual, which depends on a complex web of biophysical and social relations, cannot be well defined. My feeling is that using money as primary measurement of personal achievment is a destructive practice. I think it is conceivable that money could be used as information system to help to decide where production resources should be directed without creating a constant competition for the accumulation of private fortunes. However, such a system would require radical social changes which would go far beyond mere reform of the monetary system.

Hey hey Keithster100,

There are two big structural problems with inequality. One is an American misunderstanding of mobility and the other is a fundamental question of democracy.

Mobility, often thought of as upward mobility rarely as downward mobility, refers to the ease with which a person can improve their lot in life through talent or training, dedication and sacrifice, a good idea and the will to make it happen. It is roughly synonymous with the American Dream, that delightful fiction that with a little pluck anyone can make it. The problem is that it is broadly untrue.

In the united states parental income is the single greatest predictor of a child's future earnings. There are other factors like intelligence, social development and level of education, but they are secondary predictors to parental income. Also, many of these aspects are themselves strongly correlated to parental income, notably education. The reason for this is simple, money can buy your children advantages over less well to do children. Private schools, day care, live in nannies, music lessons, therapy and trust funds to name a few direct purchases. Being positioned at the top also confers benefits through proximity like nepotism and affluent social networks. Money opens doors.

To put it another way, upward mobility is directly proportional to downward mobility. Think home field advantage, incumbent politicians, the boss's kid. Everything that a society does to entrench socioeconomic status simultaneously hinders upward mobility. The most infamous example in our times is George W Bush. He would not have become president had he been born to a lower socioeconomic class. And, if we had a more downwardly mobile society then a more competent and capable candidate would have risen up to lead the nation.

Which brings us to the next point, viable democracy. Democracy requires an informed and active citizenry, a free and open exchange of ideas, and a common interest or sense of community. Inequality has an impact on the press and on the level of activity of the citizenry, but it has a much more pronounced impact on the common interest. It is intuitively obvious and empirically demonstrated though numerous poles and demographic studies that people at the top and bottom have different expectations and demands of the state. A CEO who vacations in Aspen lives in a fundamentally different world than an inner city family that spends the holidays at grandma's apartment. While they may overlap occasionally; the CEO thinks that a strong military is necessary to defend America's interests and the inner city folk realize that the military offers a real chance to escape from poverty. They are also bound differ; The CEO thinks that access to oil is necessary for the economy while the inner city parents worry about the health effects of smog and the lack of affordable transportation. This dynamic completely obscures any discussion of the more nuanced points of when the military should act and why or of peak oil and sustainability. In essence squabbling over particulars of vested interest renders our democracy incapable of addressing relevant issues.

To sum up, equality in the distribution of wealth is not moral issue but an operational necessity. There is, however, a real and pressing question of degree. What level of inequality motivates a society to achieve without damaging it's social fabric or perhaps what is the optimal trade off?


However you define "middle class", an increase in incomes and an increase in equality are two different things. If the rich get richer even faster than the rest, you've still got higher inequality.

It seems you are confused as to the chronology as well: 30 to 40 years ago translates into 1969 to 79. The kind of economic policies you might be thinking about, designed to increase incomes across the board, were implemented in the wake of the 1930s depression and WWII. By the late sixties, they were running into serious problems and their popularity was diminishing among the plutocrats. By the late seventies, they were on their death throes and working people's real incomes were already clearly falling behind. As is well-known, anti-worker economic theories would dominate policymaking in the eighties.

As to the Jeffersonian stuff, well... a good way to make every citizen a landowner was and remains to deny others citizenship. I don't know why you think this has anything to do with (in)equality.

The show will go up at Global Public Media soon (I hope).

We cover the reasons why Extreme inequality is a bad thing. Nations that manage inequality to make sure it doesn't get out of hand do much better in terms of quality of life, subjective well being, etc. than those who don't. Some reasons: Political power gets concentrated in the rich, which makes the not-so-rich feel bad. A strong and stable society requires that most people believe in the system, that they have a voice and a stake in the commons. Poor people are socially expensive. They put off investment in their health and education and do stuff that isn't so good, like go to emergency rooms for the flu, buy cheap and non-nutritious food, are less productive members of society and may even get mad and desperate and rebel. The wealthy then have to pay for the damages done after wards. The very rich are sickened by excess. They fight to maintain status, worry about loss, don't trust people who aren't as financially wealth as they are, are stressed by managing so many possessions, etc.

