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Do liberals have it wrong on inequality?

Thumbnail image for inequalitygraph.jpg

Bruce Bartlett doesn't think liberals or conservatives have it quite right on inequality:

Implicitly, liberals tend to believe the pie is fixed. But, generally speaking, it isn't. A rising tide does tend to lift all boats even if those at the top get lifted a lot more. But Conley is also right to ridicule the view, common among many conservatives, that enriching the wealthy somehow automatically benefits the poor. That's obviously nonsense. But neither does it follow that there is no limit to how much we can soak the rich without average people suffering some of the consequences. We really don't want the rich spending all their time figuring out how to hide their wealth from the tax man or engaging in conspicuous consumption; we'd rather that they invested their wealth in businesses that will increase their wealth but also create jobs and income for the rest of us, too.

For this reason, I have always been more sympathetic to programs that aid the poor than other conservatives. It's not so much that it's the right thing to do as that it's a necessary price that has to be paid to maintain democracy, open markets, private property, a stable currency and a tax system that doesn't punish success too much. To be sure, there is a heavy price to be paid when social welfare programs go too far. But at the same time I don't think the social Darwinist, Randian state in which people are left to die if they don't work is the one that maximizes growth or well-being for the producer class.

Dalton Conley has more. But I tend to think people get confused talking about whether inequality itself is bad. My view is that it's a symptom of something bad. An unbalanced economy is not a healthy economy. Is it really a coincidence that inequality peaked in 1928 and 2007, directly prefiguring the financial crashes of 1929 and 2008?

By Ezra Klein  |  December 15, 2009; 12:45 PM ET
Categories:  Inequality  
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Comments

That's a nice straw man from Mr. Bartlett.

I thought the consensus view these days is that the pie grows, but that the Rubin "first, grow the pie as large as possible; then, worry about how do distribute it" view was wrong.

But maybe Bruce Bartlett knows better than I do.

Posted by: NicholasBeaudrot | December 15, 2009 12:57 PM | Report abuse

"Implicitly, liberals tend to believe the pie is fixed."

Incorrect premise.

Nicholas is more correct than Ezra or Bartlett.

For a better understanding on distribution of wealth, see postings at http://robertreich.blogspot.com/

Posted by: Lomillialor | December 15, 2009 1:06 PM | Report abuse

Large inequality is bad. Whether you call it a sympton depends on what you define inequality to be. Income inequality I would probably regard as a symptom, but I would regard it as a symptom of inequality or injustice as it relates to power.

Employers unjustly wield a larger power when negotiating with employees. This stems both from the losses taken by the labor movement in membership, public perception, and money in the past generation and from the lack of checks and regulations on people at the top.

We cannot ignore that there is a positive feedback affect in our current system that helps people who accumulate money and power to accumulate more money and power.

To think about how the system might be corrected, consider an extreme example where we implement a negative feedback mechanism. Consider we required that the poorest performing students attend the best, most prestigious universities and be taught by the best most prestigious teachers and professors. Ignore some of the most apparent problems with implementing this in the modern USA. Perhaps, consider its implementation in a more equal society. This would have an equalizing affect because the greatest educational opportunities would go to the most in need. The wealthier, better educated population would have their own circumstance more greatly tied to the less advantaged and therefore would have a greater stake in more equality. Likewise, high performing professors and teachers who today teach in suburban areas and prestigious universities would also be more motivated to implement more equalizing measures because they want to interact with bright and stimulating students.

Libertarians would like to see themselves and others as unhinged from any system, free to do as they will. However, this is not reality. We live in a system and must recognize and deal with our choices to make the system more inclined to a positive feedback model or more toward a negative feedback model. There is a choice and real consequences stem from it that has real affects on all people since everyone is part of the system.

Posted by: bcbulger | December 15, 2009 1:35 PM | Report abuse

Go get some formal economic education before you spout off out of your 24 year old mouth. Those who forget the past are condemned to repeat it. (G. Santayana) You are a perfect public school brainwashing victim. It will take you several years to erase the misconceptions. Your initial fallacy is that the government owns the pie in the first place. Another mistake is not knowing how to interpret data. The fact is this country has had an invasion of illegal immigration from 1985 on that suppressed wages on the low end. Plus, fully over 35% of tax filers don't pay taxes, but get benefits from living here. Those two factors affect your chart--in kind versus cash compensation.

Posted by: MIMI13 | December 15, 2009 1:41 PM | Report abuse

A fair bit of evidence points towards (gross) inequality as bad in and of itself. For example, see Kawachi and Kennedy's The Health of Nations: Why Inequality Is Harmful to Your Health and Michael Marmot's related The Status Syndrome: How Social Standing Affects Our Health and Longevity.

On the question of cause and effect (is inequality a symptom or a cause of bad economics) see papers by (among others) Sam Bowles (http://www.santafe.edu/~bowles/). Research into behavioral economics shows that inequality can reduce cooperation and other behaviors that promote efficient economic activity. So in that regard, the inequality is a cause of bad economic conditions. I'm sure there are plenty of feedbacks in both directions.

