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Inequality Matters: The Growing Economic Divide in America and Its Poisonous Consequences

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Midway through 2004, veteran journalist James Lardner, with the help of the Demos think tank in New York, put together the first national conference directly focused on economic inequality - the gap between America's rich and everyone else - since that gap started widening in the late 1970s.

This Inequality Matters conference drew several hundred people to New York University for a weekend of robust discussion and debate. But few outside NYU's conference rooms ever noticed. America's ever more unequal business as usual rolled on unabated.

Here's hoping that Inequality Matters the book can do what Inequality Matters the conference could not - trigger a long-overdue bit of national introspection over the incredible concentration of income and wealth we Americans have witnessed ever since Jimmy Carter begat Ronald Reagan.

Today's conventional wisdom, of course, simply denies that this concentration of wealth makes any difference. So long as "even a have-not can have a VCR and a cellphone," argue the apologists for inequality who saturate our politics and our media, what possible reason could we have to worry about whether our richest are getting fantastically richer?

Inequality Matters the book takes on this question, in a series of essays inspired by Inequality Matters the conference. Ably edited by James Lardner and Demos senior fellow David Smith, this book's pages abound in insights - on everything from housing and health to happiness - that even regular readers of progressive books and periodicals will find fresh and provocative.

One example: Communities with the widest income gaps between top and middle, Cornell economist Robert Frank points out in his contribution, turn out to display "significantly higher personal bankruptcy rates, divorce rates, and average commute times."

Apologists for inequality, beware! With the publication of Inequality Matters, your case - that we need not worry about the wealth of the wealthy - has never seemed more dim-witted. Or dangerous.

Excerpted from a longer review that appears in the January 2, 2006 edition of Too Much (www.toomuchonline.org)

"Inequality Matters" is a collection of 22 essays by different authors about the growing gap between the rich of America and the rest of us. The best is Bill Moyers' opening -- and passionate -- shot at the "plunder of public trust" and the "spectacle of corruption" that is the present day situation of the United States.

All of the essays which follow are convincing on the growing gap betweeen rich and poor in areas such as education, retirement, wages, taxes, and health. This is perhaps the most important long-term issue facing American society.

The weakness of the book is that it is one-sided, a liberal feast on the faults of the conservatives and corporations. I agree with the liberals, but I would like to see some responses from conservatives. (Not that any conservative would venture like a Christian into this arena of leonine liberals. And, would that liberals were a bit more like lions and a little less like liberals!) You won't find any attempt at balance. It illustrates another problem in the U.S: the liberals talk to only liberals and the conservatives talk only to conservatives. But without an opportunity for the other side to answer back you can't be sure how biased or incorrect the essays may be. So read the book because it's good, but also read a conservative book before you take to the street promoting "class warfare" and a crusade against the rich. After reading both sides -- you'll take to the streets.

Smallchief

The greatest problem we face today is the growing gap between the richest and everyone else, and the slow but steady decline of the middle class.

The contributors to this book make clear how it is happening, and what should be done to address the problem.

I recommend it highly.

This is a challenging and stimulating book, and although I do not share the politics of many of contributors, I admire them intellectually. Christopher Jencks is a progressive luminary but he is not knee jerk. His contributions to The Black-White Test Score Gap was important, such as his emphasis on the need for better parenting practices among the poor. Robert FRanks has become one of my favorite economists because of his work on positional goods. I did not fully appreciate the nature of arms races until reading his book Luxury Fever: Money and Happiness in an Era of Excess. Nevertheless, I think arguments about income inequality - and even worse, wage stagnation, are some of the weakest parts of the progressive platform.

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Issue #1: Worldwide inequality

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Worldwide economic inequality is on the decline. The major reason for it is the shift of China and India towards capitalism. This is the most promising and powerful change for the lives of the poor since the Industrial Revolution. Now, development takes more than just free markets (see The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good), but free markets are an important component.