This has nothing to do with differences in innate talents or hard work. But every billionaire gets rich from the talents and hard work of thousands (millions?) of others. What is fair and just allocation of the fruits of labor and the use (abuse?) of the commons--air, water, forests, markets, currencies, etc.

Your mention of health reminded me that Bezruchka has been interviewed on the air about this (and some of it must have been archived). While people are waiting for your show to go up, they could do worse than goggle the guy.

This in not much of an issue right now but, more trivially, inequality is also fertile ground for epidemics and infestations of parasites. It could get much worse with a worsening of living standards globally, antibiotic resistance, climate change, refugees and so on.

Perhaps the very wealthy (both individuals and nations) will come to realize that there is no "separate peace" anymore. Does a disease epidemic spare the child of a billionaire? Can money insulate you from global war or potentially severe climate change?

At the same time, I advocate that individuals pursue a strategy of creating greater resilience in their personal sphere of influence. You may have a choice: A) Invest in stocks and bonds, B) Invest in tangible assets that offer great food, water, health and energy security.

When the stock market goes up or a bunch of bonds offering 4% return are sold I think to myself, "Great, a whole lot of people moved their limited capital into asset classes that perpetuate the unsustainable status quo." Meanwhile, "news outlets" cheer the rise in these metrics of financial "wealth" while reporting almost nothing about the decline in assets such as water, soil, forests, etc.

Something Jon discusses during the interview is that we need new indicators. Stocks and GDP are lousy at telling us what is important.

Capital doesn't move into asset classes actually.
The stock market going up is almost irrelevant as someone else goes out of that market when you get in. As to bonds, the actual assets capital moves into is what the bonds are financing which could be everything from a hospital to a jetliner.
Organizations that invest in the kind of tangible assets you seem to favor also sell bonds... and even stock sometimes. The financial instruments aren't the problem. The problem is the people who buy the instruments without regard for anything but the financial return.

Agreed about the indicators. But be careful: some indicators that are marketed as an alternative such as the HDI are actually recycling the bogus metrics.

I have just never heard of a sustainable hospital or a sustainable jetliner or a government that didn't primarily waste a lot of money on unsustainable plans to expand the human domination of the planet.

I believe targeted investments are needed, but when I think about the people who put money into 401Ks they are spreading funds into giant classes of assets, such as stocks, bonds, etc. And these are basically investing in all sorts of "stuff" that is for the most part paying for the devastation of the planetary life support systems.

I'll put money into something that lowers our collective ecological footprint. What might that be? I am sure there are options, but they are probably not yet what makes the market indicators or GDP swell.

We need a economic system that does not reward sociopaths (as capitalism) and clerks that keep the books.
Almost all success (including mine) is luck, as Talieb has pointed out in the Black Swan. One does have to show up, wear white, and cross your fingers.

Inequality in a society occurs for many reasons. Differing abilities is only one source of inequality of resource distribution. Much inequality has had to do with social rank (nobility), luck, the ability of some to write the rules of economic transactions so that they are most favored, inheritance, and the ability of others to obtain wealth by criminal means. Extreme inequality in a society is undesirable for a number of reasons. As those at the bottom see a few for whom the rule of law does not apply, they become resentful. Societies with extreme inequalities require repressive measures to prevent or quell rebellion among those who have less. Those at the bottom are less able to afford goods produced by the most wealthy. An unhappy society is generally less productive. A certain level of inequality is quite well tolerated by most of any society's population as long there is at least the appearance of justice. If the CEO who embezzles $7 million dollars is punished less than the man who steals a pittance from the grocery, rule of law is undermined, destabilizing the society.

Hello Rdberg42,

Your Quote: "A certain level of inequality is quite well tolerated by most of any society's population as long there is at least the appearance of justice. If the CEO who embezzles $7 million dollars is punished less than the man who steals a pittance from the grocery, rule of law is undermined, destabilizing the society."

