Raging Inequality May Cause Unrest and Violence In America and the Rest of Western World

Preface: While conservatives are against redistribution of wealth and liberals want to tax the affluent, conservatives and liberals, the affluent and the less well-heeled should all agree that we have to stop the surge in inequality from rising further:

  • As Robert Shiller said in 2009:

    And it’s not like we want to level income. I’m not saying spread the wealth around, which got Obama in trouble. But I think, I would hope that this would be a time for a national consideration about policies that would focus on restraining any possible further increases in inequality.

  • The father of modern economics – Adam Smith – didn’t believe that inequality should be a taboo subject
  • Warren Buffet, one of America’s most successful capitalists and defenders of capitalism, points out, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war ….”
  • Conservatives – as well as liberals – are against rampant inequality. But all Americans underestimate the amount of inequality in our country

And while I am not calling for violence, I wonder if this is like South Africa at the end of the Apartheid era, where those in power had to hand over the reins to the majority to prevent violence.

And even if there is not a revolt, we are already seeing increased crime and the breakdown of society. See this and this.

Raging inequality was largely responsible for the Great Depression and for the current financial crisis.

I noted in January:

Egyptian, Tunisian and Yemeni protesters all say that inequality is one of the main reasons they’re protesting.

However, the U.S. actually has much greater inequality than in any of those countries.

Is there any way that the growing inequality could cause unrest in America or the rest of the Western world?

Initially, the Greek and Spanish riots have grown out of bailouts and other windfalls for the big banks and hedge funds (see this, this and this), and austerity for the working stiff. So in a sense, they are about inequality.

Moreover, I pointed out in February:

Agence France-Press reports today:

The International Monetary Fund stands ready to help riot-torn Egypt rebuild its economy, the IMF chief said Tuesday as he warned governments to tackle unemployment and income inequality or risk war.

Forbes reported in February:

Harvard economist Kenneth Rogoff, co-author of a best-selling book on financial crises, “This Time It’s Different,” told Forbes today in an exclusive interview, that the high unemployment rate and high levels of debt in the U.S. will sooner or later trigger serious “social unrest from the income disparities in the U.S.”

The Obama administration has “no clue,” he told me what do about this terrible disparity in the economy that is bound to erupt sooner or later, he feels.

“I don’t understand why people don’t wake up to the crisis they are creating,” he said to me just minutes after appearing at a Council on Foreign Relations round-table on “Currency Wars.”

And I wrote in June:

CNN’s Jack Cafferty notes that a number of voices are saying that – if our economy continues to deteriorate (which it very well might) – we are likely headed for violence, and civil unrest is a growing certainty.Watch the must-see CNN viewer comments on this issue:

Newsweek wrote two weeks ago:

Reality is beginning to break through. Gas and grocery prices are on the rise, home values are down, and vast majorities think the country is on the wrong track. The result is sadness and frustration, but also an inchoate rage more profound than the sign-waving political fury documented during the elections last fall.

***

In search of the earthly toll of this outrage, NEWSWEEK conducted a poll of 600 people, finding vastly more unquiet minds than not. Three out of four people believe the economy is stagnant or getting worse. One in three is uneasy about getting married, starting a family, or being able to buy a home. Most say their relationships have been damaged by economic woes or, perhaps more accurately, the dread and nervousness that accompany them.

Could these emotions escalate into revolt?

Why Are People So Angry?

Why are people so angry?

Well, as the Newsweek article points out:

Corporate earnings have soared to an all-time high. Wall Street is gaudy and confident again. But the heyday hasn’t come for millions of Americans. Unemployment hovers near 9 percent, and the only jobs that truly abound, according to Labor Department data, come with name tags, hairnets, and funny hats (rather than high wages, great benefits, and long-term security). The American Dream is about having the means to build a better life for the next generation. But as President Obama acknowledged at a town-hall meeting in May, “a lot of folks aren’t feeling that [possibility] anymore.”

By way of background, America – like most nations around the world – decided to bail out their big banks instead of taking the necessary steps to stabilize their economies (see this, this and this). As such, they all transferred massive debts (from fraudulent and stupid gambling activities) from the balance sheets of the banks to the balance sheets of the country.

