Happy New Year everyone! I am very late to this debate, but I wanted to weigh in on the conversation launched by Dalton Conley’s pre-holiday American Prospect article on progressivism and inequality. In case you missed it, Conley argued that progressives shouldn’t care that much about inequality and that we should instead care about the poor. Inequality, he showed, has grown between the rich and the middle, but not between the middle and the poor. Bruce Bartlett, weighing in from the right, agreed.
I’ll address the living standards of the middle class and the poor in subsequent posts, but let me add my two cents about inequality trends in this one. An analysis I conducted back in November showed that what has likely happened is that the very top—the top one-half of one percent—has pulled away from everyone else, though the increase from 1980 to 2009 has probably been fairly modest. Whether this has been a good or bad thing—or aside from trends, whether higher inequality in the U.S. than elsewhere is a good or bad thing—ought to depend on three questions, empirical and normative, none of which we have much of a handle on.
First, how does letting the rich get richer affect the absolute living standards of everyone else? As Alan Reynolds has argued, measures of inequality tend to reinforce a fixed-pie conception of national wealth—gains by the rich come at the expense of everyone else. But of course, the pie is not fixed in size, and it may be that allowing the rich to get a greater share of the pie makes for a bigger pie and bigger slices for everyone (a point made by Bartlett). Think about Rawls’s maximin rule—that any inequality that results in the worst-off being better off is just. It’s not necessarily the case that greater inequality must help out those who fall behind, but it’s certainly plausible.
Second, how does letting the rich get richer affect the relative deprivation experienced by everyone else? There are two questions here. When the rich get richer, people at the bottom and even in the middle may get priced out of certain goods and services, as prices get bid up by the wealthy. On the one hand, it may be that yachts become less affordable to the non-rich, which presumably no one would get too worked up about. On the other hand, if the price of an Ivy League education or prime neighborhoods becomes unaffordable to the non-rich, that would have bigger implications. Beyond the issue of being priced out of goods and services, inequality may make the non-rich feel less well off—even if their absolute living standards improve. If the Nissan Sentra you own is nicer than the Chevy Cobalt you used to have but feels no better since more people are driving Jaguars than in the past, then there’s room for debate about whether you are “better off”.
Third, if inequality makes most people better off in absolute terms (by making the pie bigger) but makes them feel worse off in relative terms (if their bigger piece feels smaller than before because of how much bigger others’ slices have gotten), then how much weight are we to give each effect? Unlike the other two considerations, this one has empirical and normative dimensions. You may think that being better off but feeling worse off is a net change for the worse, while I may think that it’s only being better off that matters. Robert Frank has made the case—not entirely convincingly, in my view—for the former view.
If you’re looking for the answer to these questions in a blog post, then my heart goes out to you. What I will say is that a situation in which the top 1 in 200 pulls away from the bottom 199 is quite a bit different than a situation in which the top 40 pulls away from the bottom 160, since relative deprivation is likely to be a bigger problem in the latter case.
More to the point, reflexive soak-the-rich tendencies among progressives are unjustified—the details and the facts matter, unless you simply are opposed to inequality regardless of whether it might help the bottom and middle.
Middle-class living standards next…
Update: Click here to read the next post in the series.
The views expressed in this piece do not necessarily reflect those of the Progressive Policy Institute.
Tags: Economy, Inequality, Middle class, Poverty, Taxes
It’s true that I don’t view inequality per se to be an economic problem. It is, of course, a political problem and perhaps a sociological one as well. But I was very careful to specify that the gains of the welathy must not come at the expense of everyone else. I was, in other words, assuming that the pie gets bigger. If the pie were stagnant it would be a different matter. But I would still caution against using the tax code for the purpose of reducing inequality because the only way it can really do that is by discouraging the wealthy from realizing taxable income, which is a bad idea. Insofar as we raise taxes on the wealthy it should only be to provide revenue to the government that may finance programs that would improve the well being of the non-wealthy. This may have the side benefit of reducing inequality, but that’s not its purpose.
What you and Bartlett fail to grasp , or more likely , admit ( in Bartlett’s case , at least ) , is that inequality can be damaging to the masses even when the pie is growing , and even if the “rich” are a numerically small slice of the pie.