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Issue #2: Wages are not stagnant

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Progressives are correct to favor median income over average income because average income can be skewed by a few really rich people. But median wages can be misleading too. The major factors which pull down median income are (1) increased immigration because most new immigrants are below the median. They also pull down the wages for unskilled workers although the effect is slight. (2) The decline of the married two-parent family. It has been concentrated among the poor, which increases the number of low income households and pulls down the median. (3) A focus on weekly wages because married women have joined the workforce and married women are disproportionately likely to work part-time. (4) The decline of unions. This has not happened because of sectoral shifts to a nonunion service economy. The decline of unions has happened within each market as unionized firms lose out to nonunion firms. The only exceptions are public sector unions such as teachers which are prevented from competition. Construction unions also do well because many states require the government to use union firms. (5) Demographic shifts in the aging of the population which results in above median workers retiring and moving below the median.

These points are documented with references in the excellent article _Nostalgianomics_ by Brink Lindsey. It is available for free with a quick google. Also see Economic Facts and Fallacies by Thomas Sowell and Income and Wealth (Greenwood Guides to Business and Economics)

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Issue #3: A Free Market Backlash?

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Bill Moyers blames a free market backlash for the growing corruption in government. But the facts don't fit his thesis. Ronald Reagan, Newt Gingrich, and both Bushes have talked a good game about free markets but the government has consistently grown under their watch, albiet at a slower rate. government spending as a percentage of GDP was 27.5% in 1970 and 29.5% in 2002. That's despite a 4% of GDP drop in defense spending. Milton Friedman used the size of the Federal Register as a proxy for the size of government. It has grown from 20,036 pages in 1970 to 78,851 pages in 2004. Inflation adjusted federal spending on regulatory agencies has increased by a whopping factor of six since the 1970's. If the government is more corrupt today than it was in the past then blame big government.

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Conclusion

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I would recommend an alternative approach that is heavily influence by the former Marxist economist Herb Gintis who has since become nonpartisan. Read Moral Markets: The Critical Role of Values in the Economy, Moral Sentiments and Material Interests: The Foundations of Cooperation in Economic Life (Economic Learning and Social Evolution), and The Bounds of Reason: Game Theory and the Unification of the Behavioral Sciences. The latter is a pretty mathematical book about game theory and choice theory, but it is worth getting just to reach about the problem in game theory of the hawks and the doves and the origin of property rights. That part is not mathematical.

The message of "Inequality Matters" is that inequality is a man-made phenomenon, especially egregious in the United States, that demands to be redressed through public policy.

There are several questions at play here. Is the observed inequality a result of moral failings - greedy rich or lazy poor - or simply of the way society functions? Are inequalities inexorably tied to issues of minority status? Is it peculiar to the United States, or is it a theme that plays itself out, albeit with different nuances, in every society? Was Jesus' observation that "the poor will always be with you" simply a reflection on the dynamics of the way society works? Have public policy solutions been tried, and how have they fared?

Inequality can be observed in every ethnically diverse society worldwide. The caboclos of Brazil, the criollos of Argentina, the North African immigrants of the French banlieus, the Turks in Germany, and the West Indians in Great Britain manifest the same kind of economic inequality as Blacks, Hispanics and Native Americans in our society. Though the authors do not attempt to do so, it might be more instructive to analyze societies in which there is relative equality.

Tribal peoples experience equality in material goods. There are very few to go around. However, any time a source of revenue such as oil, casinos or tourism appears, inequality seems to rear its head. Chiefs get rich. It has happened all over the Americas and Africa where westerners have introduced money to pay local people for resources. I saw it first hand living among the Kayapo Indians in the state of Para. The cash income the tribes got from gold and mahogany went to airplanes, junkets and prostitutes for the chiefs, and the rest of the tribe complained bitterly about the inequality.

The Europe of the fifties and sixties was quite socialist and egalitarian. There were, of course, the rich, but the social safety net provided adequately for the poor. That safety net has frayed, as has the societal consensus, with the influx of immigrants and the observation that the taxes of the Caucasian rich were flowing to social benefits for the non-Caucasian poor.