The nations have then run their printing presses nonstop in an effort to inflate their way out of their debt crises, even though that effort is doomed to failure from the get-go.

Quantitative easing by the Federal Reserve is obviously causing food prices to skyrocket worldwide (and see this, this and this).

But the fact is that every country in the world that can print money – i.e. which is not locked into a multi-country currency agreement like the Euro – has been printing massive quantities of money. See these charts.

Moreover, the austerity measures which governments worldwide are imposing to try to plug their gaping deficits (created by throwing trillions at their banks) are causing people world-wide to push back.

As I warned in February 2009 and again in December of that year:

Numerous high-level officials and experts warn that the economic crisis could lead to unrest world-wide – even in developed countries:

  • Today, Moody’s warned that future tax rises and spending cuts could trigger social unrest in a range of countries from the developing to the developed world, that in the coming years, evidence of social unrest and public tension may become just as important signs of whether a country will be able to adapt as traditional economic metrics, that a fiscal crisis remains a possibility for a leading economy, and that 2010 would be a “tumultuous year for sovereign debt issuers”.
  • The U.S. Army War College warned in 2008 November warned in a monograph [click on Policypointers’ pdf link to see the report] titled “Known Unknowns: Unconventional ‘Strategic Shocks’ in Defense Strategy Development” of crash-induced unrest:

    The military must be prepared, the document warned, for a “violent, strategic dislocation inside the United States,” which could be provoked by “unforeseen economic collapse,” “purposeful domestic resistance,” “pervasive public health emergencies” or “loss of functioning political and legal order.” The “widespread civil violence,” the document said, “would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security.” “An American government and defense establishment lulled into complacency by a long-secure domestic order would be forced to rapidly divest some or most external security commitments in order to address rapidly expanding human insecurity at home,” it went on. “Under the most extreme circumstances, this might include use of military force against hostile groups inside the United States. Further, DoD [the Department of Defense] would be, by necessity, an essential enabling hub for the continuity of political authority in a multi-state or nationwide civil conflict or disturbance,” the document read.

  • Director of National Intelligence Dennis C. Blair said:

    “The global economic crisis … already looms as the most serious one in decades, if not in centuries … Economic crises increase the risk of regime-threatening instability if they are prolonged for a one- or two-year period,” said Blair. “And instability can loosen the fragile hold that many developing countries have on law and order, which can spill out in dangerous ways into the international community.”***

    “Statistical modeling shows that economic crises increase the risk of regime-threatening instability if they persist over a one-to-two-year period.”***

    “The crisis has been ongoing for over a year, and economists are divided over whether and when we could hit bottom. Some even fear that the recession could further deepen and reach the level of the Great Depression. Of course, all of us recall the dramatic political consequences wrought by the economic turmoil of the 1920s and 1930s in Europe, the instability, and high levels of violent extremism.”

    Blair made it clear that – while unrest was currently only happening in Europe – he was worried this could happen within the United States.

    [See also this].

  • Former national security director Zbigniew Brzezinski warned “there’s going to be growing conflict between the classes and if people are unemployed and really hurting, hell, there could be even riots.”
  • The chairman of the Joint Chiefs of Staff warned the the financial crisis is the highest national security concern for the U.S., and warned that the fallout from the crisis could lead to of “greater instability”.

Others warning of crash-induced unrest include:

Unemployment is soaring globally – especially among youth.

And the sense of outrage at the injustice of the rich getting richer while the poor get poorer is also a growing global trend.

Countries worldwide told their people that bailout out the giant banks was necessary to save the economy. But they haven’t delivered, and the “Main Streets” of the world have suffered.

As former American senator (and consummate insider) Chris Dodd said in 2008:

If it turns out that [the banks] are hoarding, you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay.

Of course, the big banks are hoarding, and refusing to lend to Main Street. In fact, they admitted back in 2008 that they would. And the same is playing out globally.

As I noted in February:

***No wonder former U.S. National Security Adviser Zbigniew Brzezinski … warned the Council on Foreign Relations that:

For the first time in human history almost all of humanity is politically activated, politically conscious and politically interactive. There are only a few pockets of humanity left in the remotest corners of the world that are not politically alert and engaged with the political turmoil and stirrings that are so widespread today around the world.

