eyes on the U.S.

U.S. Inequality, A Warning For Other Western Democracies

Barack Obama made American inequality the central challenge of his State of the Union address. Europe and the rest of the West should be listening too.

NYC's Occupy Wall Street protests
NYC's Occupy Wall Street protests
Alain Frachon

PARIS — A likely candidate for the 2016 Republican presidential nomination, Marco Rubio tirelessly repeats the enlightening fairytale of his childhood in Miami. The Florida Senator adapts it more or less to each audience, but it is essentially the story of Cuban migrants, who, after years of hard work and deprivation, manage to send their children to college.

Of course, the children went on to join the ranks of middle-class Americans, and Rubio himself went on to Washington. But, warns the Senator, this wouldn’t be possible today. Though his parents’ wages were modest — he was a barman, and she worked in a hotel — his parents managed to afford higher education for their children.

But with the same jobs today, there is no way they’d earn enough to afford an education for their children. The “American dream” has grown “out of reach,” Rubio said during the 50th anniversary ceremony of the “War on Poverty,” which was launched by President Lyndon Johnson in January 1964.

Here too

Indeed, it is a sad state of affairs. The U.S. has become a society eaten away by income inequalities. The earnings of the enormous middle class have remained stagnant for the past 30 years. Only about 10% of the population benefits from the lion’s share of U.S. economic growth. But Senator Rubio is merely recycling the topic that Democratic President Barack Obama has been talking about. “Inequality is the defining challenge of our times,” the President declared in December (before making it the centerpiece of Tuesday's State of the Union address).

When Democrats and Republicans issue virtually identical diagnoses, in almost identical terms, it means the illness is serious. We can hear the European social model lackeys now: “Not here!” Wrong. Most Western economies are undergoing breathtaking income disparities.

Economists are painting a monochrome picture, providing the same figures to describe the same reality. Gaps started widening in the U.S. in the 1970s. It reached Western Europe in the 1980s. “Just before the 2008 financial crisis, inequalities were reaching record highs in the U.S. and in most developed countries,” says Laura Tyson, an economist and former advisor to Democratic President Bill Clinton.

Only by taking on debt has the American middle class maintained its standard of living over the last three decades. But there is no crisis at the top, only an increasing concentration of wealth. In 2012, 10% of the richest Americans accounted for almost half of the national income. The notorious 1% alone accounted for some 22% of national income. Such figures were rivaled only in 1928, and they are deeply changing the American social profile.

Correlation is not necessarily cause, but the growing income gap has also resulted in less social mobility. “One of the fundamental promises of America relies on the possibility to join the ranks of the middle class,” Rubio says. “But today, this opportunity is challenged.”

Economists haphazardly list technological development, robotization, problems in education systems and, most importantly, the globalization of the economy as causes for the growing gulf in income.

The more that inequalities grow in Western countries, the more they shrink globally, where the ranks of the new middle classes rise. What have the U.S., Europe and Japan learned? The French still believe in their singularity: They don’t like this question. They say the situation is not the same in every developed country.

The Gini coefficient, a measure of inequality, is higher in the U.S. and in Great Britain than in France, for instance. So does the miracle of the welfare state guarantee better protection against inequalities? Partly, France has battalions of unemployed people. Low wages or unemployment? The French have chosen, without a doubt. But it’s not obvious which is the lesser evil.

Nor is the answer to the inequality boom in Western economies obvious. These economies cannot question globalization. For them, emerging markets have become a priority. But income gaps, the social polarization between the “1%” and the rest, will probably have a serious impact — on growth, on political and social balance, and on democracy.

As usual, the American debate is a precursor for the rest of us.

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Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum


SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.

It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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