Note on Robert Shiller comment on Inequality

Rising Inequality is central cause of current financial crisis.


Robert Shiller Notes

I think inequality is a huge emerging problem, and that our society has to think about dealing with it in a constructive and real way – not through ‘Let them eat credit,’ not through wishful thinking. We have to understand how we get inequality and what we can do about it.

On this topic, we have seen many books written and being written. I guess this is one more area for researchers to obtain grants to keep their plates from being empty.

Definitely, policies framed by governments have consequences. Some are good and others bad. This Inequality sows seeds for rebellion or revolution. Every society likens wealth, prosperity, leisure and luxuries of life. These vary time to time depending on the availability of technology. To obtain these goods societies need to be competitive and strive hard. In corporate finance lingua franca, a company must strive hard to improve its profitability and invest in its growth lest it will be acquired and destroyed. Post world war II western societies have leaned towards welfare socialism with repentance. Modern America vacillates between capitalism and socialism. Last 50 years we have seen technology has changed how we live and work and obtain needs and luxuries of life. This transition helped dwarf one prime ingredient that is premise of success of any society or individual. That is called competitiveness. People knew they need to work hard to attain material success in life. During prosperous times people attribute success to their own skill and competitiveness. This way competitiveness is lost only to be born again. For this to happen sometimes societies have to be destroyed and other times needs a time to regain. Only time can tell to which category a society belongs. I will quote few examples here from our own human history. Roman Civilization fell off the cliff due to series of issues like internal fights, rise of Christianity and few more. These are the visible factors that have destroyed the inner competitiveness of a society and made it vulnerable to invasions of barbarians. Another example is Pakistan. This country spends most of its energy in war with its neighbor, clandestine support to terrorism and religious fundamentalism. Consequently ordinary people struggling to bring bread to their families are getting crushed in these priorities. This is another way of looking at fall in competitiveness.

In current European crisis we are witnessing again same factor coming to the fore. The countries that are currently vulnerable to this crisis are least competitive with in European union. These are Portugal, Italy and Greece.

Therefore, Countries and societies should understand, natural endowments and technology can bring wealth to one generation. But lack of competitiveness will unleash its wrath and take away everything swiftly and abruptly in the wink of an eye.