Every 30 hours, a new millionaire was created by the pandemic, while a million people fell into poverty. This is why.
Other than just death and destruction, COVID-19 will be remembered for other things as well. Over the past three years, the epidemic has also significantly increased inequality around the world.
The net worth of 131 billionaires more than doubled during the pandemic, according to the Bloomberg Billionaires Index. On December 27, 2022, Bernard Arnault, the head of Louis Vuitton, had a net worth of $159 billion, up almost $60 billion from early 2020. Elon Musk, the second-richest person on the planet, boasted a $139 billion fortune; prior to the pandemic, it was less than $50 billion. The third-placed Indian on the index, Gautam Adani, has had his wealth more than tenfold increase during this time, going from about $10 billion at the beginning of 2020 to $110 billion at the end of 2022.
At the same time, in just 2020, more than 97 million people — more than the whole population of any country in Europe — were reduced to living in extreme poverty on less than $1.90 per day (the World Bank-defined poverty line). By the end of 2021, it is predicted that the global poverty rate would have increased from 7.8 to 9.1 percent. Rising inflation is currently having an impact on real wage growth and reducing people's disposable earnings all around the world.
By raising interest rates and removing excess liquidity, central banks are decreasing the amount of money entering the economy in an effort to stop prices from rising. However, that has backfired on employees once more, with businesses announcing layoffs at the end of an already turbulent 2022, including banks like Goldman Sachs and tech companies like Amazon, Twitter, and Meta.
Al Jazeera consulted economists to learn why the wealthy continue to amass wealth despite economic downturns and whether this trend is inescapable.
The first response is that many nations implement measures like tax rebates and commercial incentives to strengthen economies during emergencies like the pandemic. In order to make it simpler to lend and spend money, central banks pour money into the economy. This aids wealthy people in increasing their fortune through investments in the stock market. Expanding inequality, however, is not inevitable.
Market boom for stocks
When the pandemic started, central banks from all across the world reacted quickly to protect financial markets, which suffered greatly as governments imposed tight restrictions.
In order to prevent the economy from imploding, central banks drastically reduced interest rates, which reduced borrowing costs and increased the money supply. Additionally, they poured trillions of dollars into financial markets in an effort to entice businesses to make economic investments. Since 2020, major central banks have invested more than $11 trillion in the world economy.
The value of stocks, bonds, and other financial instruments increased as a result of these measures, but there was no parallel growth in economic output.
Francisco Ferreira, director of the International Inequalities Institute at the London School of Economics (LSE), told Al Jazeera that a significant portion of the sudden infusion of cash into the financial system instead of increasing economic output resulted in a sharp increase in asset prices, including stock prices, that benefited the wealthy.
According to a survey of stock performance of 5,000 firms by consulting firm McKinsey, capital markets had increased $14 trillion a year into the pandemic, with 25 companies — largely in the technology, electric vehicles, and semiconductors segment — representing for 40% of the overall gains.
According to Nabil Ahmed, director of economic justice at Oxfam America, "the epidemic period has witnessed the highest spike in billionaire wealth since the records began." And the unprecedented nature of that climb is something we are still processing.According to Oxfam's "Profiting from Pain" study, which was published in May of this year, billionaires witnessed a gain in their fortunes as great as they had in 23 years over the previous 24 months. Every 30 hours, a new billionaire is created in the world economy as COVID-19 and rising food costs drive roughly one million more people into extreme poverty.
pre-pandemic elements
Undoubtedly, since the 1980s, when governments all over the world started deregulating and liberalizing the economy to encourage more private sector engagement, income and wealth disparities have increased. Wealth disparity relates with the distribution of financial and tangible assets, such as stocks or real estate, between the two categories. Income inequality refers to the gap between the rich and the poor's disposable income.
The post-liberalization era was marked, among other things, by a decline in employees' negotiating power. At the same time, Yannis Dafermos, a senior lecturer in economics at SOAS University of London, said Al Jazeera, businesses were increasingly resorting to financial markets to borrow money for their investments.
For the wealthy, who invest in financial assets, "the financialization of the economy in particular has generated a lot of revenue," Dafermos claimed. The central banks' approach to economic crises is to prevent the financial market from collapsing because it is so closely tied to the actual economy. This promotes the growth of the stock and bond markets, increasing wealth and inequality
Major central banks used a variety of techniques to inject liquidity into the market and decrease interest rates to entice businesses to borrow and invest during the global financial crisis of 2008–2009.
According to Jayati Ghosh, an economist at the University of Massachusetts Amherst, "the loose money policy that started after the global financial crisis led to exceptionally low to negative interest rates and enormous liquidity in the financial sector." Therefore, instead of growing their output over the past 15 years, firms preferred to reinvest the money into purchasing more financial assets in search of high returns.
According to Oxfam's Ahmed, the pandemic accelerated these systems of inequality, including the liberalization of the labor market, the growth of monopolistic power, and the reduction of public taxes. One such is the fact that 11 nations cut their tax rates on the wealthy throughout the pandemic, while 143 of the 161 countries examined by Oxfam froze them.
The worst-hit by inflation are low-income countries
As nations began to loosen COVID-19 limitations, a strong increase in consumer demand and supply shocks helped push global inflation to historic highs.
Because of this, central banks were compelled to end their practices of granting access to cheap credit. Also mentioned were significant increases in interest rates. Currently, their objective is to lower demand in order to bring down prices and, in industrialized economies like the United States, to also cool the labor market.
Major corporations have begun to announce job layoffs in order to protect their earnings following this policy change, even if inflation is biting the poor who have low savings rates.
Dafermos stated that "even when inflation has grown, the profit margins of enterprises have not decreased." According to him, despite the fact that smaller businesses are suffering as a result of bigger companies' lack of investments, large corporations are keeping their revenues to pay dividends to their shareholders rather than raising wages.
Due to their high levels of public and private debt, low-income and developing countries are less able to spend more on social programs as a result of interest rate increases."Developing countries will face significant pressure to enact austerity measures due to the functioning of the global financial system," Dafermos warned. That could lead to greater inequality, and in my opinion, this is perhaps more important since it restricts their ability to offer social protection to the underprivileged.
According to Oxfam, lower-income nations spent about 27% of their budgets on debt repayment, which is more than twice as much as what they allocated for health care and education.
Unfairness is a political decision.
After World War II, nations adopted progressive taxation policies and took action to combat monopoly power, according to Ahmed. During the epidemic, many countries switched to the opposite strategy, but a few defied the trend. To redistribute wealth, Costa Rica raised its top tax rate by 10%, while New Zealand did it by 6%.
"There are instances of nations acting morally. And it serves as a reminder that inequality is avoidable. It's a political decision and a policy, Ahmed added.
On the other hand, wealth inequality offers the wealthy the ability to influence policy in their favor if it is not addressed, which can widen the income gap regardless of the boom-and-bust nature of economic cycles. According to Ferreira at the London School of Economics, "more wealth tends to be connected with takeover of government and state institutions by the elite."According to him, this can take many shapes in various democratic circumstances. However, the outcome is the same. The wealthy have more negotiating leverage because they can utilize more tactics, like lobbying, he claimed. "Policies ultimately reward the wealthy, which starts a vicious cycle anew. However, this cycle is political.
[zombify_post]
0 Comments