Some Inequalities Are More Unequal Than Others
We need new thinking about economic inequality.
For at least a generation, we’ve been having an argument about inequality that goes something like this. On the left, somebody points to persistent inequalities in American life, whether it’s the racial gap in test performance, or the pay gap between men and women of similar qualifications, or the fact that some people get “gold-plated” health insurance through their jobs while others are uninsured, or the inexorably rising share of national income going to the 1%. And this person proposes solutions, some of which become bi-partisan shibboleths (affirmative action), some of which scramble partisan categories (charter schools and the rest of the school reform agenda), and some of which become the focus of partisan conflict (some kind of national health insurance, higher tax rates on millionaires).
On the right, somebody counters that inequality is an inescapable consequence of free competition, and that free competition is what drives economic growth, which “makes the pie higher” for everybody. Some inequalities may deserve to be addressed for reasons of justice (most right-leaning folks I know personally accept the importance of providing for the truly needy), but in general you don’t want to reduce inequality because any effort you make to do so penalizes the (relatively) successful and rewards the (relatively) unsuccessful, and this creates the perverse incentives that hamper innovation and growth.
It’s a familiar argument, and one that nobody can win permanently, because few people are completely unconcerned about inequality and few people are completely unconcerned about stalling economic growth. And so you got more of a see-saw effect, with left and right winning alternate rounds of the argument.
But the Great Recession has scrambled this analysis. The Obama Administration came into office with the typical Democratic agenda for tackling various inequalities. But, as a consequence of the recession, he was enacting this agenda of more equitable pie-sharing in the context of a shrinking pie. And a time when most Americans are worried that we aren’t as rich as we thought we were is a difficult time to convince people to share. On the other hand, traditional Republican ideas for promoting economic growth (at the price of inequality) have been substantially discredited by the weak economic performance of the Bush years, the financial crisis and the subsequent recession. We have entered a period of austerity politics, in which both right and left are predisposed to fight fierce rear-guard actions to prevent anybody from taking away their share of the pie. Meanwhile, inequality continues to grow.
There are a couple of other tacks this debate could take. Mickey Kaus, for example, once championed the argument for promoting “social” equality – building up strong communal institutions and forcing people of all classes to undergo common experiences (strong public schools loom large in this vision) – as a counterweight to economic inequality. And there’s a socially conservative version of this argument that fingers our cultural “coming apart” for the widening economic gulf, and claims that a sexual counter-revolution would create the social conditions in the struggling working class conducive to rising on the economic ladder, while also bringing about a conservative version of the social equality that Kaus advocated (“marriage” serving as both the key “strong communal institution” and the key “common experience” for all classes in this vision). But there is the nagging suspicion that both the left-wing and right-wing vision of social equality have the arrow of causation backwards, that you can’t have “strong public schools” for everyone when the impulse to segregate economically is so powerfully motivated, and that you can’t restore a “culture of marriage” no matter how much preaching you do when there’s a persistent shortage of “marriageable” males.
Which is why we need new thinking about economic inequality.
On the left, there is an emerging argument that, in our current economic conditions, the traditional right-wing argument, that inequality is the price of economic dynamism, is actually backwards: inequality is itself holding back dynamism, and is not merely a consequence of the Great Recession but an important part of the cause. I find a lot of this analysis convincing, but I’m less convinced about the remedies. In particular, I remain unconvinced that direct redistribution – of which we are doing more and more through the tax code – will do much to alleviate the growth of inequality. Indeed, when the labor market is slack, direct redistribution may simply be subsidizing businesses who offer low wages. And while I think upper-income tax rates have plenty of room to rise – and should rise – I don’t think that’s really going to do much to address rising inequality either. Democrats like to point out that the higher Clinton tax rates didn’t harm the economy – and they didn’t. But they also didn’t put any kind of a brake on growing income inequality.
I think the Democrats have a number of useful ideas, but I don’t think they’ve painted a complete picture, largely because they remain wedded to a neoliberal consensus view that our comparative advantage has been revealed by the market, and that what we need to do is re-tool our workforce to suit what our economy is inevitably going to become. And I don’t think that view is correct.
Whether it is the result of deregulation or of continued government interventions (and I think it’s some of both), financialization has pervasively distorted incentives across the American economy. We need to tackle that problem directly, and not treat the financial sector as a cash cow that with either miraculously (if you’re a Republican) or through redistributive taxation (if you’re a Democrat) feed the rest of the economy. We already have an industrial policy, but it is driven by the needs of specific sectors – defense, agribusiness, natural-resources extraction, pharmaceuticals, entertainment – and not by our collective interest in moving our labor force up the value chain, which is the only way to create an abundance of jobs paying decent wages.
“Inequality” has for a long while been treated as a “Democratic” issue, either because it’s treated as code for concern for the poor (which one would hope would be something both parties care about) or code for envy of the rich (which one would hope would not be an important driving force for either party). But it’s become too serious an issue to be treated as code. I’ll admit, I’m convinced by the argument that the kind of pervasive and growing inequality we’ve seen develop in America has become a deep problem for our political and economic system as a whole, and not just for the fringes thereof. And it needs to be a central focus of both parties’ thinking and policymaking.
Inasmuch as I’ll be listening for anything tonight, this is what I’ll be listening for.