America has elevated individualism, or rather, narrow self interest, to be acknowledged as our greatest virtue. Perversely, these writers see self-interest to be a virtue in those who do not succeed but a vice in those such as the owners of Wal-Mart, everybody's whipping boy, who do. They cheer the Horatio Algers as they rise from the slums, but condemn them for being rich.

It is no surprise to me that on average the groups within society who do better than mine, namely the Jews and the North Asians, have longer histories of civilization than mine. They learned (or evolved) to succeed in highly complex societies. Today, members of every traditional society on earth are being asked to play the Western European economic game. Is it any surprise that we, with thousands of years' practice, do a bit better than the newcomers? The tragedy is that the world is too connected for Africans and Native Americans to remain tribal. An anthropologist friend laments that missionaries in the Amazon are training "princes of the forest to be peons in Manaus." But they are, and the Indians voluntarily emigrate to Manaus. For what it's worth, New York Times' science writer Nicholas Wade provides an insightful account of how the tribes of mankind have evolved since the dawn of agriculture in his recent "Before the Dawn." It is also worth mentioning Amy Chua's analysis in "Worlds on Fire" of those minorities such as the Chinese and Jews who seem always to do better than their host societies.

Communism was relatively egalitarian. Chinese all wore Mao jackets. Most people were poor. Walt Kelly had his Russian character claim "the shortage will be divided among the peasants" and his Castro character say "they will dine on the Cuban delicacy, azucar y tobaco." The disappearance of egalitarianism has been one of the most traumatic transitions since the end of the Cold War. East Germans have had difficulty adjusting to a society in which there are more profound differences. Russia and China now have billionaires, affluent middle classes, and hoards of left-behinds. Inequality may be inevitable in a market economy.

Marxism, European socialism and our own Great Society were valiant attempts to curb social inequality. Marxism failed everywhere it was attempted, Europe is becoming more polarized by inequality, and in 1994 a Democratic President signed legislation to undo much of the welfare state that had been put in place twenty years earlier by another Democrat. Why is inequality so intractable? This book touches on a couple of theses.

Free people operate in a free labor market. The level of compensation a person's labor will command is a function of that person's education, ability, and personal attributes such as congeniality and attractiveness. Race, class and gender may also play a role, but such a role could only be statistically proven by controlling for the first-mentioned factors. Liberals have not attempted this statistical analysis, and conservatives who have (not surprisingly) find that race, class and gender play little role.

The poor assume the burden of children more often and at earlier ages. Given that in every society these fecund poor are more likely than others to be minorities, some degree of inequality is built in. This isn't "blaming the victim." It is an observation of fact.

Education is supposed to be the great equalizer, the facilitator of social mobility. Bill Moyers is certainly correct in his observation that the schools that the poor attend are certainly worse than those of the affluent. They are worse materially, as he acknowledges. Their teachers have less preparation. As almost any teacher will tell you, there is more to the story. Poor kids more often don't want to be in school, are disruptive, are violent, and don't learn. They are served by a legion of teachers whose skills are not adequate to get them transferred to better schools, and a handful of saints who feel a social mission. I know many of those saints. They labor long and savor their few victories, kids rescued from poverty. And I know saints who have left disillusioned, scared and physically injured. The collapse of school discipline (read "Judging School Discipline") has done the poor inestimable harm. The great disruptions of school busing (read "Forced Justice") and decades of bipartisan programs in the Elementary and Secondary Schools Act, the latest incarnation of which is NCLB, have made almost no statistically measurable impact. New York City is now throwing billions of dollars at the problem. Will it work? History says, probably not.

It is amusing to find one author, Robert Frank, complain that the middle class must commute in unsafe, 2500 pound Honda Civics which can be ground under the wheels of a Navigator or Excursion. He is allied with Rush Limbaugh in advocating "for sheer self defense, you might want a bulkier - and costlier - car." I write this as a guy who drives a 2800lb Prius, the object of Limbaugh's constant derision.

The bottom line is that the inequalities documented here are very real. They are certainly not unique to America. They are probably a function of how complex societies work, certainly not the mere result of a malign self-interest on the part of the rich.