“Inequality Perpetuates Inequality”: Conservatives Defend Inequality Out Of Self-Interest, Nothing More
Conservatives have justified inequality for decades, arguing that it is an inevitable byproduct of capitalism and broadly beneficial. This intellectual edifice has begun to collapse.
Supply-side economics rest on the assumption that the wealthy drive economic growth, and that by reducing taxes on them, we can unleash latent economic potential. In fact, however, investment is driven by demand, not supply (a point acknowledged by the relatively conservative Martin Feldstein). If there are viable investments, they will be made regardless of tax rates, and if there are no investments, cutting taxes is merely pushing on a string. Thomas Piketty and Emmanuel Saez, two top economists on inequality, find no correlation between marginal tax rates and economic growth.
Recently, two IMF papers confirmed what Keynesians like Joseph Stiglitz have long argued: Inequality reduces the incomes of the middle class, and therefore demand. This stunted demand means fewer opportunities for investment, stunting growth.
Add to this growing body of research the fact that a robust defense of inequality is increasingly difficult to muster when every other OECD country has far lower levels of inequality than the United States. Greg Mankiw’s defense of the 1 percent was widely decried, because a large swath of research shows that the rise of the 1 percent did not come from natural economic forces, but rather rent-seeking.
The evidence is clear: The economic benefits of inequality have been massively oversold. Inequality is, in fact, a detriment to growth. So why has the right not conceded the argument?
The answer is class interest.
“Class interest” does not mean that the wealthy are nefarious schemers. Instead, it means there are various cognitive biases that lead them to justify and perpetuate inequality. For instance, Kris-Stella Trump conducted experiments in which participants were asked to solve anagrams in a high inequality scenario (the winner received $9 and the loser $1) and a low inequality scenario (the winner got $6 and the loser $4). When asked what a fair distribution would look like, the high inequality group preferred an inequality of $5.54 ($7.77-$2.23) while the low inequality group preferred inequality of $2.30 ($6.15-$3.85). She concludes: “Public ideas of what constitutes fair income inequality are influenced by actual inequality.” Inequality perpetuates inequality.
Paul Piff finds that the wealthy feel more entitled to their earnings and are more likely to show personality traits typically associated with narcissism. Recent research by Andrew J. Oswald and Natavudh Powdthavee finds that lottery winners in the UK are more likely to switch their political affiliation to the right, and also more likely to believe that current distributions of wealth are fair. As people get richer, they think that tax policies favoring the rich are fair — not because of the macro-economic benefits, but because of how they benefit me.
These cognitive biases, rooted in class distinctions, have deep implications. As a young economist argued in 1846, “The ruling ideas are nothing more than the ideal expression of the dominant material relationships.” Benjamin I. Page, Larry M. Bartels, and Jason Seawright examined the policy preferences of the very wealthy and found that they generally fall in line with their class interests. The wealthy were far less likely than the general public to believe that “government must see that no one is without food, clothing, or shelter,” or that minimum wage must be “high enough so that no family with a full-time worker falls below official poverty line,” or that “the government in Washington ought to see to it that everyone who wants to work can find a job.”
This is not meant to demean the policy preferences of the wealthy — only to examine the motives. For too long, the wealthy have couched their economic ideas as being broadly good for the country, but in fact, de-unionization, capital market liberalization, and austerity benefit them while leaving the rest of us far worse off. It’s time that we were all honest about why we support the policies we support.
