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The global wealth gap is no longer just a statistic on a chart—it’s a defining feature of our era. As the rich get richer and the poor struggle to keep up, the conversation about wealth inequality has never been more relevant. The recent video, “Why Inequality Starts Becoming a Problem Now,” tackles this issue head-on, delving into how the pandemic exacerbated existing inequalities and the broader economic forces at play. But in a world where decentralized technologies like blockchain and cryptocurrencies promise to democratize finance, we’re left wondering: Could crypto be the solution to our inequality woes? This article critically analyzes the video’s key points, drawing connections to traditional financial systems and the disruptive potential of blockchain technology.
This lesson centers on the idea that wealth inequality, once seen as a byproduct of economic growth, is becoming a more pressing issue. The pandemic reversed nearly a decade of poverty reduction while the wealthiest individuals continued to accumulate vast fortunes. According to the video, nearly half of the world’s wealth is controlled by just 1.2% of the population, leaving billions of adults with less than $10,000 in net worth. The video also emphasizes the role of global debt, which has ballooned to $300 trillion, and the increasing concentration of wealth within nations that are otherwise driving global equality through economic growth.
The core argument is that while inequality has been a part of the capitalist landscape for centuries, its current trajectory poses new threats to global stability. The video paints a picture of how the very mechanisms that built modern prosperity—like industrialization and globalization—are now exacerbating inequality. But could decentralization and blockchain provide a more equitable future?
The video offers several compelling arguments about wealth inequality and global debt, but also presents some areas that deserve deeper scrutiny. Let’s break it down:
Pandemic-Induced Poverty Reversal
One of the strongest points in the video is its focus on how the pandemic undid years of progress in reducing poverty. The data is clear: while the world’s richest individuals continued to grow their fortunes, millions of people were pushed back into extreme poverty. This stark contrast highlights the fragile nature of economic gains for many people. In traditional finance, pandemics and other global crises tend to expose underlying vulnerabilities, and this point underscores how inequality can rapidly worsen when systemic shocks occur.
Why It Matters:
This analysis reveals a critical flaw in modern economic systems—the inability to protect the most vulnerable during crises. As we examine blockchain’s potential, it’s worth noting how decentralized systems could offer an alternative by reducing reliance on centralized, crisis-prone financial institutions.
Wealth Concentration at the Top
The video cites a staggering statistic: 47.8% of the world’s wealth is held by just 1.2% of the population. This concentration of wealth, while not a new phenomenon, has reached extreme levels in today’s globalized economy. The video argues that this concentration can either benefit society—through investments in productive industries—or create economic imbalances that hurt the global economy.
Why It Matters:
Wealth concentration tends to stifle social mobility and limit opportunities for the majority. While traditional finance often allows the wealthy to invest and grow industries, it also leaves large segments of the population without access to wealth-building tools. In the crypto world, decentralized finance (DeFi) seeks to distribute financial opportunities more evenly, offering tools like yield farming, staking, and decentralized lending to anyone with internet access.
Global Debt and Economic Risk
Another strong point is the emphasis on the rising global debt, now sitting at $300 trillion. The video warns that while debt is not inherently bad, the way it is managed can have profound implications. Global debt has long been a driver of economic growth, but mismanagement or over-reliance on debt can lead to economic crises, as we’ve seen with financial collapses in the past.
Why It Matters:
This point draws attention to the fact that global debt, while a powerful tool for growth, can also be a ticking time bomb. DeFi, with its transparent, decentralized lending mechanisms, offers a new model where individuals can borrow and lend without the traditional intermediaries, potentially reducing systemic risks.
Oversimplification of Wealth Inequality
While the video presents clear data on the concentration of wealth, it simplifies the complexity of inequality. For example, it overlooks the role of systemic factors like education, healthcare, and access to technology, which can create or perpetuate inequality. Wealth inequality isn’t just about who has more money—it’s about who has access to opportunities for economic mobility.
Counterargument:
In the crypto world, these systemic barriers still exist. While DeFi platforms might open doors for financial inclusion, the complexity of using these platforms can be a barrier for newcomers. Education and accessibility remain critical factors that crypto has yet to fully address.
Neglecting Technological Disruption
The video doesn’t delve deeply into how technology, particularly blockchain, could disrupt traditional financial structures that contribute to inequality. This omission is critical, given that blockchain-based solutions could democratize access to financial services, remove intermediaries, and empower individuals to take control of their wealth.
