Are the rich getting richer and the poor getting poorer still today? and why?

Arethe rich getting richer and the poor getting poorer still today? andwhy?

  1. Question / Problem Definition

Evidently,the gap between the rich and the poor in most of the contemporarysocieties and countries across the globe is increasingly widening atan alarming rate. The rich people have continued to accumulate morewealth giving them the power to continue dominating the scarce publicresources available. On the other hand, poor people within thesociety are still getting poorer(Bratanova, Loughnan, Klein &amp Wood, 2016).Ordinarily, most of the people of the low social class within thesociety do not possess formal property rights restraining theiraccess to services such as credit facilities hence limiting theirgeneral growth. According to the PopulationReference Bureau (2014), there has been a substantial increase inpoverty rates all over the years in the United States. To illustrate,the national Gini Coefficient, which is predominantly used to measureinequality shows a slow but steady rise in inequality hence wideningthe gap between the poor and the rich. For instance, the Gini indexstood at 0.476 in the year 2013, this is an increase from 0.463recorded in 2007 and 0.397 for the year 1967(PopulationReference Bureau (2014).Notably, a zero Gini index shows that thereis equality in income distribution for all households. Thereforethe study will primary focus on answering the question “Are therich getting richer and the poor getting poorer still today? andwhy?”

2.0Economic Theories

Tojustify the claim that the rich are getting richer and the poorgetting poorer, several theories will be used. They include marketsocialism, rational choice theory, Keynesian economic theory,institutions and growth theory as well as comparative advantagetheory(Madigan, 2015).Remarkably, various assumptions have been put forth on the reasons asto why the rich people are getting richer while the poor are gettingpoorer(Bratanova et al, 2016).For instance, some scholars and economists argue that the poor aregetting poorer because the society is dominated by the rich peoplewho are the minority. Sometimes the rich people introduce dictatorialsystems of administration to extend the time they stay in power sothat they can continue using the natural resources meant for thecitizens to achieve their interests.

Additionally,others argue that the societies have allowed the rich to oppress thepoor and embezzle resources through corruption without any actionstaken against them. This is because they use their financial strengthto compromise the rule of law from being implemented henceundermining the process of ensuring justice is achieved. Besides, itis also assumed that the rich are getting richer while the poorbecoming poorer due to the disparities in income and wealthdistribution. Equally important, it is postulated that the poor aregetting poorer because they are only dreaming of being rich.Conversely, they are not committing themselves towards taking thenecessary steps to improve their living standards are general lives.Furthermore, individuals or less developed countries which specializein the exportation of raw materials remain poor while first worldcountries continue growing richer (Bratanovaet al, 2016).

3.0Analysis

Inthis particular section, the focus will be on evaluating the varioustheories as far as the topic of discussion is concerned.

3.1Market socialism

Thisis one of the philosophies that have been created to validate why therich people are getting rich while the poor are getting poorer(Madigan,2015).Basically, market socialism refers to a type of economic system wherethe means of production have a public, cooperative or socialownership in the context of a market economy. Arguably, socialism, asopposed to capitalism, has made the rich get richer whereas the poorare getting poorer within the society due to a number of reasons. Toillustrate, this theory suggests that under socialism, what ought tobe owned by the public or a greater part of the population remains tobe a preserve of a few people within the society(Madigan, 2015).It allows the rich people who form a smaller percentage of thepopulation to accumulate more power and resources hence rewardingtheir friends and close relatives at the expense of the poor people.This makes rich people forget the needs, aspirations, circumstancesor the standards of lives of those they regulate or even find meansof addressing their issues. In such situation, the rich people willcreate more wealth for themselves hence getting richer whereas thepoor continue getting poorer.

