American privilege rots an empire from within - Caixin Online - MarketWatch
The top 1% control about one-fifth of the nation’s income and two-fifths of the wealth. The top 10% take in about half of all income and have accumulated 80% of the wealth. Meanwhile, about 80% of Americans merely get by and have very little wealth available as a cushion for when personal finances turn down.
The gap between the rich and the rest, which has roughly doubled over the past two decades in the United States, is an inevitable result of competition. Of course, competition motivates people, and inequality is often a price worth paying if it motivates people to make the pie bigger. All could be better off with a bigger pie, even if inequality worsened. Limiting competition improves equality but decreases incentives for people to work. A society needs to make a trade-off between the two.
Inequality worsens in an environment of limited competition, as inefficiency and social friction rise. Examples of this phenomenon include the Philippines, where few families rule through monopolistic practices. The country has become poorer relative to others over the past two decades, while inefficiencies are supported by Filipinos who work abroad and send money home. Many Latin American countries fall into this category, too, and the United States is heading that way.
Lawyers are another group of well-paid professionals who maintain the rule of law. But the United States suffers from an oversupply of lawyers, which forces some to look for ways to circumvent or take advantage of the system. The most extreme example is the professional niche of ambulance chasers who are busy seeking ways to sue hospitals, doctors and insurance companies. High-end lawyers working for corporations are busy helping corporate managers maximize benefits without breaking rules. How’s that for no added value?
Now, we come to health care. Doctors and hospitals in the United States charge more for their services than in other countries, yet the U.S. population’s health condition proves more spending doesn’t yield better results. Neither does competition work in the health care market, as the information asymmetry between patients and doctors seriously decreases the effectiveness of market competition in allocating resources.
Because patients are vulnerable and must accept what the doctors say, the health care market has a naturally inflationary tendency. Doctors are biased toward expensive treatment. Prices rise easily in a system in which patients are insured and, hence, not resistant to high prices. Of course, insurance premiums rise to reflect costs, too.
In other developed countries, the runaway tendency of health care costs is checked by government limits on doctor charges to ration services. While many argue the United States delivers better services in some areas, isolated examples can’t justify a system that costs twice as much and delivers a less healthy population.
Historians have all sorts of theories on why the Roman Empire fell, blaming everything from religion to barbarians. My take is that every empire in history eventually rots from within when privilege, not contribution, becomes the basis for compensation.
The children of the ones who contributed take advantage of their status as the offspring of the empire-builders. They can live comfortably, enjoying easy rewards, even as their neighbors lose jobs and homes. We’re seeing the consequences of this phenomenon today in America.