Why Inequality Might Matter

Note: This post is part of our League Symposium on inequality. You can read the introductory post for the Symposiumhere. To see a list of all posts in the Symposium so far, click here.

For about as long as I can recall, discussions of inequality were a sure way to induce an eye-roll from me.  At best, you might have been able to get me acknowledge that inequality could be a symptom of some other underlying problem, but the notion that it might be a problem unto itself seemed preposterous to me.  Over the last 8-10 months, I’ve become convinced that this view was misplaced.  Let me first throw out the giant caveat that I am convinced only that inequality (or more precisely, rising inequality) can be a problem and indeed a problem worth doing something about; I am unsure one way or another as to whether it actually is a problem worth addressing in a large scale manner in this country at this time.  I also expect that there are relatively few liberals with whom I’d agree in terms of the potential solutions for this problem- as I suggest below, the problem of increasing inequality is in the nature of a nasty feedback loop, one of the core elements of which is regulatory capture; a cycle involving regulatory capture cannot be solved by creating more regulations to capture.  Finally, for purposes of this piece, I’m interested primarily in discussing the circumstances in which rising inequality is a problem unto itself, rather than just a symptom of an underlying problem; this is not intended to explore the underlying causes of rising inequality.

In any event, this is an attempt to explain what ultimately convinced me.  But first, here is why I took as long to become convinced as I did:

• Most important, the alleged problem is not inequality per se, but rather rapidly rising inequality.  If the debate is framed as being over inequality per se, even high degrees of inequality per se, then the side arguing that inequality is a problem is going to deservedly get a lot of eye rolls.  However, if the debate is solely over rising inequality, the issue changes dramatically.  Too often, progressives do a terrible job making this distinction by focusing on absolute measures of inequality to make their arguments, creating the impression that their goal is simply to eat the rich.  For instance, headlines in liberal outlets last year loudly proclaimed that Egypt has less income inequality than the US; though the actual stories often referenced the increase in inequality within the article, the distinct impression left was that the real problem is inequality per se, and that rising inequality is just a sign of an existing problem getting worse.
• Even historical comparisons do a poor job of conveying that a problem exists that is worth addressing because such comparisons are ill-equipped to address the undeniable fact that, even if growth has been distributed unequally, it cannot be said that the lower economic quintile hasn’t benefitted from that growth at all.
• The next issue of course is why is “rising” inequality a problem worthy of concern?  Here, if we even get this far, the claim is too-often something to the effect that rising inequality is a problem because it will “create resentment and hostility,” and presumably therefore a lot of political and economic instability.  This may or may not be accurate, but it doesn’t get us very far, because it basically begs the question, effectively suggesting that resentment and hostility towards rising inequality are justified because rising inequality will create resentment and hostility.
• Too often the issue is also framed as one of “social justice” or “fairness.”   These may well be valuable intra-movement buzzwords for progressives, but for others these phrases are incredibly inexact, vague, and subjective, conveying little or no real meaning other than the speaker’s sense of moral superiority.

So what convinced me that rising inequality is, or at least can be, a major problem?

• I, like just about all libertarians, take regulatory capture as a given, particularly in a heterogenous, pluralistic society such as that which exists in the US.  The only real way to mitigate this is by maximizing the number of competing interests seeking to direct regulations in a manner favorable to them.  Increasing inequality likely, though not necessarily, reduces the number of interests competing directly with each other and thus worsens the problem of capture.  Although I disagree with progressives’ assessment of the impact and relevance of the Citizens United decision in this regard, the close tie between opposition to Citizens United and a focus on rising inequality seems to demonstrate that this concern about regulatory and legislative capture is very much at the heart of why rising inequality is viewed as a problem unto itself.
• The concern about regulatory capture is exacerbated by the fact that this is likely to create a perpetual cycle in which increased regulatory capture results in increased inequality, which in turn results in ever-increased regulatory capture.
• When this is all combined with globalization, the effect is not merely decreased popular input in government, but also increased disregard for local cultural norms.
• Increasing inequality also might change the way in which markets are structured, partially eroding one of the core benefits of free-market based economies.  By this I mean that as inequality increases and wealth becomes increasingly concentrated, the market will increasingly cater to the tastes and priorities of the wealthiest classes, and those tastes will increasingly drive new products and innovations.  Presumably this would mean more luxury items and fewer items of practical use for the lower and middle classes.  At some point, and especially if the tastes and priorities of the wealthiest are relatively uniform, this might have an effect not dissimilar from monopsony on the markets for goods and services.  In other words, the ability of the lower and middle classes to create demand to which markets may find it profitable to serve will decrease, perhaps significantly, even as the ability of the wealthier classes to create such demand increases.
• The overall cycle of increasing inequality would also surely exacerbate social and culture divisions between the wealthiest and the lower and middle classes- the disregard for local cultural norms inherent in globalization will serve to further isolate the wealthiest classes from the dominant local culture and from lower and middle class society, even as they have increasingly dominant political and economic power over those classes.  Indeed, it seems to me that this cultural isolation of the upper crust is an area in which the narratives of the Right and Left are in complete accord, if expressed in starkly different terms – compare the “Two Americas” speeches of John Edwards’ 2004 primary campaign with Charles Murray’s Coming Apart thesis.  Then consider that “marrying up” appears to be happening with less frequency.
• Finally, the diminishing concern for cultural norms, the increasing isolation of the wealthiest classes, the increasing control of gains from productivity, and the increasing power of the wealthiest over demand combine to increasingly reduce the concerns of the wealthiest for the poor and middle classes to how well those classes produce additional wealth for the already-wealthy.  The point of society as a whole increasingly becomes solely the maximization of GDP growth; the lower and middle classes will work longer hours for stagnant wages.