3 EM 1 – 09/05/2022

Most economists and political scientists seem to be agreed that the biggest challenge facing Western civilisation at the present time is the great and growing inequality in wealth. The capitalist, free market system has slowed almost to a halt in raising the welfare of the masses, and has entered a phase in which the economic gains are accruing mainly to the already wealthy. As the situation grows worse, the chances diminish of anyone from a poor family advancing to a higher level. In other words, the greater the inequality, the more rigid and self-perpetuating the system becomes. This phenomenon is seen most clearly in what economists call The Great Gatsby Curve.

First we had ECB president Mario Draghi announce he is seriously considering eliminating the €500 note, & then we had former US treasury secretary Larry Summers lobbying to eliminate the $100. Both of them use the ‘terrorist’ angle as justification, saying that the only users of high denominated currency are terrorists, & criminals.

The Great Gatsby Curve was devised by economists to show how social immobility rises with increasing inequality of wealth. That is, as inequality increases it becomes consolidated, more rigid and harder to change; it becomes increasingly difficult for a new Great Gatsby to arise. Politically, this threatens the future of democracy, since it leads to a situation in which the wealthy manipulate the system to their own advantage and establish what is, in effect, an oligarchy. Although this trend seems to have been seen by professional economists for a number of years, it is only recently that politicians have come into prominence in Britain and the USA who are aware of the danger, and prepared to try to reverse the trend before the democratic system loses the power of self-healing.

The old economic theories of wealth creation stating that wealth is a consequence of savings or investment or proper government spending failed to explain the phenomenon. No, this wasn’t the classical economy. This was rather described as a well-stocked kitchen waiting for someone to come and exploit its masterful ingredients in order to create a delicacy.

The pace development process depends upon several factors. The ultimate aim is to enhance the quality of life.