Counterargument:
Blockchain technology offers a decentralized, borderless alternative to traditional finance. Projects like Ethereum and Cardano aim to create inclusive financial ecosystems, but the video fails to explore how these innovations could shift the dynamics of wealth inequality in the coming years.
Blockchain and cryptocurrencies represent a new frontier in addressing many of the challenges outlined in the video, particularly those related to wealth concentration and access to financial services.
In traditional finance, wealth concentration often results from limited access to high-yield investment opportunities. Cryptocurrencies like Bitcoin and Ethereum, by contrast, aim to decentralize wealth. However, it’s important to note that early Bitcoin adopters have accumulated significant wealth, presenting a similar concentration problem. The difference lies in transparency: on a blockchain, wealth concentration is visible to everyone, and decentralized platforms allow anyone to participate in wealth-building activities, such as staking or yield farming.
DeFi platforms like Aave, Compound, and MakerDAO offer decentralized alternatives to traditional borrowing and lending systems. In traditional finance, global debt is often opaque, controlled by central banks and governments. In DeFi, all transactions are transparent, secured by smart contracts. While traditional debt markets are prone to inefficiencies and centralization, DeFi allows for a more open, equitable system—at least in theory.
Cryptocurrencies hold the promise of financial inclusion, particularly for the unbanked population. With a smartphone and an internet connection, anyone can access DeFi platforms, opening the door to wealth-building tools like interest-bearing accounts and decentralized lending. This directly addresses the issue raised in the video about the billions of adults with net worths under $10,000.
The video’s exploration of wealth inequality and debt has broader implications for both the traditional and crypto worlds. In traditional finance, we may see increased regulation aimed at curbing wealth concentration and managing global debt more effectively. This could involve progressive taxation, increased government spending on social programs, or tighter controls on financial markets.
In the crypto space, DeFi is positioned to disrupt traditional financial systems, offering new ways to address inequality. As more people gain access to decentralized platforms, we could see a shift away from centralized banking toward a more democratic financial system. However, this transition won’t be without challenges—regulation, security concerns, and market volatility remain significant hurdles.
Looking ahead, the fusion of traditional finance and blockchain technology could reshape the global economy. As institutional investors adopt crypto, we may see hybrid systems where decentralized platforms interact with traditional financial markets, offering new solutions to old problems like debt management and wealth inequality.
From my perspective, the video paints a vivid picture of the economic forces shaping our world, but it misses the opportunity to delve into how technological innovation could change the game. Cryptocurrencies and blockchain technology are already disrupting finance in ways that could address some of the very issues raised—inequality, debt, and wealth concentration.
Having worked in both traditional finance and the crypto ecosystem, I’ve seen firsthand how blockchain can empower individuals who were previously excluded from the financial system. However, it’s not a silver bullet. While DeFi opens doors, the steep learning curve and the risk of scams or smart contract vulnerabilities mean that crypto is still far from perfect.
That said, I believe we’re on the cusp of something transformative. If we can find ways to make DeFi more accessible, secure, and user-friendly, it could represent a genuine alternative to the centralized systems that have contributed to inequality for centuries.
Wealth inequality, debt, and economic instability are not new issues, but the way we address them needs to evolve. The video sheds light on the growing problem of wealth concentration and global debt, but it only scratches the surface. Blockchain technology and decentralized finance could provide solutions that traditional systems can’t offer, but it will require time, education, and innovation.
As we look to the future, the potential of cryptocurrencies and DeFi to democratize wealth creation is exciting. It’s clear that we need new approaches to solving old problems, and the crypto world just might hold the key to a more equitable financial future
In this lesson, we’ll explore the intriguing relationship between global wealth inequality, debt, and economic growth. Traditionally, inequality has been both a driving force and a challenge in financial systems. But what happens when too few people control too much wealth? And how does this concept apply to the crypto world, where decentralization aims to flip that script? We’ll connect these age-old economic concepts to the disruptive potential of cryptocurrencies and blockchain technology, and offer fresh insights on why this matters in today’s digital economy.
Here are some key terms that will help ground our discussion and connect traditional finance to the crypto world:
Explanation:
Historically, economic growth brought some measure of prosperity to a wide segment of the population. However, recent trends show a widening gap between the wealthy and the poor. This inequality becomes problematic when the concentration of wealth limits opportunities for the broader population to benefit from economic growth. In crypto, decentralization aims to provide broader access to financial opportunities, bypassing the concentration of wealth in traditional banks or elite institutions.