Now of course, not everyone who supports conservative economic policy is wealthy. Indeed, there is a large literature devoted to the question why the working class supports policies against their own interests. Engles calls this phenomenon “false consciousness,” writing to Franz Mehring, “the real motive forces impelling him remain unknown to him; otherwise it simply would not be an ideological process.” Thomas Frank proposes that working-class conservatives are swayed by social issues. Ian Haney Lopez argues that racial animus still plays a role. Rick Perlstein notes the power of identity politics. The American ethos of upward mobility certainly plays a role; truck drivers in Tallahassee vote for tax breaks on Wall Street believing that they may someday posses enough wealth that an estate tax might affect them. John Steinbeck noted the power of aspiration, writing, “Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”
But when it comes to wealthy conservatives who favor economic policies that hurt many Americans: Bartels’ previous investigation of economic and political power finds, unsurprisingly, that those with a higher socioeconomic status have more influence on legislative outcomes. Martin Gilens, Dorian Warren, Jacob Hacker, Paul Pierson, and Kay Lehman Schlozman have all recorded similar findings. It seems obvious, but it is important to connect these dots: Not only do the wealthy have interests divorced from the broader interests of society, but they also have the political heft to turn those interests into policy.
It is considered rather gauche to discuss class today, and the inequality debate is therefore situated in a purely theoretical realm. Liberals are constantly confused and aggravated about why the preponderance of evidence that austerity doesn’t work (while stimulus does) and that inequality harms society is lost on a large portion of conservatives.
Well, let’s face it: Those who support austerity and inequality are not really about “trickle-down” economics or “efficiency and equity.” They are protecting the interests of the upper class.
As Jonathan Swift warned, “It is useless to attempt to reason a man out of a thing he was never reasoned into.”
By: Sean McElwee, The Week, March 18, 2014
“Just Desert Adherents”: Why The Conservative Defense Of Inequality Makes No Sense
Harvard economist Greg Mankiw is notorious for trying to justify the income of the very rich on the grounds that it’s what they deserve. In this column, for example, he uses the example of Steve Jobs as a person who deserves his wealth, having been in charge of a company that built some hugely popular electronic devices. The idea is plausible at first blush: Jobs’ products are indeed very popular.
But it quickly runs into enormous problems. This “just deserts” way of looking at the world is perennially tempting for conservatives — the flip side being that poorer people also deserve what they get — but they will have to do better than this to justify and valorize the existing social structure.
Consider the case of economic growth. As Matt Bruenig points out, the mysterious “Solow residual” — the source of productivity that can’t be directly attributed to capital, labor, or land — almost certainly consists at least in part of knowledge, which has been piling up for centuries:
If we are being good “just desert” adherents, then we need to divorce out the massive chunk of the total output that constitutes the Solow residual and ensure it makes it to its rightful contributor. All of our national product attributable to the world’s accumulated knowledge of algebra — which includes much of Mankiw’s work it should be noted — rightfully belongs to ancient Babylonians, ancient Greeks, and a whole host of other long-dead historical figures. All of our national product attributable to electricity technology rightly belongs, not to anyone living, but to people like Nikola Tesla and and Thomas Edison. In short, the view that individuals should receive only their marginal product actually generates the conclusion that the substantial part of our national product resulting from inherited technology and knowledge belongs to no living person, or more reasonably to everyone in general. [Demos]
Even that isn’t going far enough! As Thomas Kuhn demonstrated in the Structure of Scientific Revolutions, nearly all major scientific breakthroughs were made by multiple people simultaneously and independently, and were critically dependent on certain background conditions in society. In other words, if we could somehow figure out how much of economic output stems from the discovery of calculus, even Newton would not deserve full credit for it.
We can take it even further: what about the English language itself? That is to say, practically every single economic activity depends on a foundation of literacy that has been built into society. No business today can operate without a functional language as a bedrock condition. That is quite obviously the result of thousands of years of communal creation and evolution. Today’s Job Creators can’t possibly claim to have “built that,” and the very idea of trying to single out individuals in the creation of English is ridiculous on its face, with the possible exceptions of Shakespeare or William Tyndale.
