Modern Day Inequality: What’s Driving It, and What We Can Do

In my previous two blog posts — The Balancing Act Between Labor and Capital: Why the World Feels Crazy Right Now, and A History of the Last 800 Years of Inflation — And What It Teaches Us Today — I explored the forces that have driven inequality over the past several decades. I also made the argument that inequality is a massively destabilizing force, and it's at the root of many of the social, economic, and political issues we face today.

As someone who genuinely wants to make the world a better place, I believe there’s no more important topic to understand — or to try and fix. While it’s easy to point out problems, it’s far more difficult to offer real solutions. That’s what I’ll attempt to do in this piece: to explore what might actually help.

Understanding What's Causing Inequality

In very simple terms, all that a rise in inequality means is that of the total value created by a national economy, a disproportionately large share is going to shareholders, while a smaller-than-ideal share is reaching the labor force.

While it's easy to hear this and point fingers at 'greedy capitalists' or shadowy corporate elites for rising inequality, that narrative often oversimplifies a far more complex reality. In truth, this kind of rhetoric is just a collective coping mechanism of the masses, allowing people to externalize their frustrations without grappling with the deeper structural issues at play. In the real world, the business owners I’ve met throughout my life are thoughtful and generous individuals, not some villains looking to exploit the working class. No one genuinely wants the poor to suffer, and suggesting the personal greed of the wealthy is the sole cause of inequality shows a real lack of understanding.

Another common argument is to blame capitalism itself, claiming that the system is inherently responsible for rising inequality. If that were true, we would expect the history of capitalism and the history of inequality to align. But that’s not what the historical record shows. In reality, we’ve seen both rising and falling levels of inequality occur within capitalist systems, suggesting that capitalism, in and of itself, cannot be the root cause.

Instead, at its core, inequality is simply driven by an imbalance between the supply and demand for labor. There are too many workers, and too few jobs.

The decline in real wages and the simultaneous rise in corporate profits is largely driven by an oversupply of labor, with other workers willing to do the same job for less. And this, too, isn’t anyone’s fault. People accept lower wages because they need to provide for themselves and their families. It’s not something any individual should be blamed for, let alone feel ashamed of. It’s simply how the dynamics of supply and demand play out in the labor market.

Can't We Just Tax the Rich?

For many, the most obvious solution is to simply tax the rich and redistribute the wealth to the working class through some sort of government programs, in effect, forcibly rebalancing the scales between labor and capital. But even setting aside the very real challenges of actually effectively taxing the ultra-wealthy — such as the fact that much of their wealth is tied up in illiquid unrealized gains, or that they can relocate to jurisdictions with more favorable tax laws — this approach still wouldn’t solve the problem.

The reason taxing the rich wouldn’t work is simple: the economy isn’t a static system. It’s a dynamic, adaptive one that responds to changes in its environment. Simply imposing higher taxes on the wealthy doesn’t address the underlying imbalance between the supply and demand for labor. As long as that core imbalance remains, the system will just readjust and revert back to its previous state, restoring the very inequality it was meant to fix.

Here's why:

Once the newly implemented government programs redistribute the newly taxed wealth to the working class, that sudden influx of spending power would flow back into the economy, triggering a huge wave of inflation. As prices rise, much of the intended "equality gains" from the redistribution would be eroded almost immediately.

Then, because workers are now receiving additional income from government redistribution programs, they gain a financial buffer that allows them to accept lower wages. As they continue to compete for limited job opportunities, this added flexibility enables them to undercut each other even further, ultimately driving real wages even lower than before.

Over time, we find ourselves back where we started, except now, the situation is even worse. Some high-net-worth individuals have likely left the country, taking their capital and businesses with them. The incentive to start new ventures diminishes, while the barriers to success grow higher, discouraging entrepreneurship. Since businesses are the primary creators of jobs, this means even fewer employment opportunities. As a result, the original imbalance in the labor market not only persists but it becomes worse.

So, What Can Actually Be Done?