In a typical advanced economy that has long-run real per capita GDP growth of , say , 2 % annually, with the top 1% of earners with incomes growing at an average real rate of 6% annually , eventually that top 1% will have ALL the income. In a matter of decades , not centuries or millennia. Simple compounding math , but not too simple to ignore , apparently.
We’ve witnessed the capture of a good chunk of the pie by the top 1% as their share of income has risen from about 8% to about 22% of total income over the last few decades , while hourly incomes have stagnated or declined for most. Do we have to wait till they get to 70 , 80 , or 90% of the income pie before we admit that there may be a problem?
Is “pragmatic” another way of saying “counterfeit” , or are you just really bad with numbers ?
[...] last post tackled inequality trends in the U.S. and how progressives ought to think about them. Now I want to [...]
The questions posed here make me suspect none of you know anyone who makes less than a six-figure income.
Starting with Reagan in the early 80s, rents quadrupled, college costs skyrocketed out of reach, jobs began to disappear and wages for those that remained paid less than 80% of what those same jobs had paid a few years earlier.
I’m shocked that you seem determined to believe people making less than $100k/yr are motivated primarily by resentful comparisons with those who are wealthier. If there are rueful/resentful comparisons made, they are to the quality of life we enjoyed in the recent past.
This article is based on the presumption that inequality by itself increases economic output; a bigger pie trickle down bigger slices to everybody. I see no proof of this presumption. neither do I see any reasoning to why, inequality (everything else being equal) by itself, leads to higher aggregate output.
Will inequality make the poor work harder?
Will the poor use less social services, thus leave more for the rest of us?
Will the poor die earlier, thus consume less?
Will the rich be more productive?
What is the reasoning? Why would inequality by itself lead to higher output?
This article seem based on this statement: “But of course, the pie is not fixed in size, and it may be that allowing the rich to get a greater share of the pie makes for a bigger pie and bigger slices for everyone”.
In order words, pure conjecture; “it may be …”
Empirical evidence shows the opposite. Notice the correlation with increased equality and economic output in the western European countries since the turn of the century. Also note the effect of voting rights (anywhere) lead to greater political power leads to increased equality leads to greater economic output.
I presume the thinking is that inequality leads to capital accumulation (by the rich), that then invests in more capital that leads to higher economic output. However, what’s the purpose (who is the consumer) of that higher economic output?
If all productivity gains are re-invested in more productivity gains, less workers are needed. Less workers because they consume the same but are more productive, so less workers are needed. Also called unemployment.
Inequality is bad, unless there is a purpose for that additional output, like the WW2 war effort, the interstate freeways, the space program, or (heaven forbid) energy independence.
This is progressive? I’ve never read a more out of touch ‘progressive’ essay on inequality in my life.
Do some due diligence on the economic struggle of the middle class and how the basics of health care, education, retirement, job security have slipped out of reach over the last four decades.
Sheesh.
lark said :
“This is progressive?”
Read the full site name. It’s the “Progressive Fix” , as in “the FIX is in!”.
It’s progressive in the way that Blue-Blood Democrats are progressive , which is to say : not in the least. These days , anyone a hair to the left of Dick Cheney gets to call themselves progressive.
We need a new word. Maybe “liberal” ?
Wait , that won’t do. After all , we’ve been practicing neo-LIBERAL economics for the last 30 years , and we all know how well that worked .
How about “Nordic” ?
Are there any Congressional candidates running this year named Nils or Ingrid ?
I don’t know where to start.
Did anyone here ever consider the growing gap between the middle and the tippty-tip-top may be a result of a horrible squeeze on the (unique in all the OECD world) bargaining powerless at the bottom of our American labor market sending a “lump of cash up said labor market’s normal throat” — through the sufficient bargaining power middle (well, not quite middle as we shall see) — to those in unique winner take all position at the top of every economy. Sort of a process of squeezing a toothpaste tube at the bottom — the pressure is equalized in the middle sends it all comes out the top.
By (my) definition this is not caused not on any conspiracy at the top — the folks getting all the money are not smart enough to fool the rest of us and certainly not suddenly so much more productive that they deserve such exaggerated rewards: linebackers, ever more irrelevant TV anchors, CEOs not 25X more productive.
