Living with inequality
AS AN adornment to the many academic studies of income inequality, Lexington is compiling a miscellany of spurious anecdotes about the very rich. Entries should, ideally, sound plausible but turn to dust after a few phone calls. Recent additions to the collection include the cash bonuses supposedly paid to high-performing wives on Manhattan’s Upper East Side, and the letters supposedly signed by senators recommending infants to the admissions officers of Washington kindergartens. This endeavour may sound frivolous, and it probably is, but what people are prepared to believe about the doings of the very rich is a measure of the distance between the observers and the observed.
The presidential election in 2016 will be the first to take place since economists began scrutinising tax returns to measure the increase in pre-tax income inequality over the past century. In 2012 the contest may have descended faster than Mitt Romney’s car-lift into a debate about the Republican nominee’s personal wealth, but it actually took place against a backdrop of crunched asset prices. In the years since, the S&P 500 has increased by 45%, with consequent gains in the wealth of those at the top. Democrats who think that campaigning on inequality next time round is a vote-winner are probably mistaken. But recast as a lament for opportunity foreclosed, a startled awakening from the American dream, anxiety about inequality is ubiquitous and bipartisan.
The serious contenders for the Republican nomination have remedies for it; their Democratic counterparts talk of little else. All agree that this is a problem that can be fixed with the right policies. What if they are all wrong?
The notion that an ever more unequal America would be a ghastly place has plenty of support. Already a presidential candidate need only secure the backing of a single billionaire to mount a credible campaign. The lone well-thatched billionaire who has gone one better and is actually running offers a vision of what truly plutocratic politics might be like. A further, more theoretical worry is that democracies may need a thriving middle to work. “We have known since Aristotle that stable constitutional democracy rests on a large, self-confident middle class,” writes Bill Galston of Brookings, a think-tank. A middle class whose members find their real pre-tax incomes forever stuck in the era of prog rock would presumably not be up to the job.
Republicans lean towards improving middling incomes by boosting productivity. This is a good idea, but productivity is hard enough to measure, let alone legislate for, and in any case the link between productivity gains has weakened recently. Democrats are keener on increasing minimum wages, encouraging companies to pay employees partly in stock, and on state-funded child care. These things may be worth doing anyway, but as counterweights to globalisation and technology, the forces that have generated income inequality, they seem outmatched. No discussion of the fortunes of the top 1% or 0.1% is complete without a reference to Jay Gatsby and the roaring ’20s. What these comparisons omit is that it took the Depression and a world war to compact the distribution of American incomes to a range that came to be considered normal in the second half of the 20th century.
It may be that 2015 turns out to be the peak for income inequality in America, and that in a few decades the papers published on the subject can be filed in the museum of ex-problems, along with musings on what to do with all the leisure time created by domestic appliances. It is also possible that the trend will relentlessly continue. If that is so, then the sorts of policies required to return the country to a more equal age, which might include punitive taxes on high incomes and on inheritance, would probably be impossible to implement in a society that values individual liberty as highly as America does.
Viewed this way, income inequality looks like climate change: a great impersonal force that may be irreversible. Yet people who worry about climate change think about both mitigation and adaptation. Government can and does mitigate income inequality. The CBO estimates that, once tax payments and transfers are taken into account, the post-tax incomes of Americans in the middle of the income range have grown by 35% in real terms since the late 1970s. The top 1% saw their post-tax incomes treble over the same period, still unbalanced but perhaps not dangerously so. Compounded over a longer period, though, the gap between the middle and the top would be vast, which means thinking about adaptation. What would a good, unequal society look like?
Non-profit organisations already account for 10% of all private employment, more than banking and construction combined. That share would increase further as non-profits took on responsibility for some of the welfare programmes provided by government. The state would be left funding those things that nobody else wanted to pay for, like Social Security, and those where the idea of private ownership is troubling, such as the police and the armed forces. In an America that gave so much discretion to the very wealthy to shape society, it would be desirable to write campaign-finance rules that reduced their influence over elections.
This may sound far-fetched, and perhaps it is. But try telling that to the scientists working on adapting to climate change by creating a shield in space to divert the sun’s rays, or to those who wish to fill the atmosphere with synthetic clouds to keep the planet cool. Anyone interested in facing up to income change may have to start thinking on this scale.
Read more at http://www.economist.com/news/united-states/21660180-what-good-more-unequal-america-might-look-living-inequality#ahGeFRRhb3GfvqkW.99