Crypto Connection:
Cryptocurrencies like Bitcoin were designed to combat centralized wealth and power. By creating a decentralized financial system, blockchain technology aims to distribute wealth creation opportunities more equitably. However, crypto faces its own issues of inequality, such as the large concentration of Bitcoin in a few wallets. Projects like DeFi (Decentralized Finance) seek to level the playing field by offering loans, interest, and investment opportunities without gatekeepers.
Explanation:
Debt is a double-edged sword. In traditional finance, debt allows governments, businesses, and individuals to invest in the future, but when mismanaged, it can lead to economic crises. In the crypto world, DeFi platforms like MakerDAO and Compound provide decentralized lending services that rely on smart contracts instead of banks, reducing the risk of human error or mismanagement.
Crypto Connection:
Crypto lending platforms allow users to take out loans without traditional intermediaries. These loans are backed by crypto collateral, making it easier and faster to access liquidity. While DeFi eliminates the need for banks, it introduces its own challenges, such as smart contract vulnerabilities and over-collateralization risks.
Explanation:
Economic growth is often measured by consumption, but investment in infrastructure, technology, and industries lays the foundation for future prosperity. In the crypto world, token consumption might refer to using tokens within a platform, while staking and holding tokens act as investment strategies that secure the network and generate long-term value.
Crypto Connection:
Staking tokens in Proof-of-Stake networks like Ethereum 2.0 is a perfect example of investment in crypto. By staking, users lock up their tokens to support network security and, in return, receive rewards. This parallels traditional investment, where putting money into stocks or bonds generates future income. However, the risks and rewards in crypto staking can be higher, reflecting the volatility of the market.
Explanation:
Globalization allowed once-poor countries like China and India to thrive economically by opening their markets to global trade. However, as their economies grew, the gap between the rich and poor in those countries also widened. In crypto, globalization is even more pronounced. Blockchain technology doesn’t recognize borders, allowing anyone with internet access to participate in the global economy.
Crypto Connection:
One of the key promises of crypto is to create a global, borderless economy. Projects like Bitcoin and Ethereum allow anyone, anywhere, to store value or interact with decentralized applications without needing permission from any government or bank. However, issues like internet accessibility and regulatory hurdles still challenge crypto’s true potential for equal global participation.
Each of the sections above can be viewed through the crypto lens. Here’s how these concepts translate in the world of digital currencies and decentralized finance:
The global pandemic undid almost a decade’s worth of improvement in reducing global extreme poverty levels, which was a reversal of the most productive decade ever for reducing global poverty. This was a big blow. At the same time, as this side of the global wealth spectrum was taking a huge step backwards, the world’s richest people got even richer. Currently, 47.8% of the world’s wealth is now in the hands of just 1.2% of people, which is around 62.5 million adults with a net worth of over $1 million. Unfortunately, 2.8 billion adults, more than half of the global adult population, have a net worth of less than $10,000.
Economists always stress that inequality is a complicated subject, and our modern globalized, value-adding economy is not a zero-sum game. A small group of people with a lot of assets does not necessarily come at the expense of everybody else. In some cases, this concentration of wealth can even improve other people’s living standards, as it can be invested into industries that produce more output and provide more opportunities for everyone. Since the beginning of the Industrial Revolution, that’s exactly what has been happening. More people are alive today living lives filled with luxuries that wouldn’t have even been thinkable before investments into technology and industry made the world a much more prosperous place.
But now, for the first time in nearly 250 years, that progress could be reversing. Someone’s economic fortune could become an economic burden for billions of others, and it has a lot to do with the now $300 trillion worth of debt the globe is dealing with. That number by itself might sound very scary, but to most economists, it hasn’t been a huge cause for concern until recently. To understand why, we need to, as always, answer a few important questions: What are the economic forces that have been driving inequality? What does record global debt have to do with this problem? Is there an optimal level of inequality to maximize prosperity for all economic participants? And if there is, how do we get to it?
Regardless of what the numbers and economic theories say, it can feel very frustrating to live in a society where some people are struggling every day, while others won’t be materially affected by things like rising living costs or energy prices. The visibility of inequality has never been higher, with social media and so many people putting on a front for their online personas. It’s understandable that you might feel like you’re just not living up to your potential.
An economic statistic that doesn’t get nearly enough attention is that about a decade and a half ago, global income inequality started doing something interesting. For the first time since the start of the Industrial Revolution, it started going backwards. This came after a plateau in inequality that started around the end of the 1980s. So even though a lot of commentators are talking about the problem of global inequality, the reality is that as a planet, we’ve been moving in the right direction—at least up until very recently.