To make any meaningful progress, we have to address the root cause: the imbalance between the supply and demand for labor. We need fewer workers, and more jobs.

Immigration

Over the past few decades, in much of the Western world, we have pursued policies of open borders and have imported a lot of immigrants, while simultaneously, we have exported a lot of jobs, particularly in manufacturing, to lower-cost countries. It shouldn’t come as a surprise that during a period in which the supply of labor has increased and the number of available jobs has decreased, real wages have stagnated or declined.

If we’re serious about addressing inequality, a logical starting point would be to prioritize immigration policies that strengthen the labor market. Specifically, we should give preference to immigrants who bring businesses, investment, or specialized skills that contribute to job creation. In contrast, entry pathways for those seeking only low-wage labor should be more selective, as adding to the labor supply without a corresponding increase in job opportunities risks further exacerbating wage pressure and inequality.

Lower Retirement Age

Lowering the retirement age would effectively reduce the supply of workers, easing competition for jobs and putting upward pressure on wages.

I understand that the prevailing narrative in the media argues for raising the retirement age, based on the concern that there won’t be enough workers to support a growing retired population. That concern is valid, but only if wages remain stagnant. If the policies designed to reduce labor supply succeed in raising real wages, then each worker would generate more economic value. As a result, fewer workers would be needed to support each retiree, potentially cancelling out the original concern.

Four-Day Workweeks

Reducing the standard workweek from 40 hours to 32 hours would effectively lower the supply of labor, as the same amount of work would need to be spread across more individuals.

Beyond the effect on the supply of labor, this shift could unlock a range of social and personal benefits. With more free time, ambitious individuals might use the extra hours to start businesses, potentially creating new jobs and industries. Creatives would have more space to focus on art and culture, while others would simply have more time to enjoy them. People could devote more energy to study, explore, and reflect — activities that could one day spark the next big scientific breakthrough.

This time could also be redirected toward community impact. For example, in a more radical model, we could reduce the workweek by 8 hours while requiring every citizen to contribute those hours to volunteer service. Such a system would channel an enormous amount of time and energy toward helping those in need, while also giving people a renewed sense of meaning and connection by contributing to something larger than themselves.

Encourage Entrepreneurship

Businesses are the primary engine of job creation, so if we want more jobs in the economy, we need more businesses. That means designing policies that make starting a business more appealing, easier to navigate, more likely to succeed, and more likely to remain within your jurisdiction once it does succeed.

This is one of the core reasons why raising taxes on the wealthy can be counterproductive. Higher taxes reduce the incentive to start a business, as the potential reward for taking on significant risk becomes less desirable. Fewer people are willing to take that leap when the upside is diminished. And for those who do take the risk and succeed, higher tax burdens increase the likelihood that they’ll move their business and their wealth elsewhere. The result? Fewer businesses, fewer jobs, and a weaker economy overall.

Instead, we should be encouraging more people to take that risk, especially when their success leads to job creation. To support this, regulatory barriers and bureaucratic red tape for new entrepreneurs should be streamlined. Additionally, targeted tax breaks or startup grants could be offered to businesses that meet specific job creation milestones, rewarding those who contribute directly to the health of the labor market.

Break Up Monopolies

Many of today’s multinational corporations, particularly in the tech sector, have effectively become monopolies. While they may not meet the strict legal definitions due to technical loopholes or carefully crafted arguments, the reality is that their dominance in their respective markets is overwhelming. In practice, they operate as monopolies, and should be treated as such — including being broken up where appropriate.

Breaking up monopolies would introduce more businesses into the market, creating a kind of double benefit. First, more businesses means more jobs, expanding employment opportunities across the economy. Second, increased competition would put downward pressure on prices, benefiting consumers. Together, these effects would help ease the pressures driving inequality by both raising incomes and lowering costs.

Targeted Tariffs

Tariffs are a hot topic these days, thanks in no small part to a certain recently elected "politician" who brought them back into the spotlight. But setting the theatrics aside, how would implementing tariffs actually affect modern economies? Given its current relevance in global geopolitics, I’ll dedicate a slightly longer section to sharing my thoughts on tariffs.