Equallyimportant, socialism encourages an authoritarian economic systemwhere the resources are controlled by a few group of rich peoplewithin the society. Ordinarily, poor people view public resources tobe a vital possession which can be used to transform their lives,however, the rich people consider them to be a quick way which theycan use to get more wealth. Due to corruption and nepotism, theresources are misused to satisfy selfish interests. This negativelyaffects the economy and general lives of the poor people. Therefore,socialism makes the poor people suffer and languish in poverty tobenefit the rich. It is also important to note that socialismdiscourages entrepreneurship to improve the lives of the middle andclass people within the society. According to the philosophy,socialism creates bureaucratic procedures for businesses hencefacilitating looting and corruption which benefit the rich who are inpower at the expense of the poor people (Madigan,2015).On the same note, socialism allows the government and the rich peoplein power to spend public resources without being held accountable.This not only affects the performance of the economy but also thelives of the poor people who from a greater percentage of thepopulation. They continue getting poor because the resourcescontributed through taxation are misappropriated. Development ofprojects such as healthcare facilities, construction of betterschools and improvement of infrastructure become politicized to coverup public funds which have been embezzled by the rich people in power(Madigan,2015).Thisbenefits them hence getting richer while the poor people continuegetting poorer.

3.2Institutions and Growth (rule of law, property rights)

Also,the rich are getting richer while the poor are getting poorer becauseof the institutions and systems that have been adopted within thesociety which benefit the rich people at the expense of the lessprivileged (Auerbach&amp Azariadis, 2015).These systems have denied poor people the opportunity of improvingthe living standards and general lives. For instance, in mosteconomies, the rich people evade paying taxes which are essential forthe government to effectively run its operations and initiatives.Simply because of their financial status, the authorities andinstitutions that have been put in place to ensure the rule of law isimplemented don’t take any actions against them. This is an expenseto the middle and low-class people who continue paying hefty taxes torun the government. In addition, such systems do not compel the richpeople to declare their property or the mechanisms they used toaccumulate their wealth.

Theywill always use public funds and resources to meet their individualinterests without being held accountable. In such situation, the richwill be getting richer while the poor people poorer. Moreover, mostof the institutions that have been put in place do not favor the poorpeople (Auerbach&amp Azariadis, 2015).A good example is banks and other financial institutions whichprovide credit facilities to their clients. Normally, they considervarious factors such as the security, level of income and value ofassets possessed by the client or borrower to evaluate and determinehis or her creditworthiness before issuing the credit facilities.Such systems and policies tend to favor only the rich people. This isbecause the poor may be earning low income, or they may not have thesecurity or possess the assets required for them to granted loans,mortgages or any other credit facility. Such criteria deny the pooraccess to credit facilities due to lack of security. As a result, thepoor people have limited property rights which hinder their personalgrowth (Auerbach&amp Azariadis, 2015).On the other hand, the rich people have the security, they also meetthe conditions required for them to be granted loans, mortgages andother credit facilities. Their property rights are not limited, theywill always have the support to progress themselves as opposed to thepoor. This, therefore, makes the rich make more wealth and becomingricher while the poor continue getting poorer.

3.3Rational choice theory

Underthis economic theory, individuals use the choices available to makelogic or prudent decisions to suit their interests or give them thebest satisfaction(Krstić, 2014).Therefore the rich continue being richer while the poor become poorerbecause of how they think and the decisions they make in life. Forinstance, the rich people think big while the poor people thinksmall. In this context, thinking big means that the rich people havegreat ambitions and they will always do what it takes to achievethem. On the other hand, poor people are confined to what surroundsthem. They keep on dreaming and perhaps wondering why they are stillpoor. They don’t take the necessary actions towards achieving theirdreams. They are not willing to suffer and do everything possible torealize their goals (Krstić,2014).This substantially limits their growth hence making them poorer whilethe rich continue getting richer.

Onthe same note, the rich are always hiring smart and competent peopleto work for them while the poor are consistently looking foremployment opportunities. Rich people are always want to be their ownmanagers running their businesses, hiring financial experts to guidethem on various investments to make while the poor want to beemployees for the rest of their lives. This limits their income andthe flexibility of wanting to grow financially. On the same note,rich people are always willing to invest their money in riskyprojects which are associated with high levels of return, however,the poor continue saving their money without investing (Krstić,2014).Therefore, the rich continue getting richer whereas the poor peopleget poorer because of the decision they make to achieve their dreams.