Finally, merest existence means being ensnared in a web of obligation that it would be futile to map out. Every person alive is built at great effort and pain from the flesh and blood of another person: your mother. How could one possibly begin to even “repay” such a debt? Presumably, she deserves all of your income less what it takes to keep you alive, since she is literally responsible for your creation. But that’s not even the end — before your mother, there was her mother, and so on, in an unbroken chain of life creating life stretching 3.6 billion years back to the primordial sea. Remove just one of the links, and you wouldn’t exist.
Anyway, one could continue in this vein, but I’ll leave it there. In my view, the sheer impossibility of ever allocating desert in any sort of systematic or consistent way means we should guarantee a minimum of safety and security for every person. But at a minimum, Mankiw and his fellow 1 percent apologists would do well to abandon this line of reasoning.
By: Ryan Cooper, The Week, March 14, 2014
“The GOP Is Trying To Repeal The 20th Century”: The Right’s Crusade Against Overtime Pay, Why They Despise Worker Rights
Silly me: President Obama’s executive order to expand opportunities for overtime pay Thursday seemed like a win-win. Currently, if you make more than $23,000, you can’t necessarily receive overtime; the president’s order would raise that cap, and also make it harder for employers to classify people with almost no supervisory duties as “supervisors” and thus exempt.
Where’s the downside? Newly qualified workers currently being forced to work overtime without pay will now get higher wages. Or, if their employer doesn’t want to spring for the overtime pay (traditionally time and a half), they will have to expand their workforce to get the work done. Higher wages and/or more jobs: Sounds good, right?
Not to Republicans, of course. The backlash to the president’s overtime-pay expansion just makes clear what we’ve known for a long time: They oppose every attempt by government to reward hard work and protect the rights of workers – unless it applies to the very wealthy.
Speaker John Boehner sounded unusually befuddled opposing Obama’s move. “If you don’t have a job, you don’t qualify for overtime. So what do you get out of it? You get nothing,” he told the Washington Post. “The president’s policies are making it difficult for employers to expand employment. And until the president’s policies get out of the way, employers are going to continue to sit on their hands.”
The president’s policies are in fact making it harder for employers to exploit their workers. That’s all. As Jared Bernstein told the New York Times. “I think a potential side effect is that you may see more hiring in order to avoid overtime costs, which would be an awfully good thing right about now.”
Or you’ll see higher wages, which would also be an awfully good thing. One of the major causes of rising income inequality is that back in the 1970s, rising productivity suddenly became detached from rising wages. For decades — since the labor-rights reforms and social welfare advances of the ’30s and ’40s — the two lines climbed in tandem, with higher productivity translating into higher paychecks. The two came apart, in what’s become known as “the great divergence,” at the same time as income inequality began to climb. There are many reasons for the productivity-wage split, including a stagnant minimum wage, declining union membership, and weaker labor rights overall – including less compensated overtime.
Republicans no longer accept that it was government intervention in the economy, first in the Progressive era and then, more forcefully, after the Great Depression, that created the greatest economic boom and the biggest middle class in history. The 40-hour work week. The weekend. Vacations. Child labor laws. The minimum wage. Social Security. Health and safety protection. All of these represented government intervention on the side of working people, to balance the playing field with exploitive employers, and to carve out a realm of family and personal life that could be protected from ceaseless labor. Progressive public policy essentially created childhood, as a time when kids who weren’t wealthy might be educated and protected from labor abuse.
These became bipartisan values, with some debating around the margins, through Richard Nixon’s administration. But then a pro-business backlash put all of those gains back on the table. Republicans are now trying to repeal the 20th century.
“The federal government, in particular, shouldn’t be involved in labor markets in any way, shape or form,” says Jeffrey Miron, economic studies director at the Cato Institute. Cato is a libertarian think tank, but Miron’s once-radical point of view is now the GOP mainstream.
We’ve seen Republicans, like friend-of-the-poor Paul Ryan, fiercely oppose even modest increases in the minimum wage – even though earlier hikes always had a decent amount of bipartisan support. In fact, more Republicans today are openly insisting there shouldn’t even be a minimum wage, from formerly sensible Tennessee Sen. Lamar Alexander to Texas Gov. Rick Perry and his home state ally Rep. Joe Barton. GOP Senate candidates in North Carolina and Iowa have made abolishing the minimum wage a pillar of their campaigns.
