December 25, 2015
NY Times Sunday Book Review | Ivory Tower
All Things Being Unequal
President Obama calls economic inequality “the defining challenge of our time.” Pope Francis tells us that “today we also have to say ‘thou shall not’ to an economy of exclusion and inequality.” The French economist Thomas Piketty writes a nearly 700-page book for Harvard University Press about long-term trends in inequality and, in the wake of the Occupy movement, is rewarded with a surprise best seller. Mitt Romney, of all people, now complains that “income inequality has gotten worse.” Economic inequality is bad. Everybody thinks so.
This simplifies somewhat. Some poll data suggest there exists a class of people who are not overly concerned about economic inequality, or at least not particularly interested in having the government do anything about it. (They are known, in statistical parlance, as “most Americans.”) Furthermore, the undesirability of economic inequality, as opposed to that of poverty, is not self-evident. Even Piketty concedes that inequality “is not necessarily bad in itself.” The question is whether it is justified.
For the economist William Watson, the answer is: It depends. His book THE INEQUALITY TRAP: Fighting Capitalism Instead of Poverty (University of Toronto, $32.95) is a lively and able, if familiar, defense of market capitalism and its effects. He grants that economic disparities that result from corrupt, coercive, anti-competitive or criminal transactions are “bad,” but he maintains that a great many others result from voluntary transactions that benefit all parties involved and are “good.” Still other economic disparities, like those that arise as byproducts of demographic changes, are neutral. For example: The growing tendency for wealthy people to marry other wealthy people — a development that has tracked the rise in women’s incomes — has been estimated to account for a 26 percent increase in household income inequality in the United States. But you would have to be quite an extreme redistributionist to support a policy that required wealthier people to marry poorer people.
Today’s preoccupation with economic inequality, Watson writes, breeds an unhealthy skepticism about capitalism and shifts our focus away from the issue of poverty and toward the wealth of the so-called 1 percent. Though he doesn’t blaze any new scholarly ground, anyone looking to play devil’s advocate with Piketty-purchasing friends would be well served by his book.
A more idiosyncratic argument is offered in ON INEQUALITY (Princeton University, $14.95), by the philosopher Harry G. Frankfurt. To those who think a gap between haves and have-nots is obviously unfair, Frankfurt poses a simple thought experiment: Imagine a policy wherein all incomes and personal wealth are kept equally below the poverty line. Everybody is now exactly as poor as everybody else. If this does not look like a solution, then inequality, as such, cannot be the problem. To Frankfurt, it seems clear that the relevant moral concern is not that people in our society have different amounts of money, but that too many people don’t have enough.
Most critics of economic egalitarianism, convinced that the only way to promote equal levels of wealth is to constrain people from acting freely, are troubled by a threat to liberty. This is not what troubles Frankfurt. He worries that a fixation on economic equality diverts our attention from fundamental questions that ultimately have nothing to do with how much money other people have. Namely: What is it that you want? What will satisfy you?
In this way, Frankfurt’s anti-egalitarianism is more of a philosophical challenge than a libertarian crusade. If your focus is on how your income stacks up against that of everyone else, you are allowing other people’s possessions to shape your sense of what you need and want. You are, in effect, alienated from yourself. Frankfurt also suggests that intellectuals, in devoting their attention to ratios of wealth, neglect a less precise but more pressing investigation: What is enough for a good life? What, for that matter, is a good life?
Frankfurt’s argument is unabashedly unempirical, and he freely concedes that economic inequality, though of no intrinsic moral concern, may have an array of undesirable consequences that themselves need to be redressed, such as disparities in political influence. In INCOME INEQUALITY: Why It Matters and Why Most Economists Didn’t Notice (Yale University, $40), the economist Matthew P. Drennan draws attention to what he believes is another, and surprisingly overlooked, example of such a consequence: Income inequality, he contends, was a decisive factor in precipitating the financial crisis of 2008 and the Great Recession that followed.
Most explanations of the 2008 crash, seeking the causes of an overly indebted economy, emphasize factors like low interest rates, relaxed borrowing standards, mortgage securitization — anything that increased the availability of credit. Drennan is interested in why people were moved to take advantage of this easy money. Purchasing homes, he argues, was only part of it. Something else was a significant driver of debt. He finds that lower- and middle-class families, struggling with declining or stagnant incomes, made use of second mortgages, home equity loans and other such instruments to support their spending, notably on necessities like medical care and education.
Why blame unequal incomes (as opposed to low ones) for this debt-fueled consumption? Drennan’s answer is that prices for certain necessities like medical care and education, which rose much faster than inflation in the years leading up to the crash, appear to have been driven up by heightened demand among the wealthiest 10 percent, whose share of income grew. In other words, it was an attempt by those with less money to compensate for costs created by others with increasingly more money that contributed to the instability of the economy.
Unfortunately for Drennan, addressing inequality has never been an American priority. Or has it? In AMERICA’S FOUNDING AND THE STRUGGLE OVER ECONOMIC INEQUALITY (University Press of Kansas, $39.95), the political theorist Clement Fatovic argues that a concern with economic inequality has deep roots in the establishment of the United States. Tea Party heroes like Thomas Jefferson and Thomas Paine, far from seeing government promotion of economic equality as inherently at odds with individual liberty, often considered greater equality to be a precondition for liberty, a view that influenced such proposals as free public schools and a more progressive tax system.
Another cherished conservative narrative — that Democrats favor a big government to promote social welfare programs, while Republicans favor a small government that allows the free market to work its magic — is rigorously disputed by the political scientist Christopher G. Faricy in WELFARE FOR THE WEALTHY: Parties, Social Spending, and Inequality in the United States (Cambridge University, $99.99). Faricy’s contention is that for the past four decades, Democrats and Republicans have increasingly used big government to promote social welfare programs — but each party has employed different tools and targeted different beneficiaries.
Democrats, as we know, use higher taxes to fund programs like Social Security, Medicare and Medicaid, which serve society’s poor and vulnerable. That is the public welfare state. But Republicans do much the same thing in the service of a private welfare state: They use tax breaks to subsidize employer-sponsored 401(k) plans and employer-sponsored health insurance, which serve the better-off. Faricy observes that tax breaks, logically speaking, are just government spending in another guise (both cost the government money), and that programs like the 529 college savings account, which is supported by such a tax break, are welfare programs for rich families. (About 70 percent of that program’s benefits go to households making more than $200,000 a year, costing the government $1 billion over the next decade.)
For Faricy, the real question is not some fanciful speculation about whether you can tolerate a welfare state that hampers your freedom, but rather a matter of which of these two welfare states you want: the one that spends public money to increase economic inequality, or the one that spends public money to reduce it.
James Ryerson is a senior staff editor in The Times’s Op-Ed section.
A version of this article appears in print on December 20, 2015, on page BR27 of the Sunday Book Review with the headline: All Things Being Unequal.