Here's How We Should Think About the Inequality Debate

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INEQUALITY JANUARY 21, 2014

Here's How We Should Think About the Inequality Debate We need a whole new framework

There’s something odd about the argument over economic inequality that broke out across factions of the center-left and among opinion journalists at the end of last year. One faction argued that liberals should embrace populist language about inequality. Others cautioned against it, either because they thought it was strategically unwise, or factually inaccurate. But everyone involved seemed disturbed by one dimension or another.

And perhaps that’s the real reason to move on from talking about inequality: it’s not that it’s anything less than “the defining challenge of our time,” as President Obama put it in a speech in December. Rather, it’s too defining, too large. It’s a concept too sweeping and cluttered to lead to useful solutions. Economic inequality encompasses not only the gains of the very wealthy, but also the relatively modest gains of the merely well-off, the stagnation of the middle and working class, and the deepening, multi-generational struggle of the urban and rural poor. And that’s just inequality of income. Inequality of wealth—assets and debt—may matter even more, because even small amounts of wealth can ensure both economic security and economic opportunity. Wealth inequality goes even deeper and cuts more sharply along racial and generational lines.

Then there are the secondary aspects of economic inequality: lack of economic mobility, or downward mobility. Declining economic security, and the shift of financial risks onto families that can least handle it. The likelihood that the recession has created a large class of people who may never work again. Increasing dependence on public programs among working families. And the deepening influence of economic inequality on the political sphere, which in turn reinforces the rules that reward the winners and reduce opportunity and dynamism in the economy.

Inequality is a concept too sweeping and cluttered to lead to useful solutions. 

Almost everyone, even conservatives, is alarmed by at least some dimensions of this. Scott Winship, an inequality skeptic who recently moved from the liberal Brookings Institution to the more welcoming, conservative-leaning Manhattan Institute, argues statistically that we should focus on the poor over the middle class and declare “war on immobility.” New York Times columnist Bill Keller, and even Senator Marco Rubio, are also alarmed by the waning of economic mobility. Ezra Klein (who ignited much of the fight with a provocation titled “Inequality Isn’t ‘The Defining Challenge of Our Time’”) is concerned about unemployment and the nexus of political and economic inequality; conservatives such as Charles Murray are concerned about the increasing “dependence” of the white working class. While it’s theoretically possible to separate these outcomes from pure income inequality, and ask whether inequality is a cause of immobility, this is an unnecessary exercise. None of these are alternatives to inequality; they are themselves aspects of the single big story of this economic era.

Those who embrace the label “populist” tend to highlight the staggering gains of the top 1 percent compared to “the 99 percent.” The solutions that follow from a focus on the top include significantly higher marginal tax rates, such as those proposed by the great inequality scholars Thomas Piketty and Emanuel Saez, or tighter regulation of Wall Street and CEO pay. But those policies alone wouldn’t improve the lives of the 99 percent, a group that ranges from the destitute to the very comfortably upper-upper middle-class. The next argument is over whether to focus on the poorest 40 percent, a traditional approach that doesn’t threaten the wealthy; or to focus on deep structural changes that would promote full employment and raise wages in the middle. Even then, dozens of questions follow, related to the effects of education or the bargaining power of workers in the absence of a strong labor movement.

The best analogy for this vast galaxy of symptoms, effects, and uncertainty is the concept of “the environment.” There was a time, from the publication of Rachel Carson’s Silent Spring in 1962 through the first Earth Day in 1971, when just putting the concept of protecting the environment onto the national agenda was a breakthrough. But at some point, environmentalists had to start to identify particular challenges and priorities—clean air, clean water, litter, public lands, endangered species, leaded gasoline, wetlands, and, later, climate change. Each aspect of environmentalism drew a different fight. Real politics begins with choosing and devising those fights, and the coalitions they create on either side.

We need a way to talk and think about inequality that presents it as a system, and then finds the points of intervention that might actually change the system. Where, in the current debate, is there a real, comprehensive explanation, a plausible solution that would have a real impact on inequality, and a potentially broad coalition, one that includes the dimensions of inequality that even skeptics purport to worry about?  

One compelling answer lies in the connection between political and economic inequality. At first glance, this might seem to make the problem even bigger, layering the dilemmas of money in politics on top of economic questions. But much inequality has its roots in the rules of the political game, from the role of taxes and patents to the less legitimate gains won through manipulation of the political process.

When economic winners use their political power and influence to cement their gains, the resulting self-reinforcing inequality will lead to economic stagnation and immobility. As Princeton economist Angus Deaton put it in the conclusion of his recent book, The Great Escape, “The political equality that is required by democracy is always under threat from economic inequality, and the more extreme the economic inequality, the greater the threat to democracy.”

We tend to look at this relationship all too literally, trying to find evidence that some campaign donation affected a particular vote, or, as in more recent scholarship by political scientists Larry Bartels and Martin Gilens, at how the general outcomes of the political process diverge from the preferences of middle-income voters. Neither of these analytical approaches is wrong, but the confluence of economic and political inequality can be more complicated than that: It takes the form of ideas that never reach the agenda (such as a financial transactions tax); economic assumptions that are never challenged; the sheer amount of time that politicians spend among the very rich; different patterns of voting and participation among different groups; rules—such as antitrust enforcement—that never come to a vote; concentrations of economic power—such as “Too Big To Fail” banks—that force government’s hand.

Reform of campaign finance, ideally through systems that use public financing to encourage small donors, is certainly one part of the solution to the political power of economic inequality. But expanding meaningful political participation, broadening the agenda to new ideas, and challenging concentrations of wealth and economic power, such as banks or other corporations that are untouchable, will also be crucial in creating greater economic mobility through greater political participation. Ultimately, the story of how inequality is constructed and reinforced may be more persuasive than a purely economic analysis. It is also likely to attract a coalition that includes conservatives and libertarians concerned about “crony capitalism.”

It’s long past time to stop arguing about whether to talk about inequality. Inequality was constructed by the rules of the system and we can remake those rules. 

Mark Schmitt is director of the program on political reform at the New America Foundation. 

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