Questions for the future of humanity: Will we survive the economic disparities?

Today's world is full of threatening dangers. Two of the biggest pillars of prosperity in the world today, the European enterprise after World War II and the (more or less) normal democracy in the USA, are under siege. Waves of refugees from the civil war in Syria are flooding Europe and stretching the long-standing generosity of Northern Europeans towards people in need to breaking point. We see horrors in the Middle East, faltering growth in China and global warming. In broad sectors of the populations of Europe and the United States, the standard of living has hardly increased for many years, and they disavow the political processes that bore so little fruit for them. Throughout the rich world, per capita income growth rates are falling while almost everywhere inequality in income and wealth is growing.

It may not be obvious that inequality is an issue that deserves to be counted among these dangers, but it is a mistake to underestimate its power. Each of the threats I mentioned is related to inequality. And even if extreme and rising inequality does not destroy the threat, there is no doubt that it exacerbates it.

It seems therefore that the world is deteriorating towards the Hebrews. But when evaluating our future possibilities statistically, one should not tap only from the present. First we need to look back and see how far we have come.

We, that is, the inhabitants of the rich world and many of the inhabitants of the poor world, are richer and healthier today than at any time in human history.

the ordinary meaning of the word "prosperity” is purchasing power or material well-being, and this is certainly an important part of the matter. But human well-being depends on many other things. There is not much value in material well-being if you are dead or disabled, and good health in itself is an important part of well-being. Education improves earning capacity and thus material well-being, but it also enables a richer and better life. Like wealth, health and education, freedom and liberty are part of prosperity: including the freedom to participate in civil society, freedom of movement, freedom from discrimination, violence, arbitrary arrests and imprisonment. All of these freedoms are more common today than at any other time in history.

If we go back 250 years, to the second half of the 18th century, we will see several countries that began to recover from the past where poverty and disease prevailed everywhere. For most of history, many toddlers died before reaching the age of five. Pestilence and disease were a constant danger. It was only after the industrial revolution and the health revolution that accompanied it that stable economic growth and improved health became common.

Even then, life initially improved in only a few countries before the change spread to the rest of the world. But progress has created new kinds of inequality: it has distanced the standard of living in London and Amsterdam from that in Jakarta and Beijing; It extended life expectancy and reduced child mortality in northwestern Europe but left the situation unchanged in Africa and Asia. "The Great DivideThis gives its signals even today, even after the extraordinary growth of India and China, which recently caught up with some of the gaps, and after the even more extraordinary increase in life expectancy in poor countries. Today, the per capita income in the USA is four times greater than that of China, 10 times that of India and Nigeria, and almost 20 times that of Kenya and more than 90 times that of the Central African Republic (even after these figures took into account the lower cost of living in the poorer countries). These huge international differences stem from progress: it almost always happens that some people benefit before others. But they may also hinder future progress.

It is unlikely that historians will ever reach a final agreement on the causes of the Industrial Revolution, but the movement ofenlightenment There was a necessary preliminary event for her. Especially important is the concept of "useful knowledge" that was claimed during the Enlightenment. Useful knowledge begins with the study of nature and the development of basic sciences, and converts science into techniques, machines, and insights that improve life and promote "The pursuit of happiness". New knowledge doesn't just fall from the sky like that; The social environment and the needs of the hour have a profound effect on the pace and direction of the new understanding. The markets also influence. High commodity prices encourage people to save, and one way to do this is to invent cost-effective methods. The high salaries in Britain before the industrial revolution were probably one of the factors that promoted the methods that were at the heart of the revolution itself.

Political and intellectual freedom also helped us prosper. Inventions often work in a way thatJoseph Schumpeter called "creative destruction". New techniques destroy not only previous ways of doing things but also the livelihoods of those dependent on the previous methods. The change will be met with determined opposition, which is often successful, especially when the incumbents have political power. But political arrangements can shape these objections. One reason why Europe has known sustained growth and China has not is that political fragmentation in Europe has allowed those with new but unpopular ideas, or such religious thinkers, to escape from one political jurisdiction and establish themselves in another. The globalization of recent times has expanded and cheapened the freedom to move goods, services and also people (although to a lesser extent), and this has played a part in the great escape from poverty in India and China in recent years.

The question before us today is whether we can forever trust the growth that took place in 1750 or whether the black clouds clouding us today are a sign that it is over, that the well is dry. We should not assume just because the last 250 years have been marked by progress (despite some horrific disruptions) that this progress must continue. There have already been periods of progress in the past that have come and gone.

The sheer size of the health and financial sectors gives them political power that makes it difficult to control them

I see no harm in inequality for himself; My well-being doesn't change just because someone else's situation gets better or worse. Sometimes inequality is nothing but a synonym for incentive: the inventors whose inventions improve the lives of all of us are often rewarded with a lot of money and it is hard to see why this fact alone would be socially destructive. The danger in inequality lies in its consequences, which threaten our future.

The rate of economic growth per capita in the US, which for a long time stood at a little less than 2% per year, began to drop. Similar declines are recorded in other industrialized countries. This was the case even before the outbreak of the financial crisis in 2008, from which the USA recovered only partially and most European countries did not recover from it at all. It is possible thatThe Great Recession” is just another one of those events that gave economies based on a free market a bad name, and it is possible that it is worse than that - a sign of things to come.

