What does economic inequality mean
in our American democracy? It has
certainly been a central focus of our political and social policy over the past
two election cycles, beginning with the great recession. After the stock and real estate markets
crashed in 2007, 16 trillion dollars in value was lost. Shortly thereafter an
African American with a message of hope became President. Because of the danger
of total economic collapse, Obama could not favor the “Occupy Wall Street” socialist
crowd. Instead, he worked to save the great American Banks and the auto
industry.
Despite gloom and doom forecasts,
individuals with means invested wisely (it was a no brainer buying stocks at
all time lows) and the financial markets rose from the ashes, stronger than
before. For the wealthy the aftermath of the great recession was a greater
increase in net worth.
Throughout the Obama years the
economy got stronger. But putting meat
back on the bones of American commerce and industry did nothing for the middle
class. Jobs disappeared and wages
stagnated. Unsophisticated and older
investors were afraid of the financial markets and their savings did not grow in minimal interest savings
accounts.
For much of rural America the post recession
economic boom was nonexistent. Economic
inequality reached an all time high in the West, with vast amounts of wealth
accumulated in very few families.
In 2016, along came two very
different candidates to run for the Presidency, a new kind of Republican who
thrived on conspiracy theories and a Socialist from Vermont. Both seemed to
favor many of the same policies designed to help the middle class. They campaigned on keeping jobs in America
and replacing free trade agreements; making health care and education less
expensive and letting middle class white males move to the front of the
economic line in place of immigrants and minorities.
The populist republican got elected
and here we are. But will we actually see more income equality in America? The tea leaves are not encouraging. First,
the new President’s conservative allies believe in trickle-down economics that
would continue to favor the wealthy who are viewed as the most talented and
hard working of Americans, best able to create jobs for the struggling masses.
Second, Trump’s white middle class
base that got him elected does not have the political power of either the tea
party or the traditional conservatives that now control both houses of
Congress. Trump will be forced to choose
between keeping his promises to white populists who have little power and
wealthy conservatives who run the government. It will be much easier to move the
conservative agenda forward (witness Trump’s signing on to the Ryan health care
plan) than to favor a populist movement that lacks an institutional base in
Washington.
The realities of daily politics
aside, recent research into the social and historical causes of economic
equality are not encouraging and do not lead to simple policy remedies. On the social side, pure luck, or the rolling
of the economic dice, may be one of the most important factors in determining
economic success. Consider the comments made by former Federal Reserve
chairperson Ben Bernake at a Princeton University Baccalaureate speech in 2013:
“A meritocracy
(often praised by conservatives as an ideal) is a system in which the people
who are the luckiest in their health and genetic endowment; luckiest in terms
of family support, encouragement and, probably income; luckiest in their
educational and career opportunities and luckiest in so many other ways too
difficult to enumerate – these are the folks that reap the largest rewards.”
The renowned economist, Robert H.
Frank, published a short but instructive book in 2016, “Success and Luck, Good
Fortune and the Myth of Meritocracy” which concludes that inequality is driven
by sheer luck. The book demonstrates how
in our complex world, often dominated by
winner take all scenarios, chance opportunities and trivial initial advantages
often translate into much larger opportunities with enormous economic payoffs. Those of us who have had success in our lives
can easily point to examples of pure circumstance that have little to do with
our intellect or drive to succeed.
Conversely, we all know of talented well educated people who continue to
roll snake eyes and never achieved economic prosperity.
As if the influence of luck were
not enough to depress us in addressing inequality, along comes a new masterful
historical study of the history of inequality, “The Great Leveller” by Walter
Schendel. This work concludes that governmental policy decisions do little to
move the needle to make societies more equitable. Schendel finds that only four historical
events lead to economic leveling: epidemics like the Black Death; complete
collapse of whole states (think the decline of the Roman Empire); revolutions
and wars of mass mobilization, such as those experienced in the 20th
century. When society is leveled by one of these events, the rich lose the most
and inequality is defeated until civilization recovers.
Of the book’s many examples, one
that stands out is the comparison of classical Athenian culture and America
during the Second World War. In both
cases the elites were forced to give up vast resources to support mass
mobilization of the population for war.
How soon we forget that our top income tax rate reached 94% in 1944 and
that the income leveling from trade unions and middle class expansion lasted
well into the 1980s.
So where does this leave us in
2017? Luck will certainly remain a
factor and no one wants to encourage mass violence or a worldwide pandemic to
achieve equality. While some would argue
that it is the goal of alt right members of the Trump inner circle to bring the
established government down in flames to create a new utopia for the white
middle class, it is hard to see this theory coming to fruition.
What is undisputed is that whatever
was holding large scale inequality in check in America is now spent. But this does not mean we must adopt Mr.
Schendel’s conclusion that the future is more likely than not to remain stable
and to have very high inequality. Why should
a sense of social cohesion and sacrifice by the wealthiest among us, for the
greater good of us all, only be inspired by war or extreme social disruption?
It is my view that little will
change to address income inequality during the Trump Presidency. When his experiment fails, as it surely must,
the political pendulum will swing back toward progressive values. A universal
basic wage to help curb poverty will become possible. Sharply higher income taxes for the rich and
a wealth tax on inheritance will be implemented. Thoughtful regulations will reign in abuses
by corporate elites and protect the most vulnerable among us.
At a minimum these policies will prevent
economic inequality from becoming more pronounced. In the words of the great Social Democrat,
Tony Judt: “Incremental improvements upon unsatisfactory circumstances are the
best we can hope for, and probably all we should seek.”