Posted by: JonathanTE | December 15, 2009 1:44 PM | Report abuse

Bartlett: "But neither does it follow that there is no limit to how much we can soak the rich without average people suffering some of the consequences."

We're a hell of a long ways away from that limit. We could soak the rich a lot more than we do, without adverse consequences to the rest of us.

I'd argue that up to a point, it's to the benefit of the rest of us Americans to soak the rich, even if the money goes to starving subsistence farmers in sub-Saharan Africa, or to some other cause that doesn't benefit us economically. Because power follows wealth, and inequality of wealth insures that the government will largely be run to the benefit of the rich. The banksters get bailed out, but no cramdown. It's their country, we just live here.

Posted by: rt42 | December 15, 2009 1:55 PM | Report abuse

Inequality is bad because it is a symptom of a society that values everything and everyone in terms of monetary wealth and aggreagates wealth at the top. It is also a symptom of a society that devalues most people in the society, does not see them as human beings but cogs or worse. It also suggests a society with significant misallocations of resources into one sector (too much to the financial sector, which really adds little or no value, as Paul Volcker recently pointed out).

Inequality also indicates an unstable society in which far too many people have little or no stake, and thus no interest in maintaining stability and significant interest in overturning things. It accordingly drifts toward authoritarianism.

Even the rich are better off with more equality than we have now, as JonathanTE says right above. Just gho to Western Eirope to see how it works.

Posted by: Mimikatz | December 15, 2009 1:58 PM | Report abuse

How can we not have some form of inequality? Not everybody will be able or willing to get into medical school, or law school, business school, become president, etc. Some people want to work non-stop to make money, some like to relax more and work less (there's nothing wrong with that). Should those who spend bundles on their education and then work super hard not be free to make more? Should those who prefer to relax more and work less automatically make the same as those who work a lot?

Personally I like the American dream of ANYBODY being free to earn and achieve their way up the socioeconomic ladder to wealth. I don't want it to happen via corruption, but I think a person should be free to EARN and ACHIEVE wealth in this country.

Posted by: Jodigirl | December 15, 2009 2:22 PM | Report abuse

I wonder if we could turn the GOP love of supply-side economics into progressive policy? It goes like this:

First, set the top marginal tax rate to levels like they were during the 1950's and 1960's -- a time of healthy growth.

Then offer generous tax deductions for job creation and investment into businesses that help grow the economy and trickle down that wealth.

If the wealthy are so likely to reinvest their wealth as the GOP claims, then they won't have to pay those high tax rates. Their taxable income will stay below the top tax brackets.

Basically, it would ask the supply-siders to put their money where their mouth is, and it would target just the ultra-rich who hoard their income and contribute to the wealth disparity. The wealthy who make sure their money keeping moving and stimulating the economy have no Laffer-curve disincentive.

Posted by: billkarwin | December 15, 2009 2:37 PM | Report abuse

Bartlett is nothing but a bag of lies.

"To be sure, there is a heavy price to be paid when social welfare programs go too far." Make that corporate welfare. Talk about tax payer funded bonuses for incompetent bankers. Talk about billion dollar subsidies for the oil industry. Yes we are paying a heavy price but not for social welfare programs. Anything but.

Bruce Bartlett is a pathetic bag of lies.

Posted by: carbonneutral | December 15, 2009 3:32 PM | Report abuse

Another point that should be obvious but that hasn't been fully articulated I think.

Economists are fond of talking about incentives. A system in which the rich get richer without any verifiable merit on their part is by definition inefficient. This is what we have seen happening (once again, incompetent bankers getting rich through economically and socially destructive trading and investment practices are an indicative example but not the only one). Economists should actually be the first to oppose unmerited wealth, not on grounds of social justice but of economic efficiency.

Why isn't this happening? Because most economists have come to accept a lazy and convenient version of the efficient market hypothesis that biases them against even considering the possibility of systemic inefficiency. This hypothesis is not supported by either theory or empiric data. It is just a convenient fiction.

Posted by: carbonneutral | December 15, 2009 4:10 PM | Report abuse

wrt Jodigirl at 2:22 PM, the more income inequality there is the harder it is to achieve the sort of meritocracy you postulate. That's why Europe actually has a greater upward movement between income classes than the US. Further, unless there is a 100% tax bracket, people do in fact get to make more money the more they work. Finally, what about the great numbers of people that did nothing but be born to wealthy parents? Why should they get richer for doing nothing?

Posted by: williamcross1 | December 15, 2009 8:13 PM | Report abuse

For once I agree with jodigirl: "I think a person should be free to EARN and ACHIEVE wealth in this country." Exactly and it is an outrageous scandal that this is not the case. That for example millions of children are denied the educational opportunity they deserve simply because they were not born to rich enough parents. Not to mention the health care many of them are denied. I hope jodigirl will join us in our effort to bring about equality of opportunity in a country that has one of the lowest levels of social mobility and about the highest level of economic inequality in the developed world.

Posted by: carbonneutral | December 15, 2009 10:37 PM | Report abuse

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