Most mainstream neoclassical economists are quick to argue that tariffs are a net negative for all involved. Their reasoning is grounded in the theory of comparative advantage, which suggests that countries are better off specializing in what they do best, and trading for everything else. In theory, this results in greater efficiency, lower costs, and mutual benefit for both trading partners.

When viewed from a global perspective, I agree with the core idea: humanity as a whole benefits from free trade. But when we shift the lens to individual countries, the picture becomes less idealistic. Not every nation benefits equally. Countries with persistent trade deficits do enjoy cheaper goods, but they pay the price by losing key domestic industries that have historically provided stable, well-paying jobs and upward mobility for the middle and working class.

The theory of comparative advantage makes sense in theory — but it assumes balanced trade. In practice, trade is rarely balanced, and when that assumption breaks, so too do many of the promised benefits.

What’s more, much of what we call 'trade' today doesn’t even occur between two independent countries, it happens within the boundaries of the same multinational company. When a company offshores production to a lower-cost country, this isn’t a mutual exchange between two nations — it’s an internal cost-saving decision. The manufacturing is not being shifted because the second country is better at making that product in a broader economic sense, but simply because labor is cheaper. The decision is driven by profit maximization, not comparative advantage.

There is no specialization or exchange of value between nations. The goods are often designed, marketed, and consumed in the original country, while only the production is moved abroad. The low-cost country gains jobs, and the corporation gains profit. But the original country loses jobs and receives no compensating inflow of goods or services in return, beyond what it already had. This internal transaction doesn't satisfy the conditions of free trade theory; it’s not an exchange between two equal parties, but rather an efficiency optimization within a vertically integrated firm.

In this case, the supposed gains from trade do not materialize for the society at large. Instead, the benefits are concentrated in the hands of shareholders, while the costs — unemployment, social instability, and regional economic decline — are borne by the displaced workers and their communities.

Lastly on comparative advantage: as is often the case with mainstream economics, the theory assumes a stable and static economy, not a dynamic one. Take China in 1978, when it began opening its borders to global trade. If Chinese policymakers had followed the theory of comparative advantage, they would have focused on producing rice. One of the few areas where they had a clear advantage at the time.

Instead, they chose to prioritize manufacturing, an area in which they had little experience, no established infrastructure, and, according to the theory, no real business competing in. By all accounts, this should have failed. But economies aren’t static. Through focused investment, policy support, and time, China became exceptionally good at manufacturing, and is now the world’s factory, exporting high-value goods globally. Had they followed their initial comparative advantage and stuck to rice production, their economy would not have grown into the global powerhouse it is today.

Sometimes it’s worth spending time on something you’re not good at, especially if it holds more value than what you already excel in. With time and experience, you can develop skill in that new area, and eventually gain a competitive advantage in a field that’s more valuable than the one you previously specialized in. The theory of comparative advantage should not be blindly followed.

Returning to the topic of tariffs, I believe they can be beneficial when strategically applied to key industries that are likely to shape the future and where global leadership carries significant long-term value. This is particularly relevant for countries running persistent trade deficits, and are therefore currently on the losing end of the trade. If implemented effectively, tariffs would bring back jobs for the working class, relieve pressure on the labor market, and address one of the core drivers of rising inequality.

Yes, prices would likely rise, but this would be more of a one-time adjustment rather than a prolonged period of inflation — which is far more damaging. And importantly, the wages from manufacturing would circulate within our own economies rather than abroad, potentially strengthening the domestic economy in the long run.

The main downside for developed countries would likely be a shock to the stock market, as corporate profit margins tighten. And, of course, such a policy would negatively impact developing nations that lose access to those jobs, making it, on balance, a net-negative for humanity as a whole. In the end, it’s a question of values: whether policymakers prioritize global economic efficiency, or the well-being of their own citizens.