3.4Keynesian Economics

Thisan economic model that demonstrates the relationship between thetotal consumption of an individual based on their income(Stockhammer &amp Ramskogler, 2012).Ordinarily, individuals will tend to spend and save more when theyhave a higher income as opposed to low income. Moreover, variouseconomists have argued that the marginal propensity to consume has adirect proportional relationship with the increase in one’sdisposable income(PALLEY, 2010).The disparity in levels of income and wealth distributionsignificantly contributes to the gap between the rich and the poor.Also, the high level of unemployment has rendered more people joblesswith little or nothing to save(Stockhammer &amp Ramskogler, 2012).Therefore,with the increase in the amount of disposable income, individuals areable to spend more on their various needs. Also, they will have moreto save. Therefore, the rich continue getting richer because evenafter spending, they still have some money to save. This extra incomeallows them to invest in other projects such as businesses enablingthem to accumulate more wealth hence becoming richer.

Conversely,the poor people are normally low-income earners. Their income isexhausted after spending on services such as housing, healthcare, andeducation for their children, food and transportation. This makes itvery difficult for them to save for investment purposes. Also, poorpeople do not have any other extra income to help cater for theirbasic needs. Their financial status is so fixed such that they do nothave the flexibility of improving their lives. For that reason,therefore, the rich are growing richer while the poor are remainingpoorer.

3.5.Comparative Advantage

Thistheory suggests that individuals or a country engage itself in aneconomic activity which it can do effectively and efficiently at thelowest opportunity cost(Levchenko &amp Zhang, 2016).This has been a disadvantage more especially to the third worldcountries. This is because most of these developing countries focusmore on the production of raw materials which are associated withdiminishing returns of scale. On the contrary, First world countriesspecialize in the production of manufactured goods, for instance,oil, petroleum and coal products, electrical equipment, chemicals,machinery and motor vehicles(Levchenko &amp Zhang, 2016).Theseproducts have higher rates of return compared to the raw materialsexported by the third world countries. Therefore, encouragingindividuals, or countries to produce products or to engage inactivities which they can do at relatively low costs widens the gapbetween the rich and the poor (Costinot&amp Donaldson, 2012).The third world countries will continue getting poor whereasdeveloped countries continue growing rich. Less developed countriesdo not have the required technology and resources to process ortransform their products before exporting them to other countries. Onthe same note, first world countries usually use their high levels oftechnology and innovation to modify the raw materials which theyimport from third world countries. After the process is complete,they then sell the same products to the third world countries atrelatively higher prices. This benefits the already developedcountries thus making them richer while the poor countries continuegetting poorer (Costinot&amp Donaldson, 2012).

4.0Conclusion and Recommendations

Toconclude, it is evident that the richer are getting richer while thepoor are getting poorer. Various economic theories were used tosubstantiate the claim. Firstly, market socialism allows what belongsto the majority to be owned and possessed by the rich. They use theirpower and financial status to accumulate wealth for themselves, theirfriends and relatives at the expense of the poor who form themajority of the population. Also, socialism encourages bureaucraticprocedures for entrepreneurs who are interested in startingbusinesses. These complications are meant to facilitate looting thusmaking the poor get poorer while the rich grow richer. Also, it wasestablished that the rich get richer while the poor become poorerbecause of the institutions and systems that do not favor the poor.Such institutions include failed judicial systems which do not upholdthe rule of law. The rich usually get away with their illegal actionssuch as tax evasion and looting of public funds. Similarly, the poorare denied credit facilities because of their low income, lack ofsecurity and assets. This limits their property rights and theflexibility to grow thus getting poorer while the rich grow richer.