Over the last 36 years 15% of overall income has migrated from the pockets of the bottom 90% to the buckets of the top fraction of 1%. Meanwhile 90-97% earners who presumably represent top brains and energy have just kept pace with income growth. Top 1 percentile household income in 2006: $1.2 million! Not your family doctor. Not even the 180,000 Wall Street gamblers who averaged $180,000 bonuses on top of their average $120,000 salaries in 2007. Like I said most of it went to people who can in no way justify their economic drain on the rest of us — not that it is their fault at all.
If we could have predicted to folks in 1968 that by June 2007 a quarter of the American workforce would be earning less than the minimum wage under LBJ ($10/hr) they would have expected some fantastic explanation: small nuclear war, comet strikes?
Working Americans simply do not understand one simple thing: that you have to bargain from a position of strength to get all the market would be WILLING TO PAY you — then only will the “hidden hand” do the job right.
This is something folks in the rest of the better paid and benefited OECD world have figured out — except for also labor strangled Japan. The simple answer is something called SECTOR-WIDE LABOR AGREEMENTS where by law everyone doing the same type of work in the same geographic locale work under the same collectively bargained contract conditions (why Wal-Mart closed 88 German big boxes). And let the “hidden hand” take the hindmost — but fairly.
More on unrealistic thinking about so called “inequality” (I prefer Great Wage Depression — poverty in America being mostly a function of our broken bargaining power labor market in my opinion) in my next comment below.
One of the continually unrealistic economic discussions in terms of everyday folks is about the minimum wage.
Discussions begin and often end (especially for Republicans) with that old supply and demand chart from the first week of first year economics. That’s all anyone needs to know about a giant complex economy. I am no economic maven. I am a retired cab driver (30 years).
How about including the next simple consideration in any market: that selling FEWER units (hours) for more dollars per unit can result in more profit. Double the minimum wage from early 2007’s $5.50/hr (2010 dollars) and lose half the jobs (super unrealistic) and labor is much better off — same money; half the work.
Or how about considering the possibility that fewer teens may be hired at a higher minimum because more adults become willing to show up for higher wages — not an unhealthy development. Any professional studies; even one?
Or about how many Americans would be put out of work by a higher minimum wage — OR IS IT THE OTHER WAY AROUND. In 1991 I think Business Week reported that McDonalds had 70% turnover every 90 days. These days — at least in Chicago and San Francisco — I see the same smiling Mexican faces year in and year out (keeping wages low is not the way to help poor Mexicans I hold).
BTW, Raising today’s — 75 cents short of 1956’s — minimum wage to $12.50/hr (25% higher than LBJ’s minimum — double the average income later — ever hear that on the news?) would probably cause something like 3% inflation. (Well; at some point you just have to free the serfs and work through the consequences.) I once worked out similar figures here: http://ontodayspagelinks.blogspot.com/2008/08/something-for-nothing.html
My real point here is motivation and methodology. The most progressive economists in the country in my view: DeLong, Krugman, Baker, etc., will barely add unionization of a higher minimum wage to a long list and will never discuss them. They rail on and on about all the troubles caused by a political economy unhealthily missing a middle class voice when all the trouble could be avoided by re-instating (via a healthy labor market) a healthy middle class.
Odd sociobiological note here: males being instinctive pack hunting animals truly think in the third-person: are more concerned with cooperation per se than with what they are cooperating about. We could not catch and kill a small dog one on one — profound influence on our thinking. I have observed this in a wide range of issues over 25 years now. If a topic is not already on someones agenda somewhere it is sociologically impossible to put it on — with males. No; ladies are not receptive to new ideas (like sector-wide labor agreements; arguably the perfect solution of most of America’s problems — but never, never raised in discussion); ladies are able to think in the first-person like the gathers/shoppers they are — and are able to compare positive qualities with other what they take to be fellow shoppers on a purely substantive basis.
SORRY: THIS IS THE LINK TO INFLATION POTENTIALLY CAUSED BY THE MINIMUM WAGE I THOUGHT I POSTED JUST ABOVE:
http://ontodayspagelinks.blogspot.com/2008/08/something-for-nothing.html
APOLOGIES; THIS IS THE LINK TO INFLATION POTENTIALLY CAUSED BY THE MINIMUM WAGE THAT I THOUGHT I POSTED ABOVE:
http://ontodayspagelinks.blogspot.com/2008/08/3-cost-of-gdp-output-and-inflation.html
[moderator feel free to clear up my mess any way]
Just read the book “the Spirit Level”. Inequality matters, and that book shows why.
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