***

America needs to face squarely a centrally important new global reality: that the world’s population is experiencing a political awakening unprecedented in scope and intensity, with the result that the politics of populism are transforming the politics of power. The need to respond to that massive phenomenon poses to the uniquely sovereign America an historic dilemma: What should be the central definition of America’s global role?

[T]he central challenge of our time is posed not by global terrorism, but rather by the intensifying turbulence caused by the phenomenon of global political awakening. That awakening is socially massive and politically radicalizing.

It is no overstatement to assert that now in the 21st century the population of much of the developing world is politically stirring and in many places seething with unrest. It is a population acutely conscious of social injustice to an unprecedented degree, and often resentful of its perceived lack of political dignity. The nearly universal access to radio, television and increasingly the Internet is creating a community of shared perceptions and envy that can be galvanized and channeled by demagogic political or religious passions. These energies transcend sovereign borders and pose a challenge both to existing states as well as to the existing global hierarchy, on top of which America still perches.

***
That turmoil is the product of the political awakening, the fact that today vast masses of the world are not politically neutered, as they have been throughout history. They have political consciousness.

***

Politically awakened mankind craves political dignity, which democracy can enhance, but political dignity also encompasses ethnic or national self-determination, religious self-definition, and human and social rights, all in a world now acutely aware of economic, racial and ethnic inequities. The quest for political dignity, especially through national self-determination and social transformation, is part of the pulse of self-assertion by the world’s underprivileged

***

We live in an age in which mankind writ large is becoming politically conscious and politically activated to an unprecedented degree, and it is this condition which is producing a great deal of international turmoil.

That turmoil is the product of the political awakening, the fact that today vast masses of the world are not politically neutered, as they have been throughout history. They have political consciousness.

Watch an excerpt:

Category: Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

12 Responses to “Raging Inequality May Cause Unrest and Violence”

  1. danjyu says:

    Here’s a thought (and not much more than that at this point): Wealth inequality might be lessened fairly swiftly by doing the following: No more QE, no more bailouts, enact Glass-Steagall 2.0, raise interest rates, ban LBOs, enact a progressive capital gains tax, force creditors to take haircuts (i.e. debt forgiveness, a consumer bailout) etc.

    In short, I wonder if policies that are deflationary toward financial assets would disproportionately hurt the rich, leave the poor largely untouched, and the ‘middle class’ with some wealth destruction, but massive increase in their purchasing power. I may be missing a lot here, as far as unintended consequences go.

    Ironically, it seems a healthy dose of capitalism (the failure/punishment part), not socialism, is what would swiftly reduce income inequality…

  2. Expat says:

    But, but, all the billionaires are job creators! If we take away their money, they will cut back on staffing. Think about it!

    Let’s take a typical hedge fund billionaire in Stamford. He is worth about three billion. He pays zero taxes on his income because he does not touch his capital. He borrows against the fund which allows him to defer his income tax for years as well as deduct the interest as a business expense. His real rate of taxation approaches zero NPV.

    Let’s say you tax what he really makes, and he has to pay 30%. Well, now he has about $100 to $300 million less to spend each year. What will he do? He will fire one of his back office staff, probably the one responsible for compliance.

    So, for a measly $300 million in extra taxes, you have cost a high-paying job to a back office person. And you have now forced the hedgie to start ignoring the law and carry out illegal trading and insider dealing.

    Congratulation! Dumb commie! Your thoughtless taxation of a job creator has led to higher unemployment, illegal activities, and ultimately the destruction of our American Way.

  3. andrewp111 says:

    Allowing the TBTF’s to fail will crush the elderly (and their heirs), and anyone with money market funds. The elderly have annuities and cash value life policies. These things and MMFs are all invested in corporate bonds and preferreds, and those things would be wiped out if a C, BOA, or AIG goes under.

    I’m sure the real rich can fend for themselves fairly well, though. Anyone who wants to keep what they got should have no account that isn’t insured by the Government, and all their billions in T-bills that currently pay no interest. If you want any yield, you have to take risks, and that is the point.

  4. andrewp111 says:

    Social unrest can explode at any time, unpredictably. In the USA it will probably be racial, since the black male unemployment rate is extremely high.