We already know Republicans hate unions, whether public or private sector. One of the hottest CPAC sessions last week focused on “the Wisconsin model” of public sector union busting, but we also saw how hard GOP elected officials in Tennessee fought a union drive among Volkswagen workers there.
Some on the right have even clamored to bring back child labor. Newt Gingrich suggested poor kids should work as janitors to earn their school lunches, in order to fight the “culture” of poverty. (Like Paul Ryan, he doesn’t seem to see that food is the best answer for hunger.) Utah’s Tea Party Sen. Mike Lee has declared federal child labor laws “unconstitutional,” while up in Maine, wingnut Gov. Paul LePage would like to lower the legal working age from 16 to 12.
I’ve never understood why Republicans believe rich people need more money to ensure they’ll work harder, but the non-rich don’t deserve such incentives. From skyrocketing CEO pay to lower tax rates, the GOP defends putting more money in the hands of rich folks as a good thing. Giving more money to working people, by contrast, only encourages slackers and moochers. The president can’t wait for Republicans to join the 21st century while they’re busy repealing the 20th. He’s right to do whatever he can to boost workers’ wages on his own.
By: Joan Walsh, Editor at Large, Salon, March 14, 2014
“Low Wage Jobs Endanger Nothing”: Wall Street’s 2013 Bonuses Were More Than All Workers Earned Making The Federal Minimum
Purveyors of Ferraris and high-end Swiss watches keep their fingers crossed toward the end of each calendar year, hoping that the big Wall Street banks will be generous with their annual cash bonuses.
New figures show that the bonus bonanza of 2013 didn’t disappoint. According to the New York State Comptroller’s office, Wall Street firms handed out $26.7 billion in bonuses to their 165,200 employees last year, up 15 percent over the previous year. That’s their third-largest haul on record.
That money will no doubt boost sales of luxury goods. Just imagine how much greater the economic benefit would be if that same amount of money had gone into the pockets of minimum-wage workers.
The $26.7 billion Wall Streeters pocketed in bonuses would cover the cost of more than doubling the paychecks for all of the 1,085,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour.
And boosting their pay in that way would give our economy much more bang for the buck. That’s because low-wage workers tend to spend nearly every dollar they make to meet their basic needs. The wealthy can afford to squirrel away a much greater share of their earnings.
When low-wage workers spend their money at the grocery store or on utility bills, this cash ripples through the economy. According to my new report, every extra dollar going into the pockets of low-wage workers adds about $1.21 to the national economy. Every extra dollar a high-income American makes, by contrast, only adds about 39 cents to the gross domestic product (GDP).
And these pennies add up.
If the $26.7 billion Wall Streeters pulled in on their bonuses last year had instead gone to minimum wage workers, our economy would be expected to grow by about $32.3 billion — more than triple the $10.4 billion boost expected from the Wall Street bonuses.
This immense GDP differential only speaks to one price we pay for Wall Street’s bonus reward culture. Huge bonuses, the 2008 financial industry meltdown made clear, create an incentive for high-risk behaviors that endanger the entire economy.
And yet, nearly four years after passage of the Dodd-Frank financial reform, regulators still haven’t implemented the modest provisions in that law to prohibit financial industry pay that encourages “inappropriate risk.” Time will tell whether last year’s Wall Street bonuses were based on high-risk gambles that will eventually blow up in our faces.
Low-wage jobs, on the other hand, endanger nothing. The people who harvest, prepare and serve our food, the folks who keep our hotels clean, and the workers who care for our elderly all provide crucial services. They deserve much higher rewards.
