Browsing the blog archivesfor the day Wednesday, December 15th, 2010.

The Inequality Issue and Why It Matters

Obama Administration

I picked up the chart above from Ezra’s blog. You’ll notice the peak inequality years are 1928 and 2007, which suggests a link between income inequality and economic instability. And there’s a long historic link between wealth inequality and political instability as well.

Economics professor Tyler Cowen addresses this in an essay I find deeply unsatisfying. He dismisses the idea that the growing income inequality could lead to political instability —

In terms of immediate political stability, there is less to the income inequality issue than meets the eye. Most analyses of income inequality neglect two major points. First, the inequality of personal well-being is sharply down over the past hundred years and perhaps over the past twenty years as well. Bill Gates is much, much richer than I am, yet it is not obvious that he is much happier if, indeed, he is happier at all. I have access to penicillin, air travel, good cheap food, the Internet and virtually all of the technical innovations that Gates does. Like the vast majority of Americans, I have access to some important new pharmaceuticals, such as statins to protect against heart disease. To be sure, Gates receives the very best care from the world’s top doctors, but our health outcomes are in the same ballpark. I don’t have a private jet or take luxury vacations, and—I think it is fair to say—my house is much smaller than his. I can’t meet with the world’s elite on demand. Still, by broad historical standards, what I share with Bill Gates is far more significant than what I don’t share with him.

Compare these circumstances to those of 1911, a century ago. Even in the wealthier countries, the average person had little formal education, worked six days a week or more, often at hard physical labor, never took vacations, and could not access most of the world’s culture. The living standards of Carnegie and Rockefeller towered above those of typical Americans, not just in terms of money but also in terms of comfort. Most people today may not articulate this truth to themselves in so many words, but they sense it keenly enough. So when average people read about or see income inequality, they don’t feel the moral outrage that radiates from the more passionate egalitarian quarters of society. Instead, they think their lives are pretty good and that they either earned through hard work or lucked into a healthy share of the American dream. (The persistently unemployed, of course, are a different matter, and I will return to them later.) It is pretty easy to convince a lot of Americans that unemployment and poverty are social problems because discrete examples of both are visible on the evening news, or maybe even in or at the periphery of one’s own life. It’s much harder to get those same people worked up about generalized measures of inequality.

I’m sorry, but I don’t think the average American wakes up in the morning and thinks, “Yes, life sucks, but at least we have antibiotics!”

Cowen is a professor of economics at George Mason University and also a successful author. Academia doesn’t pay as well as private industry, true, but if Cowen thinks the situation of a tenured professor at a top university is representative of an Average Working American he has led a very sheltered life. He hasn’t even noticed that increasing numbers of Americans have lost access to 21st century medical care.

Second — I’m not sure how Cowen is measuring “personal well-being,” but when he compares the quality of life of today to that of the late 19th century, he leaves out a huge psychological factor — expectation. The gap between expectation and reality is filled with dissatisfaction. If the gap gets big enough, it can also be filled with fear, and then rage. The fact that our quality of life generally is better than it was 120 years ago is less important to the nation’s politics than whether it is what we expected fifty years ago, or twenty, or even five years ago.

Third — Personal security is not measured just by how much stuff we have, but how close we are to losing it.

And fourth — Cowen seems to think that the issue of inequality is that people are envious of those who have more stuff than they do. I don’t think that’s it at all. I do not think most not-rich people begrudge the rich and their cushier lives. The issue is that increasing numbers of middle-class Americans feel their own financial situations are being whittled away, and the ground beneath their feet shifting treacherously, and no one in power seems to care. The issue is that the economic system has been rigged so that most of us can no longer get ahead, no matter how hard we work.

Which takes us back to expectations. Most people will endure hardship and deprivation if they see a road away from hardship and deprivation. In other words, most people don’t spin their wheels in envy of wealthier people if there’s a real possibility they could be wealthier themselves someday. And I think this is true even if the individual’s hopes are never fully realized, as long as he can see that his work and effort are being rewarded with improved circumstances. Opportunities for upward mobility are a great political stress reliever in a nation.

At the other end of the scale, I understand that a people subjected to utter poverty, who have no hope and no expectation of their lives getting better, rarely rise up in rebellion. The truly discontented are not those who have nothing, but those who don’t have what they expected to have. (It should come as no surprise that the loudest political movement in recent months, the Tea Party, is mostly filled by people who aren’t really being hurt, yet, and is led by unvarnished demagoguery.)

So when Cowen writes …

So when average people read about or see income inequality, they don’t feel the moral outrage that radiates from the more passionate egalitarian quarters of society. Instead, they think their lives are pretty good and that they either earned through hard work or lucked into a healthy share of the American dream.

… I think he’s missing a big point. No, people generally don’t get worked up about income inequality per se. They get worked up about income inequality when they think they’re getting hosed by it.

I think Cowen is wrong here, also —

A neglected observation, too, is that envy is usually local. At least in the United States, most economic resentment is not directed toward billionaires or high-roller financiers—not even corrupt ones. It’s directed at the guy down the hall who got a bigger raise. It’s directed at the husband of your wife’s sister, because the brand of beer he stocks costs $3 a case more than yours, and so on. That’s another reason why a lot of people aren’t so bothered by income or wealth inequality at the macro level.

I don’t know how Cowen became expert in where people’s resentments are directed, but let’s go on … again, I don’t think people resent wealth per se. But in the age of mass media, “local” is a pretty big place. We’re talking about a culture in which people are more personally invested in who wins Dancing With the Stars than in what’s going on with the family next door.

This is something I wrote about on the other blog a few days ago — advertising, especially television advertising, presents to us a picture of what a “normal” life is supposed to be that is increasingly out of reach. These days, it seems every other television ad is about getting either new car (with a bow on top) or diamond jewelry for Christmas. We’re also perpetually being told which financial services companies can best handle our investment portfolios so that we can retire to our dream beach house someday.

Possibly more than in any other time in history, people are getting prosperity and abundance rubbed in their faces, as they sit in their own living rooms, every day. That’s pretty damn “local.”

That’s OK in a society in which upward mobility is possible, and people have reasonable hope they could have some of those sparkly things too, someday, if they work hard and save their pennies. But when there’s a strong assumption that this prosperous life is “normal,” and for most people “normal” is utterly out of reach, you are looking at the seeds of massive political instability.

That’s what Tyler Cowen doesn’t get.

And then, every time we turn around, we’re being told that those of us losing ground already must sacrifice more so that the wealthy are not inconvenienced. Professor Cowen, envy is not the issue here.

I think the only reason there isn’t more anger and discontent out there is that after thirty years of relentless assault by right-wing propaganda, people have internalized the ideas that government can’t help, and if your life sucks it’s entirely your own fault. I postulate that a lot of the gap between expectation and reality currently is being filled, quietly, with shame. People are doing their best to appear “normal,” to not admit their lives don’t measure up and that they are afraid of what might happen next.

The people on television who get new cars for Christmas don’t seem worried, after all.

If normal political channels are closed to us, and it is increasingly obvious that they are, it may be that what progressives need to do now is to stop selling the public on this or that policy. It should be to tell the people they have nothing to be ashamed of if their lives don’t measure up to expectations. The failure is not personal; it is national.

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