But for the purposes of today’s discussion, implementing tariffs would likely help address the core issue at hand: the imbalance between labor supply and demand.

Edit on 07. April: Given the current situation following Trump’s tariff announcement, I want to clarify: I DO NOT support blanket tariffs on everything, that’s simply irrational policy. Tariffs should be targeted and applied strategically, focused on high-value goods and industries critical to long-term national strength. Slapping tariffs on everything, including low-value imports and products like coffee, which can’t even be produced in the U.S., is not just ineffective — it’s moronic.

Productiveness: The Elephant in the Room

Sharp readers will have already noticed that many of the policy suggestions outlined earlier are inherently unproductive. And where productivity goes, power flows. Wouldn’t implementing these ideas make Western nations less competitive on the global stage?

Yes, but I see that as inevitable anyway. Productive countries become rich, rich countries become lazy, lazy countries become unproductive, and unproductive countries become middling countries on the global ladder. For most Western nations to truly stay at the top, it would require a massive cultural shift toward discipline, ambition, and collective sacrifice — a change I’m not convinced can happen fast enough to reverse our current trajectory.

So the real question becomes this:

• Do we accept that we’re no longer at the top and focus on making life better for our general population? Because even a middling country in the future can offer a better quality of life than a world-leading country of the past.

• Or do we continue to fight the inevitable, trying to cling to the top, only to eventually crash and burn, as inequality and unrest spiral beyond control?

It’s not an easy choice. But ignoring the question won’t stop it from arriving.

No Forever Policies

To wrap up my thoughts on policy, I want to emphasize that I don’t believe in "forever policies." Every policy, system of government, or economic arrangement comes with both pros and cons. And no matter how necessary a policy may be at first, if left in place for too long, its downsides tend to grow into real problems. When those problems become too large to ignore, a shift is needed, and often, that shift must move in the opposite direction.

The same principle applies to the policy suggestions I’ve outlined here today. While I believe they could help address today’s problem of rising inequality, if left in place indefinitely, they could eventually push society too far in the opposite direction — toward excessive equality, which comes with its own set of challenges, perhaps even more severe.

I won’t delve into those issues today, but ideally, as that tipping point approaches, or better yet, before it arrives, smart policymakers would recognize the need to change course. At that stage, the very policies I’ve proposed here would need to be phased out and replaced with new, opposing measures designed to address the next imbalance: one where the supply and demand for labor has shifted too far in the other direction.

If Not Policy, Then What?

As I reflect on the six policies I’ve proposed in this piece, one conclusion stands out: three of them lean more toward the political right, while the other three align more closely with the political left. To me, this highlights something important; both sides of the political spectrum get some things right, and some things wrong.

But in today’s hyper-polarized climate, I find it hard to imagine either side embracing policies championed by the other, even if those policies were clearly beneficial. The political cost of letting the 'other side' claim a win often outweighs the actual merit of the idea. That makes it incredibly unlikely that the two sides could come together to implement an approach like the one I’ve outlined here, even if it could meaningfully address the issue.

So what happens then?

Well, as I outlined in my previous blog posts, I believe our societies are already on a path toward self-correction. The problem is that this kind of natural correction historically comes through a disruptive and painful collapse. When inequality is stretched too far, history shows us that people eventually revolt — often violently — once conditions fall below what their collective cultural memory and expectations can tolerate.

And while such an outcome would, in a brutal sense, resolve the imbalance, as loss of life does lead to reduced labor supply, I believe there are better ways to restore equilibrium. We have the option to course-correct before destruction forces our hand. We don’t need to rebuild from the ashes.

Note: The policy suggestions outlined here are not necessarily intended for Finland, the country where I live. Finland does not suffer from excessive inequality, at least not yet. However, we are closely connected to countries that do. And in an increasingly interconnected world, the problems faced elsewhere don’t stay isolated. Economic instability, social unrest, or political shifts abroad have a way of spilling across borders, and Finland is no exception. In that sense, inequality is still our problem, even if we're among the least affected nations for now.