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Student Question

  • Explain the modernization theory and its critics from a global stratification perspective.
  • Is the world system of economy beneficial for all? Some argue globalization and the world economic system support the rich becoming richer and the poor remaining poor. Others argue that the system works well for all and that poor people, particularly in developing countries, could lift up their incomes significantly. Which position you would like to argue and why? Explain from a sociological perspective using the new international division of labour theory.

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Income inequality in the US is rising and is near the peak right before the stock market crash of 1929. What are the primary causes of the crash?

One cause was the quantitative easing of the money supply created by the Aldrich-Vreeland Act of 1908 and by the Federal Reserve after its creation in 1913. That this increased income inequality is not surprising, considering that very wealthy individuals and large corporations (including banks) have first access to the newly-minted money (before it can be devalued).

Another cause was subsequent quantitative tightening in 1928 that continued even after the crash. The very wealthy who survived the crash were able to purchase assets at fire sale prices, further increasing income inequality.

Thus, the Fed increased volatility of economic cycles, which the wealthy were better able to exploit.

People tend to specialize according to interest and talent. Technology and management tend to be the fields with the highest level of reward, both for contributors and consumers generally. Creative contributions to those fields tend to require a high level of intelligence, thus enabling a natural aristocracy of merit.

The Federal Reserve of San Francisco argues that P/E ratios did not indicate stock prices were overvalued by the end of 1927. This implies that P/E ratios are determined by monetary policies—not new, better technology or generally improved management methods. Short-term, QE can improve nominal profits, but eventually the efficiency of QE decreases as inflation takes effect, while technology and management tend to improve over time.

Technology and management are methods of modernization. These factors are determined in large part by culture and by the eagerness of various societies to embrace reason and the tools which help create the modern world. Inevitably this will lead to some degree of stratification, as talent and adaptability are not evenly distributed in the population; however, one could argue that free competition in the market tends to decrease general inequality of wealth while rewarding the right type of talent that benefits people generally.

Government policies, including monetary, together with sociological factors such as culture determine the degree and cause of inequality.

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