Moreover,rational choice theory has demonstrated that the rich get richerwhile the poor grow poorer because of their goals, ambitions anddecisions made. The rich will always do everything they can toachieve their set goals while the poor will keep on dreaming of beingrich without taking any necessary actions to improve their status.Notably, the Keynesian economic theory also postulates that the richget richer because of their higher income and wealth hence theability to save. On the other hand, the poor get poorer because theirlow incomes doesn’t give them the financial flexibility ofventuring into other income generating activities. Lastly,comparative advantage theory justifies the assumption that the richget richer while the poor are getting poorer. This is becauseindividuals or countries specialise in producing what they can doeffectively at low opportunity costs. This makes poor countries getpoorer by exporting raw materials while the rich, for instance, firstworld countries who export manufactured products get richer.

Clearly,the gap between the rich and the poor is a worrying concern whichshould be addressed for a better and progressive society. Variousmeasures should be put in place to ensure that the gap is closed. Tobegin with, there is need for first world countries and otherorganizations such as the World Bank and International Monetary togive more loans and grants to third world countries at affordablerates. This will help them invest more in advanced technology whichwill lower production costs. Also, high levels of technology willresult to high-quality products for exports. These goods will competefavorably with other products from developed countries in theinternational market thus offering third world countries betterreturns. These profits can be used to finance development projectssuch as infrastructure to facilitate the transportation of rawmaterials into various industries for manufacturing. The economy ofdeveloping countries will substantially improve thus reducing the gapbetween them and first world countries. Also, the governments invarious countries should create institutions and systems which extendcredit facilities to the poor and young entrepreneurs who do not havethe security, income and assets required to get loans by financialinstructions. The credit facilities issued should be affordable interms of the interest rates and the repayment period. This will givemore young people and the poor an opportunity to venture into variousbusinesses and implement their ideas. Such move will subsequentlyincrease their earnings and general standards of living thussignificantly reducing the gap between them and the rich peoplewithin the society.

Lastly,it is crucial for the judicial system together with the lawenforcement agencies in various countries to fully implement the ruleof law. This will ensure the perpetrators of crime, corruption,embezzlement of public resources and other illegal activities whichoppress the poor in one way or the other are brought to justice.Doing so will substantially reduce the looting of public funds. Moreinitiatives and development projects will be started creatingemployment opportunities for the poor hence improving their livingstandards. This will reduce the gap between the rich and the poor inthe long run.

References

Auerbach,J. U., &amp Azariadis, C. (2015). Property Rights, Governance, andEconomic Development. ReviewOf Development Economics,19(2),210-220. doi:10.1111/rode.12138

Bratanova,B., Loughnan, S., Klein, O., &amp Wood, R. (2016). The rich getricher, the poor get even: Perceived socioeconomic positioninfluences micro-social distributions of wealth. ScandinavianJournal Of Psychology,57(3),243-249. doi:10.1111/sjop.12281

Costinot,A., &amp Donaldson, D. (2012). Ricardo`s Theory of ComparativeAdvantage: Old Idea, New Evidence. AmericanEconomic Review,102(3),453-458. doi:10.1257/aer.102.3.453

Krstić,M. (2014). RATIONAL CHOICE THEORY AND ADDICTION BEHAVIOR. Trziste/ Market,26(2),163-177.

Levchenko,A. A., &amp Zhang, J. (2016). The evolution of comparativeadvantage: Measurement and welfare implications.&nbspJournalof Monetary Economics,&nbsp78,96-111.

Madigan,P. (2015). A World Without Why. HeythropJournal,56(3),490-491. doi:10.1111/heyj.12249_34

PALLEY,T. I. (2010). The Relative Permanent Income Theory of Consumption: ASynthetic Keynes-Duesenberry-Friedman Model. ReviewOf Political Economy,22(1),41-56. doi:10.1080/09538250903391954

PopulationReference Bureau (2014). THEDEMOGRAPHY OF INEQUALITY IN THE UNITED STATES. RetrievedAugust 17, 2016 from:http://www.prb.org/pdf14/united-states-inequality.pdf

Stockhammer,E., &amp Ramskogler, P. (2012). 3 Post Keynesian economics–how tomove forward1.&nbspInDefense of Post-Keynesian and Heterodox Economics: Responses to TheirCritics,&nbsp15,42.