President Barack Obama’s expedient “pivot” to the topic of inequality has revealed continuing incoherence in understanding of the concept.
This is because it is much easier to rail against growing income inequality in populist fashion than to explain precisely why and how it matters in terms of economic outcomes.
First, the mere fact of increasing inequality over a given period has no political or moral meaning whatsoever without some kind of consensus as to what the “appropriate” distribution of income should be. Lacking such agreement, we can’t as a logical matter say that changes in any given distribution (such as fluctuations in the level of inequality) are either good or bad. Nor is it logical in any way to simply claim that however much inequality exists at any given point is too much (the default leftist position).
A second point that liberal politicians like Obama miss is that increasing inequality doesn’t necessarily “hurt” anybody.
Indeed, it is preferable for inequality to grow while everyone’s income is growing than to see inequality decline while people become poorer. The truth is that some groups will always gain or lose more than others over time, unless we illogically assume that governments can somehow orchestrate highly precise allocations of wealth for every income quintile.
In the end, most of us tend to measure our economic progress compared to our previous station in life, not by how well others are doing. While there are many on the left who would prefer that we all be poorer but more equal, this is not a position likely shared by ordinary citizens who would be suffering that equality of poverty.
Which gets at the third point-gains in income for the rich in a market economy don’t necessarily come at the expense of or mean losses for other groups. As Kevin D. Williamson noted in a recent column on the issue, “If Goldman Sachs earns less money this quarter, that does not mean that some quantity of money is therefore liberated from their foul clutches to float about until lower-wage workers can claim it.”
This point may ultimately be the crucial one, because built in to so much of the left’s angst over increased inequality is the inaccurate idea that the economy is a zero-sum game and that some of the gains flowing to the 1 percent in recent years would have automatically gone to the bottom 50 percent instead. But there is absolutely no reason in economic logic for this to be the case. Indeed, there is no basis for ever assuming that gains or losses for one group have anything to do with or are in any way caused by gains or losses for another.
To use an example from a different realm of life, one student in a class getting an A on an exam has nothing to do with another getting an F (unless we, again, use a “zero-sum” grading system in which every A has to be balanced by an F).
All of which gets at the real problem with our current growth in inequality, which is that it stems from stagnant wages and living standards for the “bottom half.” If their incomes had grown to a greater extent, even if those for the 1 percent had grown by more, we wouldn’t have nearly as much to worry about. Within this context, and as Williamson points out in his essay, growing income inequality is not a cause of stagnant incomes at the bottom but a consequence thereof.
Although the left’s zero-sum redistributionist logic would have us believe otherwise, it is possible that the situation of the working and middle classes might have been just as bad or even worse in recent decades if the top 1 percent had done less well. It is, after all, a strange economic theory which suggests that we can help the poor by making the rich poorer too (it might provide some moral satisfaction, but not material benefit).
We also tend to forget in all this that as much danger can flow from too little inequality as from too much, because the prospect of getting richer (thereby leading to greater inequality) is what provides incentives for people to innovate and take risks in a capitalist order. And that to use political stratagems to squish income together would be to remove those incentives from which we all ultimately benefit, for the sake of an inherently unachievable and unnatural abstraction (equality of outcome).
Thus, when viewed more objectively, a certain amount of inequality is both inevitable (because, as the founders noted, people have “unequal” faculties for acquiring property) and desirable for the sake of societal progress.
What all this means is that inequality ultimately only matters under two circumstances: if it comes about as a result of political favoritism (what the founders called “unnatural inequality” and what these days is called “crony capitalism”) and if those in the bottom half are being left too far behind over time.
Alas, it is that second scenario which now most bedevils us.
But this isn’t, as the left would suggest, about rich versus poor, or the 1 percent versus the 99 percent, but about finding ways to make the poor (and everyone else) richer.
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Freelance columnist Bradley R. Gitz, who lives and teaches in Batesville, received his Ph.D. in political science from the University of Illinois.
Editorial, Pages 13 on 12/30/2013