  5. ilsm says:

    “The military must be prepared, the document warned, for a “violent, strategic dislocation inside the United States,” which could be provoked by “unforeseen economic collapse,” “purposeful domestic resistance,” “pervasive public health”

    Couple of thoughts here:

    Friedman won the debate (with Westmoreland) about soldiers being slaves or mercenaries, which would be better to fire on civilians the draftee slave or the all volunteer mercenary?

    Then someone needs to repeal “posse comitatus”, the US war machine is not permitted to operate inside the US. That is the job of the militia.

    Oh, I forgot the “Patriot Act” terminated the constitution.

    The constitution don’t apply to the CIA, so the dogs of war with different “patches” will win the war on the US civilian.

    “CIA Drone strikes killed influential terrorist leader with only a few dozen collateral kills, in downtown USA.”

  6. bmz says:

    I agree with Expat; all goodness and virtue trickles down from the wealthy. If we tax them more, then there is less to trickle down–they will also go Galt, the economy will stop, and all the prols will starve and freeze in the dark. I am confident that Karl(note the Nazi spelling) Rove can show the masses that all taxes on the wealthy are really taxes on them, and Social Security is only for the untermenschen anyway.

  7. gloppie says:

    I don’t know what is going to trigger it, but it will be faster than anything seem before; on a Monday we will be fine, same humdrum and usualness, and Friday major cities will be on fire.
    No one can predict what will spark the fire. Of course, it will be labelled a black swan, but only retroactively. Every aspect of human affairs is interconnected with another, either via laws (human, or of physics), rules, regulations. There is no free space left in any paradigm for enterprising pioneers to grow in. Even the virtual (software programming) is burdened by heavy rules and regulation (Patent Office, lawsuits).
    One can only grow by taking the other guy’s share. My slice of the pie was your slice of the pie a while ago.
    We were told the dream is to be able to grow to whatever level of comfort we were shown as desirable on T.V.
    Now J6P is realising that not only he will most likely never be able to buy himself a new / better / redder / faster fishing boat, he doesn’t have the time to fish since he is working 2 and a half jobs, but he can’t afford to buy fish any more, and there is no fish at the store to begin with. And J6P now understands (after 20+ years of History / Discover channel bashing) that the world is probably finite, and that it can’t grow supplies of food / oil / air / water forever.
    All the while a very small portion of very rich people have become even richer, and they fled away to some remote island while his town is on fire and nobody cares and it’s everybody for himself.
    This Nation is armed to the teeth, there are more guns than people. It will be impossible to forcibly control this population.
    When hysteria sets in, it is going to be a strange ride, folks.

    Here’s how I see it; we will have to (re)-learn to COLLABORATE, or we will die of extinction.

    You don’t like it? I respect that, and you are free to jerk off on reading Atlas Shrugged too.

  8. scottinnj says:

    I worry less about a revolution, and more about a demagougue coming to power.There is a lot of anger out there waiting for a spark. And I don’t care which political party you support, it is becoming increasingly clear that our political system is broken, and simply incapable of action. I can see some spark (another major terrorist attack, Californian earthquake etc.) that Washington proves uncapable of responding too leading to some sort of military-ish type coup.

    ZOMG, the iphone 5 will be out soon – never mind!

  9. uzer says:

    BR says i don’t know what a ponzi scam is – but i look around and ALL i see is ponzi.

    Barry, if all is not a ponzi, if all is built on a solid financial foundation, how could all so easily collapse?

    ~~~

    BR: A ponzi scheme is a specific scam where a make believe investment uses new investor money to pay out old investors. No one knows that there is no true investment, and that it is a scheme.

    bad economic, weak policy, giant bailouts and other scams are awful, but they are not Madoff like Ponzis; Stock markets, insurance policies, and social security are not Ponzi schemes.

  10. Raleighwood says:

    The internet “kill switch” – or a general failure of the power grid – would allow for an awful lot of malfeasance and/or martial law – and free from any media, independent or otherwise, “we the people” won’t know what the hell is going on.

    Except for the fact that we need to stay in our homes because the nice police car told us so.

    The weekend can’t get here fast enough …

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