The problem of inequality

There is nothing in the free market system to prevent the further accumulation of wealth among the extremely wealthy and the social inequality it produces.

On the contrary, the democratic institutions of the United States have been corrupted to reflect the demands of the richest members of society resulting in levels of wealth inequality not seen in nearly a century.

But it isn’t just wealth inequality that is the problem. The greater issue at hand is when this inequality becomes structural and permanent.

Take as an example the inequality between the endowments of two universities: Harvard and UVM. University endowments are funds that earn interest.

In 2013, Harvard’s endowment was a staggering $32.7 billion. In contrast, UVM’s endowment was a modest $410 million.

While both of these institutions are above the average university endowment of $355 million, they help illustrate the disparities of wealth and its implications.

Harvard spends over $130 million, or just over 0.4 percent, to manage its endowment, while UVM has allocated 0.5 percent to administer its endowment, or about $2 million.

Over 20 years, Harvard has averaged 12.9 percent return on its investment, while in the same period UVM averaged 8.1 percent.

Since Harvard has a larger endowment, they can attain higher returns because they can devote more resources to its supervision while simultaneously spending a smaller percentage.

A “freer” market would only increase social inequality, since it would facilitate Harvard’s ability to generate a greater return on its investment.

If only UVM could lift itself up by its ski-straps, then maybe, just maybe, we could increase the return on our endowment and one day aspire to be as hard working and prosperous as Harvard.

Yet, mathematically, UVM could never catch up to Harvard at this pace.

If inequality is this enduring between institutions with surplus capital to invest, how could we even compare inequality between affluent and modest families?

The greatest returns from wealth do not come from endowments, bonds or the stock market – they come from lobbying.

Private fortunes are being used to influence the political process to receive tax breaks, income exemptions and industry subsidies.

Research has shown that for every dollar spent on lobbying there is $220 in tax benefits, or a 22,000 percent return.

These private benefits have a public costs: they come at the expense of primary, secondary and higher education.

The educational institutions that help equalize society are being defunded which further perpetuate wealth inequality.

Richer families can afford to send their children to private schools that are not affected by budget cuts while families with fewer means send their children to crowded classrooms.

Similarly, children of prosperous families can afford to go to college while poorer students are less likely to even step foot on a university campus.

It is not just about wealth inequality, but how this wealth is being used to obstruct social mobility. The American principles of life, liberty and pursuit of happiness are being consumed by special interest.

It is a myth to believe that the structure of the free market will somehow erode inequality when it favors higher returns on larger fortunes.

More fundamentally, we have to ask: For whom, exactly, is the free-market?

The bottom 90 percent of America hasn’t seen the same benefits from the “free market” as their incomes have stagnated, their jobs shipped overseas or their labor replaced by machinery.

The free market is blind to histories of oppression, benefits of inherited wealth and accessibility to resources.

Rather, it presupposes that everyone begins on the same playing field and only their merit allows them to succeed.

Therefore, not only will the free market continue to increase social inequality, it will also empower rich individuals and selfish industries to command government for their needs. In order to address inequality, we need more democracy, not markets.

Democracy requires equality of voices — but the “free market” gives Harvard more resources to speak than UVM.