The increase in GDP per capita, even if it is not a perfect estimate, is still our leading measure of prosperity. If the rate is 3% per year, the income doubles in 25 years, i.e. the years of one generation. If the rate is 2% per year, then the doubling of income occurs after 35 years, and if the rate is 1% it takes 70 years. Many American and European families, which are in the middle of the income distribution, no longer have a chance to be in a better financial situation than their parents, and they struggle not to end up in a worse situation. Politics becomes more difficult when growth is slow. When the pie gets bigger, everyone can get more, but when the size of the pie is fixed, you can only profit at the expense of the other. And the same goes for public goods such as medical care, social security, education and infrastructure. When there is growth, these products can be fixed and expanded without detracting from any of them. Without growth, someone has to give up their share.

Slow growth encourages the formation of groups concerned with enriching their members at the expense of the general public, for example, by promoting laws that increase their incomes or otherwise protect them, which prevents innovation and improvement and slows growth even further. This behavior is called by economistsChasing rents". The economist and political thinker Mankur Olson He believed that chasing rents would bring down the rich nations. Examples of this are easy to find today. One of many is related to the US National Institutes of Health (NIH), one of the most important research institutions of the US government. In 2015, after pressure from the US Congress, whose representatives are well funded by the medical industry and most of whom are strongly opposed toObama's health care reform, the NIH stated that it will not fund studies whose main purpose is to "evaluate the cost and effectiveness" of the American health care system.

When the little growth that does exist is not distributed equitably, new problems emerge. Those who are left behind may be patient when they get something, but if their income remains constant or even decreases, their patience is likely to run out soon. Then inequality became a political issue. Ideally, such discontent would lead to political change. But if the political system is only sensitive to the needs of the rich, and it can be argued that this is the case in the American Congress, this poses a direct threat to political stability, and ultimately to democracy itself. And if the main political parties offer nothing to those left out, they may turn to political solutions or candidates that threaten liberal democracy.

For those left behind, the harm to well-being is not abstract at all. In the US, those with an average income do not only suffer from the fact that their income is frozen. There is a health crisis today among middle-aged non-Hispanic whites who are destroying themselves with drug addiction, suicide and alcoholism. Most of the increase in life expectancy in recent years has been at the upper end of the income distribution.

Understanding the reasons for the slowdown in growth is necessary for thinking about the future. There is great controversy on this subject, although there are several direct reasons for our slow growth, and they are all related to the increase in inequality. In the US, more than elsewhere, we spend huge sums on health services, many of which have no effect. This money comes from salaries and income, so citizens pay more for health than they think. This system is vigorously defended by those whose income and power come directly or indirectly from that fifth of the American GDP that the health sector consumes.

The financial sector is also an important contributor to our well-being, but it is also too large. The huge personal rewards this sector generates offset its social return. Many of our brightest minds work in this sector instead of making real things or inventing new treatments for diseases. At the same time, the instability of an overly large financial sector increases the chance of financial crises, which have a devastating effect on economic growth.

The sheer size of the health and financial sectors gives them political power that makes it difficult to control them. These sectors thus become engines of inequality: they provide huge rewards to the few, slow down growth and suppress innovation.

If this analysis is correct, it is unlikely that we will restore welfare without dealing with income inequality and without curbing behaviors such as rent seeking, two phenomena that both cause inequality and arise from it. Like the Chinese emperor from the 15th century who forbade On voyages of discovery overseas, which could have enabled the conquest of the world, for fear that this would give power to others, we risk suffocating the innovation and growth that are the roots of our future well-being.

One sign that it will be difficult to go back and reduce inequality is that the gaps are widening in many rich countries despite policy differences between the nations and despite aggressive social welfare policies in some of the countries that strive to reduce them. One concern is that technological advances, automation, globalization, and the export of jobs have not only produced the traditional result of temporary job losses, one that allows those workers, or at least their children, to enjoy the long-term prosperity these forces have brought. Instead the fear is that these changes have created a process where the profit never comes, or it only accrues to the citizens of other countries or to those who own the technology. Such concerns have arisen in the past, throughout history, in similar situations, and have always turned out to be unfounded. We must therefore be very careful in interfering with these processes if we believe, as I do, that technological progress is the basis of our rising prosperity and increase in our life expectancy. There is also no doubt that now, before the long and protracted great recession has passed, it is easy to be pessimistic. However, the concerns are real, and economists are now more concerned than they have been in many years.

What are the hopes against all this pessimism? One of them is that democracy will win in the end, that those who are not properly represented today will take advantage of the democratic process to crown leaders who are more responsive to their wishes. It will be difficult, and dangers for democracy lurk along the way, but it is not impossible.

The second and strongest glimmer of hope lies in the historical processes I described at the beginning of the article: it is a fact that people shape the circumstances according to their needs, at least in the long term. It's not like some rogue planet is approaching Earth and threatening to destroy it. Social arrangements can change, and there is no choice but to change them. I believe that if the persecution of rents at its current level is not addressed and the extreme inequality it creates between countries and in the content is not allowed, it is likely that they will collapse us. And yet I am optimistic, because the search for happiness is still as strong a wish today as it was in the 18th century.

For more articles in the series:

• Questions for the future of humanity: How will climate change change us?
• Questions for the future of humanity: What geological imprint will we leave behind?
• Questions for the future of humanity: who will prosper and who will be left behind in a world of 10 billion people?
• Questions for the future of humanity: Will we defeat aging?