By: Sarah Anderson, Moyers and Company, Bill Moyers Blog, March 12, 2014; This post originally appeared at Other Words
“Liberty, Equality, Efficiency”: What’s Good For The “One-Percent” Isn’t Good For America
Most people, if pressed on the subject, would probably agree that extreme income inequality is a bad thing, although a fair number of conservatives believe that the whole subject of income distribution should be banned from public discourse. (Rick Santorum, the former senator and presidential candidate, wants to ban the term “middle class,” which he says is “class-envy, leftist language.” Who knew?) But what can be done about it?
The standard answer in American politics is, “Not much.” Almost 40 years ago Arthur Okun, chief economic adviser to President Lyndon Johnson, published a classic book titled “Equality and Efficiency: The Big Tradeoff,” arguing that redistributing income from the rich to the poor takes a toll on economic growth. Okun’s book set the terms for almost all the debate that followed: liberals might argue that the efficiency costs of redistribution were small, while conservatives argued that they were large, but everybody knew that doing anything to reduce inequality would have at least some negative impact on G.D.P.
But it appears that what everyone knew isn’t true. Taking action to reduce the extreme inequality of 21st-century America would probably increase, not reduce, economic growth.
Let’s start with the evidence.
It’s widely known that income inequality varies a great deal among advanced countries. In particular, disposable income in the United States and Britain is much more unequally distributed than it is in France, Germany or Scandinavia. It’s less well known that this difference is primarily the result of government policies. Data assembled by the Luxembourg Income Study (with which I will be associated starting this summer) show that primary income — income from wages, salaries, assets, and so on — is very unequally distributed in almost all countries. But taxes and transfers (aid in cash or kind) reduce this underlying inequality to varying degrees: some but not a lot in America, much more in many other countries.
So does reducing inequality through redistribution hurt economic growth? Not according to two landmark studies by economists at the International Monetary Fund, which is hardly a leftist organization. The first study looked at the historical relationship between inequality and growth, and found that nations with relatively low income inequality do better at achieving sustained economic growth as opposed to occasional “spurts.” The second, released last month, looked directly at the effect of income redistribution, and found that “redistribution appears generally benign in terms of its impact on growth.”
In short, Okun’s big trade-off doesn’t seem to be a trade-off at all. Nobody is proposing that we try to be Cuba, but moving American policies part of the way toward European norms would probably increase, not reduce, economic efficiency.
At this point someone is sure to say, “But doesn’t the crisis in Europe show the destructive effects of the welfare state?” No, it doesn’t. Europe is paying a heavy price for creating monetary union without political union. But within the euro area, countries doing a lot of redistribution have, if anything, weathered the crisis better than those that do less.
But how can the effects of redistribution on growth be benign? Doesn’t generous aid to the poor reduce their incentive to work? Don’t taxes on the rich reduce their incentive to get even richer? Yes and yes — but incentives aren’t the only things that matter. Resources matter too — and in a highly unequal society, many people don’t have them.
Think, in particular, about the ever-popular slogan that we should seek equality of opportunity, not equality of outcomes. That may sound good to people with no idea what life is like for tens of millions of Americans; but for those with any reality sense, it’s a cruel joke. Almost 40 percent of American children live in poverty or near-poverty. Do you really think they have the same access to education and jobs as the children of the affluent?
In fact, low-income children are much less likely to complete college than their affluent counterparts, with the gap widening rapidly. And this isn’t just bad for those unlucky enough to be born to the wrong parents; it represents a huge and growing waste of human potential — a waste that surely acts as a powerful if invisible drag on economic growth.
Now, I don’t want to claim that addressing income inequality would help everyone. The very affluent would lose more from higher taxes than they gained from better economic growth. But it’s pretty clear that taking on inequality would be good, not just for the poor, but for the middle class (sorry, Senator Santorum).
In short, what’s good for the 1 percent isn’t good for America. And we don’t have to keep living in a new Gilded Age if we don’t want to.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 9, 2014
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