Well said. James Kunstler addresses the same topic in his blog today:
..The socio-political fallout from the inherent anger and disappointment in all this is liable to be severe. The public is already warming up for it, with cheerleaders such as Glen Beck on Fox TV News calling for the formation of militias, and gun sales moving out-of-sight..

..This could perhaps be avoided if someone in authority like US Attorney General Eric Holder took an aggressive interest in the multiple swindles of the decade past, and commenced some prosecutions. But the window of opportunity for this sort of meliorating action may close sooner than the government and the mainstream media believe. Social phase-change, as in the formations of mobs, is nothing to screw around with..

[Last Paragraph]: As I've averred more than a few times in this space before, the standard of living in America has got to come way down. We mortgaged our future and the future has now begun. Tough noogies for us. But the broad public won't accept the reality of this as long as the grandees of finance and their myrmidons appear to still enjoy the high life. They've got to be brought down hard, perhaps even disgraced and humiliated in the courts, and certainly parted from some of their fortunes -- if only in lawyer's fees. Mr. Obama pretty much served notice to this effect last week, telling a delegation of bankers in the White House that he was the only thing standing between them and "the pitchforks." It's possible he understands the situation.
It only takes a very small percentage of the population in a precipitating series of events to tip the system into phase-change. Consider the progression of the Boston Massacre-->the Boston Tea Party-->Battle of Lexington and Concord-->the Battle of Bunker Hill,etc. Very few of the Colonists were 'actively engaged' in the early part of the Revolution.

Since lots of Tea Parties are planned for this April 15th: I hope no bankrupt and deranged former Wall Streeter or Banker stupidly decides to open fire on these crowds.

Wild & Crazy example: picture convicted financier Michael Milken wildly gunning away as ex-con Martha Stewart handed him the reloaded gun clips [in fashionable colors, of course]. Result: The country would fall apart overnight as the mobs went to full-on rage.

We cover this ground a bit in the show. Maybe people would be willing to cut back on consumption, but not so readily with a social safety net in shatters (e.g., health care) and the super wealthy fraud class grabbing headlines with their hedonism.

IMO the inequality we are now experiencing is not the result of some esoteric theory or the product of the performance of the highly skilled. It is similar to the inequality that happened in 1929. It is the result to government policy. The latest iteration came into effect with Ronald Reagan.

The tax cuts of his and subsequent administrations right through the latest Bush were skewed to favor those with the most wealth and income. These cuts were on top of a tax system that routinely taxes lower incomes more heavily than higher incomes. Warren Buffett has pointed this out serveral times in that his office help is taxed more heavily than he is.

Why is that? The biggest one of course is the payroll tax of 15.3 percent total (employer and employee). This tax stops at about $100k now. At one time in the late '60's I was able to earn beyond the cut off of then about $7800. No more. Few lower level workers can make over $100K. So who gets the benefit now. Those earning over $100k of course. Not only that but Social Security has been running a surplus for years with the remainder of funds going into the the general fund to be used for whatever such as wealth destroying wars and such.

Then there is the sales tax. The wealthy, high earners are limited by space and time to consume all their income. So they save/invest more thereby avoiding the some of the sales tax. Lower incomes have to spend more as a percentage of income just to survive to work another day.

And a lot of high earners have the skill or the financial advisers to take advantage of accelerated depreciation and other tax loopholes.

Over time, in the latest case 30 years or so, income that is taxed at a lower rate tends to accrue faster for those in that situation. And for the wealthy with a larger base to begin with it piles up pretty fast due to compound interest. Meanwhile those at lower levels are stuck on a merry-go-round of trying to stretch stagnant incomes ever thinner to survive for another day.

Eventually, the wealthy have no one to lend to except those who are not credit worthy. IMO this is what is happening now. It is at this point that the system collapses due to defaults by the uncreditworthy. This destroys the wealth of both those on the bottom and the top. The perversity of the present situation is that those at the top readily receive aid to survive as in the case of AIG, banks, GM, and Chrysler. But little is done farther down to remedy the situation at least in proportion to the suffering going on.

