Long Division

THE PERILS OF INCOME INEQUALITY

American thinkers have long perceived a connection between robust democracy and a relatively egalitarian distribution of wealth. For all their differences, John Adams and Thomas Jefferson agreed that property begets power, and both expressed anxiety about excesses of the former unbalancing the latter. In 1785, Jefferson wrote that the consequences of “enormous inequality” were so pernicious that “legislators cannot invent too many devices for subdividing property.” Over a century later, Teddy Roosevelt urged the government to take on “a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power.” “The really big fortune,” he said, “by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means.”

For several decades now, such worries about the corrosive impact of inequality have been largely absent from our politics—even as economic inequality in the United States has increased dramatically, reaching levels not seen since the height of the Gilded Age. Studies on the eve of the 2008 financial collapse showed the top one percent of American households earning over a fifth of the nation’s total income, twice as much as thirty years earlier—and the top one-tenth of one percent taking home six times as much as before. In terms of income distribution, the United States now more closely resembles the highly stratified societies of Latin America than the egalitarian countries of Western Europe.

There is no consensus about why this has happened. Some economists point to structural changes in the economy, such as the rise of the information sector and growth in global trade, while others blame tax policy and the decline of labor unions. There is also disagreement about how, or indeed whether, to respond. For most of his first term, President Barack Obama largely ignored the issue, while on the political right the mere expression of concern about inequality elicited howls of “class warfare” or “socialism.” Some conservatives have argued that we should focus on what the poor are actually able to consume and not worry so much about the pattern of wealth distribution. The Heritage Foundation’s Robert Rector has observed that since the late 1970s, even as economic inequality steadily increased, the number of poor American households with air conditioning has nearly doubled. This improving standard of living, he suggests, and not relative inequality, is the proper focus of our economic analyses and policies.

But there are reasons to be worried about economic inequality even if the poor can buy appliances. Excessive inequality can distort the political process in ways that undermine democratic institutions. Using data drawn from Senate voting records, Princeton political scientist Larry Bartels has shown that senators are far more responsive to the priorities of their wealthy constituents than to those of the middle class and poor. “The views of constituents in the upper third of the income distribution received about 50 percent more weight than those in the middle third,” he writes, “while the views of constituents in the bottom third of the income distribution received no weight at all in the voting decisions of their senators.” Bartels’s Princeton colleague Marty Gilens has used different data to reach very similar conclusions. “When Americans with different income levels differ in their policy preferences,” he argued in a 2005 article, “actual policy outcomes strongly reflect the preferences of the most affluent.” Gilens says that “the most obvious source of influence over policy that distinguishes high-income Americans is money and the willingness to donate to parties, candidates, and interest organizations.” In short, the battle to be heard—unlike the market for air conditioning—is dominated by those with an advantage in purchasing (i.e., donating) power.

The distortions created by inequality are not merely political; they hinder future economic development as well. As elites use their political advantage to protect their economic status, their efforts feed back into the economic system in ways that impair future growth and social mobility. American history provides a useful example. Trying to explain the divergent development paths taken by the United States and Latin America, economic historians Stanley Engerman and Kenneth Sokoloff argue that the United States succeeded because of the role played at key junctures by its more equal distributions of wealth and income. Other scholars have made similar observations about today’s global economy, contrasting rapid growth among the relatively egalitarian “Asian tigers” with the lagging economic performance of Latin America’s more racially and economically stratified societies.

As Engerman and Sokoloff describe it, the mechanism that connects highly unequal wealth with subsequent economic underperformance bears a striking resemblance to the one Bartels and Gilens have outlined. As inequality grows, government policies increasingly respond to the narrow interests of elites, even when that comes at the expense of everyone else. Engerman and Sokoloff argue that, in the past, the more egalitarian economic distribution in the United States led to “a legal framework that was [more] conducive to private enterprise in both law and administration.” Lawmakers invested in the development of human capital among non-elites and routinized the process of corporate formation and the granting of patents, making the advantages of incorporation and the protection of intellectual property available to virtually anyone with an idea and some start-up capital. In the more unequal societies of Latin America, however, investments in human capital lagged, and rights to patenting and incorporation were granted sparingly, and primarily to the well connected.

These social scientists’ views on how economic inequality distorts the political process are consistent with traditional Catholic economic thought. Rather than focusing solely on the absolute material well-being of those at the bottom of society, Catholic social teaching has expressed concern about the corrosive social consequences of extreme inequality. In their 1986 pastoral letter on economic justice, the U.S. Conference of Catholic Bishops perceptively observed that excessive economic inequality constitutes a “threat to the solidarity of the human community, for great disparities lead to deep social divisions and conflict.” Such sentiments were once widely shared in this country; Americans—Catholics and non-Catholics alike—were once acutely aware of the dangers of inequality and the need to shape policy in order to combat it. In the past few decades we seem to have lost sight of these values. Since the Reagan era, our political discussions have tended to treat any effort to combat inequality as a threat to economic productivity and political cohesion—as “class warfare,” in the familiar refrain.

Recently, however, voices from the wilderness have begun to shift our political conversation. With its stark contrast of the one percent and the 99, Occupy Wall Street put the issue of economic inequality back on the American political agenda—and it is no coincidence that the Obama campaign now intends to make it a centerpiece of its re-election appeal, fashioning a more progressive message that borrows some of Teddy Roosevelt’s rhetoric. Even the Republican presidential primary has aired the complaint that the economic deck is stacked in favor of the rich and well connected. Liberals and conservatives will no doubt continue to disagree about how to address the problem of widening inequality. But the election of 2012 offers hope that, for the first time in a generation, economic inequality will once again become a major issue. That we are discussing the issue at all is an important step in the right direction.


Related: Who Will Speak of the Poor? by Mary Jo Bane

Published in the 2012-05-04 issue: 

Eduardo M. Peñalver is the Allan R. Tessler Dean of the Cornell Law School. The views expressed in the piece are his own, and should not be attributed to Cornell University or Cornell Law School.

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