The biggest driver of the reduction in global inequality has been the growth of once very poor but very populous economies, primarily China, but also Indonesia, India, Thailand, the Philippines, South Korea, and Taiwan. These countries have all grown their economies significantly in the past half-century and shared that prosperity with their people, which represents close to half of the population of the Earth. The Asia-Pacific region, specifically, can clearly be seen as pushing billions of people out of extreme poverty, which is fantastic on a humanitarian level. But it also means, for economists, that a large part of the world’s population has closed the gap on the world’s wealthiest, which represents a reduction in inequality.
This is all great, but as this was happening and global inequality was falling, something interesting was happening within the countries that were driving the global reduction in inequality: their inequality was rising. During its two decades of most concentrated economic growth, China’s income inequality rose from a Gini coefficient of 32 to a Gini coefficient of 44. We will explain exactly what that means shortly, but for now, it means that China was becoming a significantly less equal country while at the same time making the world more equal.
Now, China may have been an outlier here. After all, it was transitioning from a centrally planned communist economy that subscribed at least partially to Marxist-Leninist ideals of worker equality to the highly market-focused system it’s home to today. China’s unofficial economic model at this time was that everybody will get rich by letting some people get rich first. Despite this, China was not unique.
Figures on inequality are hard to come by because they’re quite difficult to collect, especially in countries that are rapidly developing and where much of the economy remains informal. Even still, in almost every major economy that has experienced a high level of growth in the past half-century, inequality has increased. And yet it’s these same countries that have somehow improved equality across the world.
Imagine the world was a collection of football teams. Most of them are fairly basic and made up of players who just like to play for fun on the weekend. But then some, like the USA and some Western European teams, are made up of world-class professional players. Obviously, if these teams were ever to go against one another, it wouldn’t be particularly fair because talent is so heavily focused in just a few top teams. But now, let’s say we take all of the teams and give underperformers some real star players of their own. On a tournament-wide level, this would even out the game, but the skills distributions within the teams themselves would be worse. This could still be a good thing for the average casual player because they won’t lose every game, and with the added attention they get, their team might be able to afford better coaches and equipment to make everybody more competitive.
As countries developed and adopted modern industries, a few industrialists got rich off the process. But overall, it was still good for everybody, as the new modern industries offered much better opportunities for everyone in the country. The average person in China is much better off today than the average person in China 50 years ago, even though they are technically suffering under a higher level of inequality.
On a wider level, this is why the world became more unequal following the Industrial Revolution. Before modern production and value-adding industries, the wealth of nations was mainly determined by how productive their farmland was. Some countries tried to stretch this by colonizing and extracting resources from across the world, but overall, everyone was pretty equally poor. The only real way to own wealth in these times was to own land, which could be used to grow food. Just getting enough to eat was still the primary occupation of most people alive.
Modern industry and technology, like railroads, steam engines, production lines, and later electricity, created a large divide between the countries that were utilizing these technologies and those that weren’t. Today, agriculture is only a minor component of the global economy and an even smaller part of most advanced economies. With international investment and globalization, it’s much easier for countries to industrialize now than it was all the way back then.
Inequality is complicated, but generally, it can be reduced by making wealthy people poorer or poor people richer. Overall, the ideal economic outcome is to make poor people richer, but sometimes this has the side effect of making already wealthy people even wealthier, which can give the illusion that things are getting worse when the reality is that life for everybody is getting much better. As long as someone’s wealth is made by adding value to the economy, rather than taking value from the economy, it should—other things being equal—make the world a better place.
Now, “all other things being equal,” the classic economist cop-out, is a big assumption at the level of global macroeconomics. Even if it’s universally beneficial overall, inequality can still cause some unavoidable issues. A common defense of lavish spending by the world’s wealthiest people is that it’s better for the economy if they spend their money rather than hoarding it. The theory behind this defense is not entirely wrong. If a billionaire buys a private jet, the money they spend on it will indirectly be transferred to the thousands of people involved in the entire supply chain for every component on that plane. After it’s built, it’ll need a pilot and crew. It will also provide jobs to ground staff at airports and engineers to keep it flightworthy. This one major purchase has boosted industry and employment and improved output in the economy.
Some commentators, and even some economists, suggest that the best thing wealthy people can do for the economy is to spend their money on consumption like this. Consumer spending is a component of GDP, so an increase in consumer spending represents an increase in economic output, and a consistent increase in these figures is how we get economic growth. The problem is that most people are looking at this backwards. The reason we use consumption to measure economic output is because it’s just easier to collect data on than production itself. If something is produced, it’s either going to be purchased and used by consumers, purchased and used by the government, exported, or it will be kept around as an investment. For example, if a company produces a big piece of factory equipment, it’s likely to be sold to another company that will use it to produce even more value in the economy.