The whole thing makes for economic instability. And that is why is should not have been allowed to happen in the first place.

Reaganism has failed.

Reagan opened up the casino for 24 hour business, and eliminated all the rules.
This "crisis" is just the elite freaked out and clinging to a system that is collapsing before their eyes, and they have the political influence to have us pay for their lost dog track tickets.
It was not Reagan fault, as he was not very bright, but a great B actor and politician, and perfected the "Electronic Nuremberg Rally," and let the sheep fell good about themselves, and return to a simple story of how the world works.

Jon, considering our converging crises -- especially the net energy cliff -- wouldn't this be an excellent time to asking some fundamental questions like "What is the purpose of the economy?".

Might it be possible to satisfy some basic market goals (e.g., shelter, food, water, health care) by some other than the market mechanism (e.g., government rationing)?

Are there any groups asking these questions?

I don't know if Jon will check in here. But he does bring this up during the show. We need to decide where the market works and where it should be avoided. Ecological economists ask this question a lot.

I think it's worth rethinking your premise first.
How are shelter, food, water and so on "market goals"? Markets do not think so they have no goals of course. People set them up for a purpose but the purpose is generally to obtain money from other people.
You can buy food and other necessities in markets if you've got money but most people do not get their necessities from a market. The most common providers of necessities are probably a family member's care, people's own hard work, handouts from some kind of government or charity and sharing among peer groups.
So there's little point in asking if necessities could be obtained by some other means than the market mechanism because it happens all the time. Some necessities like food are often traded because it's practical to do so but others, like water, rarely are. It's interesting that you mention water as a "basic market goal" because I don't recall ever using water that was provided to me through anything like a market (apart from bottled water). My impression is that water, when it's not obtained from rain, springs and such, is usually provided by some kind of collective institution or by a monopolistic utility on some kind of government mandate. I don't see how a water market would work in most circumstances. I guess some government agency can always pretend there's a market and force people to pay yet another bill on that premise.

As to "the purpose of the economy", I have no idea what you mean. Strictly speaking, it's just an idea... it can help you think or help people influence you. What's generally thought of as the economy is something so vague and overarching that its purpose, if it had any, would be something like the meaning of life. Nobody decided to have an economy and nobody's going to abolish it either.

>How are shelter, food, water and so on "market goals"?

If you work for a living, everything you earn comes to you via the market because YOU are part of the market -- a commodity. In economic theory, the rationale behind market outcomes is to make people "better off" (e.g., shelter, food, water):

"Adam Smith's key insight was that both parties to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties do benefit." -- Milton Friedman

Economists always use "better off" arguments to oppose government regulation.

>Nobody decided to have an economy and nobody's going to abolish it either.

If one studies history, one finds that prior to industrial revolution "the market" was a subsystem of the formal political system. [c.f., THE GREAT TRANSFORMATION, Karl Polanyi ]

Today, our formal political system is a subsystem of the market system. The problem is that the market system qua political system can not survive "peak oil" [overwhelming evidence on The OilDrum]. Thus, the present form of the market system will end one way or another. Hopefully, it will be as part of a plan rather than catastrophically.

So by "market goals" you mean stuff that people want? And you're saying that every employer is an embodiment or an agent of "the market" (whatever that is)? And that wage laborers are "commodities"?
In my world, a market is a place where buyers and sellers meet, people can figure out what they need and want without the help of any market, there are all kinds of employers (some have other goals than supplying markets) and human commodities are called slaves.
I don't want to argue semantics. By all means, pick your own definitions but be aware that they aren't necessarily shared by the people who are going to read you. Making explicit what it is that you mean when you wield these abstract concepts of yours would therefore increase the odds that you are widely understood.

As it happens, I have studied history and I discovered that a great deal of the received wisdom about what was going on before the industrial revolution is a romantic fantasy. The basic economic institutions we deal with predate the industrial revolution.
By and large, the formal political system still has a monopoly on the deployment of deadly force on a large scale... arguably more so than at many times before the industrial revolution actually. I don't know about this "subsystem" business (is it something one could determine empirically or is it axiomatic?) but it is said that who has the guns, makes the rules.
I'm sure there are ways to define "the market system" in such a way as to make its demise inevitable but markets as a central feature of economic life will almost certainly last as long as human civilization.

>So by "market goals" you mean stuff that people want?

It's "stuff" that is supposed to make people better off. The rationale behind market distribution, rather than by government distribution, is that the market does a better job of making people "better off." In other words, this is the argument used by corporate lobbyists to oppose government regulation.

>In my world, a market is a place where buyers and sellers meet

Your world exists at a flea market or something. I am talking about a world where corporations have a greater GDP than most countries. Moreover, these giant corporations use this economic power to manipulate our formal government to their own advantage. Unless a change is made to bring the economic power of these gigantic corporations under explicit political control, the world will fail catastrophically.

IMHO, here are some principles which should be adoped . It's certainly not everything, but it's a start.

The economic growth path that the U.S. has been on over the last 30 to 40 years has lead to greater inequality and less well-being. This was not by accident. It was designed and supported by economic theory that said high growth comes from higher inequality. This path is biophysically bankrupt and socially undesirable.

GM and Segway unveil new two-wheeled urban vehicle.


Not sure if I should laugh or cry when I read stuff like this. Though I'm sure that ideas like this can only exacerbate the current trend towards ever greater inequality. GM and Segway?! The world is truly doomed. Have these idiots ever heard of this thing called a bicycle? You can get a really good one for a couple hundred bucks.

From Siegfried J. Schmidt professor at the University of Muenster:

"Money simply has no semantics, so human performance, talents, and goods could be calculated accordingly for their exchange values. This is the fundamental principle of capitalism: semantics out, numerics in! The cost determines the value. Society, consequently, implemented precisely this mechanism in the domain of culture -- namely, the calculation of all socially relevant goods by means of a neutral measuring unit. Culture came to be conceptualised in the semantically neutral terms of law, which were no longer founded on transcendence (by a divine order), on history (by recourse to tradition), and natural law (by invocation of the nature of human beings)."

These days, I seem so incapable of offering distinctions that I generate. Yet so much is being said and offered by so many that I validate because I find harmony and pleasure in these.

Doble M

See Prof. Paul Krugman's take on the inequality issue at:

The show discusses what a lot of mainstream writers are correctly talking about, such as the problems with inequality. This is somewhat novel since "Greed is good" has been a dominant theme since the Reagan era.

However, we then discuss what is currently ignored: the biophysical basis of the economy.

Let's wave a magic wand and the system is now fair and transparent. A proper balance of private sector and public sector power and influence exists. Should we and can we expect that maximizing GDP is good and possible?

Few are answering that last question in the negative or even bringing it up, though Thomas Friedman may have broken the taboo.

I think the proof is in this pudding. Our high-growth rates came at the expense of massive borrowing. I doubt we would have been able to achieve the rates of growth we had if foreigners weren't able and willing to loan us huge sums of cash to keep our financial markets flush with capital to lend and consumers with a steady supply of easily accessible, cheap, money. To put some numbers to it, some major corporations were making 30% of their income from financial tools, while the finance markets only accounted for 5% of total GDP.

The unspoken realities of our current economic malaise is that this isn't just some sort of market disruption. It represents a real shift in how we must conduct business in the future. I frankly don't think we'll have the option of a high-growth economy; particularly as global wages continue to rise and US companies exhaust their options for cheap labor, it will be more difficult to find the sort of cheap resources necessary for US consumers to maintain their rates of consumption. In short, the more money people make in China, Latin America, India, and Africa, the more expensive their goods will become and the less 'stuff' Americans will buy. There may also be fewer countries to import from as rising wages abroad mean greater consumption abroad, thereby making cheap imported goods harder to obtain. All this will mandate companies to squeeze their margins to stay competitive, perhaps even to relocate manufacturing closer to their target markets to avoid import/export duties, reduce shipping costs, and allow for better quality control. In short, we'll have to make do with less and make it all last longer (but that's what we used to do, anyway). The side effect of this may be we'll have to deal with a lot fewer retail outlets as retailers dependent on cheap imports fail, but being a life-long hater of the strip mall and the credit card, I don't see this as a bad thing.