Companies won’t produce goods and services for consumption if nobody is going to consume them, and they won’t invest in new pieces of capital to help them make goods and services if they have nobody to sell them to. This is why, during downturns, economists become very concerned with consumer confidence and spending. But that does not mean that consumption is automatically always the best economic outcome for everybody. There’s probably an argument here about the social and environmental issues caused by an overly consumption-focused society, but we’re not even talking about that. We’re talking about just the economic problems it can cause when consumption is focused so heavily at the top.
The foundation of economics
is solving the central economic problem, which is that humans have unlimited desires but limited resources to fulfill those desires. One of the most important questions that comes from this is who those limited resources get used on. If a very wealthy person hoards their wealth and redirects it exclusively into investments, that’s normally seen as a bad thing. But in reality, those investments can and often do create more wealth for everybody overall, while creating just as many jobs and contributing just as much to output as consumption.
Consumption, on the other hand, is just that: consumption. Once resources are allocated to be used in a private jet with a limited service life, that’s millions of dollars’ worth of resources that can’t be used for improving the industrial capacity of the planet or just improving the lives of more regular consumers. If, instead of buying that plane, the billionaire invested in a factory, that would still create jobs and boost economic growth. But now, instead of literally burning wealth, it would add more value to the global economy by taking inputs and turning them into more valuable outputs.
This is an incredibly oversimplified example, but it should still make sense. It’s great when money circulates through an economy, and consumption is an easy and quick way to achieve this. But long-term, it’s better when both resources and money circulate through the economy, improving output now and improving output in the future.
Even if wealthy people do invest their money, the concentration of wealth can still cause problems, especially when those investments come in the form of global debt. Global debt is now over $300 trillion. Last week, we explored how that’s not necessarily a problem because all of this debt is owed to ourselves. The joke is that we haven’t figured out how to take out a loan from the Martians yet. On a global level, that’s true. Global debt is high, but that’s offset by the fact that for every dollar of debt that exists, there is a receivables asset that’s worth just as much.
But zoom in, and it’s not as simple. A small number of people own most of this debt. About 5% of global debt is owned by governments and non-government organizations like the World Bank and the IMF. The biggest debt-holding government is China, which not only holds onto other government treasuries as a way to keep foreign reserves but also lends for projects like its Belt and Road initiative, though it has slowed down significantly now. Either way, the remaining 95% of global debt is owned directly or indirectly by households. Most of this is controlled by corporations like banks and companies with large treasury holdings, but households own those companies.
The availability of debt and access to loans has always been a very important part of the economy. There are projects and technologies that will provide a lot of value to the economy but require a lot of capital to develop. If the people that want to develop these projects don’t have enough capital themselves, and they can’t get a loan, the projects won’t happen, and they won’t go on to add value to the economy, which is obviously a bad outcome. This doesn’t just apply to people with a great business idea. There are a lot of countries that have enormous economic potential, given their natural resource wealth or skilled labor force, but they’re not realizing that potential because they can’t access enough capital to develop their industries to be globally competitive.
If debt is created effectively and always put toward the most worthy projects, this wouldn’t be a problem for the global economy. In fact, it could be a good thing because the people giving the loans can assess the viability of a project before the global economy’s limited resources are wasted pursuing it. If someone wanted to borrow a billion dollars to fund research into renewable energy generated by cats running in hamster cages, it’s probably for the best that there would be an intermediary to allocate resources more effectively. But sometimes, that process can go too far, and good ideas don’t get funded because lending decisions are made by a tiny group of people.
Ben Bernanke—yes, that Ben Bernanke—won the Nobel Prize in Economic Sciences last year for his research on the availability of credit and its effects on the economy. Economics is a social science, and as academic as economists try to make the issue of inequality, there will always be differing opinions. Realistically, a certain level of inequality is a great way to motivate participants in an economy to innovate and work harder for the promise of building a better life for themselves. In doing so, they create a wealthier economy for everyone around them. But too much inequality can run counter to this goal, slow down projects, and waste resources that could have been allocated to making the world a better place.
This was part two of last week’s episode on global debt. As always, we didn’t want to repeat too much here, but if you haven’t watched that yet, don’t worry. It doesn’t matter what order you watch them in, but these two episodes are definitely meant to be watched together. Thanks for watching, mate. Bye.