Furthermore, these developing countries won't be as keen to lend us so much money in the future, having been burned by our current financial crisis and facing rising profit opportunities at home as their economies continue to explode, albeit at a lower rate. Even first-world lenders will find a world with greater opportunity: as the Eurozone continues to strengthen its economic power and the developing world presents them with greater, more stable income opportunities, the world won't have to depend so much on the US as a safe and reliable haven for investments, a view already tarnished by our inability (or refusal) to properly regulate our financial system.

Finally, as is the whole point of the oil drum, we're beginning to run up against real material limitations in energy, raw materials, and foodstuffs. Localized, tailored production is ecologically preferable and materially sustainable to large scale mass production. This may be a moot point, however, as the falling tide of credit in the US and rising income abroad may make more localized production an economic necessity. This isn't a reverse globalization, it's just a rewriting of it. I don't think the world's decision makers will abandon free trade, but it will cease to produce the cheap goods for first world consumers and the income opportunities for the developing world if wage increases and falling credit make the costs of manufacturing anywhere comparable to anywhere else.

I think we have some time till we reach that point, but the rising strength of China and India imply that they, too, will begin to seek cheaper markets as well. It's a matter of time before the US and European driven growth in Asia becomes US, Asian, and European driven growth in Africa. Indeed, Africa will probably develop even faster than China and India are, having the benefit of their pick of economic suitors and of fierce competition between the established First World and the rising economic powers seeking increasingly rarer opportunities for rapid growth.

To bring this full-circle, the US enjoyed its high-growth because of its economic primacy. People wanted to invest in the US and we were all too happy to leverage those investments to buy their goods. As the world presents more opportunity outside of the states, I think we'll see a natural slowdown and a growing middle class as the global economy naturally matures (indeed, we were already seeing this in Asia pre-recession). Rising competition will limit the opportunities for American CEOs to make quite so much money as they did in the past as the economic axes tilt towards Beijing and Mumbai at the expense of New York and London, though I suspect attempts by the US to better regulate its financial system will have a greater short-term impact.

I hope this gave everyone some food for thought. I don't think we should think of income equality as a moral issue or how desirable it is for a first-world, capitalist democracy to function properly, though I feel its of the utmost importance. We should consider what the implications of our current global economic model are in terms of how it promotes greater economic equality (albeit inefficiently) through development.

As pointed out by others, inequality is but one outcome of a rotten system - a dangerous symptom at that. In itself, inequality is not positive or detrimental, all societies, including hunter-gatherers and human tribes in the Paleolithic (if I may go so far back) as well a groups of social mammals have a hypothetical Gini coefficient which is not zero (perfect equality.) Some might like to call this ‘natural’ - part of human ‘nature’ or ‘in the genes’ which is laughable, but one can agree that for humans a rigid caste system (see bees) is out of style; yet that all human groups tend to favor ‘leaders’ - some central decision making and planning, no matter how catastrophic, arises in groups that have enough to eat. This is part of specialization - not everyone can do everything, perform all tasks, and some central power or organizational hub becomes a necessity - the ‘leader(s)’, those who mold the culture, fix the priorities and attribute social roles gain great power and can garner much tribute.

The trick is to conserve sheeple behavior - as without it society breaks down - but to curb and limit the power of those at the top, specially in conditions of plenty, of endless resources, such as the Oil Age. Democracy was the Greek answer, though collective decision making has a long history; the Greeks, who were Social Engineering Geeks (and had slaves), formalized it for us. It has been subverted and bastardized, this is particularly clear in the US. It has failed, spectacularly. I suppose the facade will be maintained for many a long year...

One can see the financial melt down as an attempt to keep up ‘growth’ which is essential to upward social mobility, to conserve a simulacrum of ‘equality’ with the mantra of ‘opportunity’ .. The financial accounting as a backdrop, back office, for societies, nations, that can and do move forward, that is produce more, distribute more, consume more, always allowing the elites to take a skim off the top. The time lag between ‘financial growth’ and ‘real growth’, pushed forward by a ginormous debt bubble has now imploded.