Down to Earth

As an empirically minded political scientist, I find myself in an odd position responding to Schmidtz’s essay. I am familiar with the claims of the theorists he discusses, and I believe I understand where he is taking me in discussing them. And yet Schmidtz’s essay seems to circle around the central question without ever firmly coming down to earth. That central question, as I glean it, is whether we should be concerned about the substantial increase in economic inequality in the United States over the past generation—and, equally important, whether we should feel any obligation to do something about it. And the thrust of Schmidtz’s essay—again, as I glean it—is that we may feel a modest degree of concern ( “disappointment,” to use Schmidtz’s word), but that rising inequality should not be a cause for alarm, much less a target of redress. [1]

The irony of Schmidtz’s essay, however, is that for all his emphasis on the “historical” theories of justice pressed on us by Nozick and Young, and despite his repeated invocation of phrases like “under real-world conditions” and “we need to look at actual changes,” his essay is airily abstract, as if he had been dropped into the midst of America’s debate over inequality from some distant planet. (“Greetings, Earthlings, why do you care about inequality?”) But most of us have been living here long enough to know a thing or two about the basic dimensions of what’s happening, and these things would seem to be relevant in answering the question of “When Inequality Matters.”

So let us start with some basic facts:

* Between 1979 and 2003, the income of the richest 1 percent of Americans more than doubled, while the income of Americans in the middle of the income spectrum grew by 15 percent and the income of the poorest fifth of Americans grew by less than 5 percent. [2]

* It is not that the overall economy has stagnated. To the contrary, between 1966 and 2001, productivity growth averaged a healthy 1.5 percent. Yet little of this growth has “trickled down.” According to one recent study, only Americans in the top 10 percent of the income spectrum saw their real wages grow faster than the 1.5 percent overall rate of productivity growth. The wages and salaries of middle-income Americans grew by only half a percent a year. [3]

* As a consequence, by the late 1990s, the richest one percent of households had come to hold a larger share of the nation’s income than at any time since the mid-1930s. [4] Wealth is even more concentrated, with the richest 1 percent holding approximately a third of all wealth in the economy. [5]

* Incomes are substantially more unequal in the United States than in other rich democracies. Over the last twenty or so years, moreover, other rich nations for which we have data have increased the degree to which they reduce inequality through government taxes and transfers. In the United States, government taxes and transfers actually reduce inequality less today than a generation ago. [6]

To be sure, these are not the only trends worth reporting. As Schmidtz rightly notes, inequality is multidimensional, and there are certainly dimensions on which our society has grown much more equal in the past generation. Still, the economic dimension is a crucial one, and these are remarkable trends. In long historical relief, they bring us back to levels of inequality not seen since the Gilded Age. Moreover, they give the lie to some common conceits. For example, it is not just immigration or family breakdown that accounts for rising inequality, since most of the rise in inequality is driven by gains at the very top. Nor is inequality simply a consequence of the growing gap between the well educated and the less well educated. Indeed, a large share of the rise in inequality is caused by the growing dispersion of income among Americans with the same level of education. And, lastly, the United States is not becoming more unequal only because our competitive market is producing greater inequality, but also because our government is doing less to offset the increasingly unequal rewards that our economy is producing.

I should emphasize that none of this tells us whether the substantial rise in economic inequality in the United States is good or bad. I believe it is bad, but empirical trends can only inform moral judgments, not dictate them. In explaining why I believe the dramatic increase in U.S. inequality is bad, I find it helpful to distinguish three reasons why rising economic inequality might be a cause for concern:

1. Economic inequality is bad in itself.

2. Economic inequality is bad because it reflects other, more profound inequalities.

3. Economic inequality is bad, because it causes other, more profound inequalities.

I will say very little about the first reason. [7] Not only am I not a theorist of distributive justice, but I also agree with Schmidtz that critics of inequality need to “offer reasons why [any] particular inequality matters enough to warrant being called unjust.” (Indeed, I cannot think of a single egalitarian theorist who does not offer such reasons.) Furthermore, it is clear from the evidence that most Americans, while not favorable toward rising inequality, do not view inequality itself as a major cause for concern. [8]

With regard to the second potential line of critique—that economic inequality reflects more profound inequalities—there are plenty of arguments to make. The most fundamental, to my mind, is that economic inequality is an indirect indicator of inequality of opportunity. Schmidtz reassures us that “No one needs to win, so no one needs a fair chance to win.” But some people do win and others do not, and it is cause for concern if people who are from privileged backgrounds consistently win while people who are not from such backgrounds consistently do not. It is difficult to see how even a positive-sum system can reasonably be considered fair if it gives citizens vastly unequal chances to succeed economically—if the circumstances of one’s birth and brute luck (more on which later) all but dictate success. To put the point more simply, inequality is less worrisome in societies with high levels of mobility. Yet recent studies suggest that U.S. economic mobility has not risen even as inequality has skyrocketed. In cross-national perspective, in fact, current U.S. levels of mobility are surprisingly unexceptional. [9]

Critics of rising inequality are on equally strong ground, in my view, in arguing that economic inequality causes other fundamental inequalities. Given my professional background, it will come as no surprise that my greatest concern about rising economic inequality is that it is undermining what Schmidtz calls “liberal political equality.” As the political scientist Sidney Verba has written, democracy is based on the ideal of equal consideration of citizens’ interests. [10] In theory, this ideal is compatible with vast inequalities in other spheres of social life. The problems arise when resource inequalities translate into substantial, cumulative, and self-reinforcing inequalities of political power. Sadly, I believe that these sorts of inequalities—which, again, are reflective of economic inequality, not synonymous with it—have become increasingly apparent in American politics.

This is not the place to lay out the reasons for my concerns. Instead, I will merely refer readers to the work of the American Political Science Association’s Task Force on Inequality and American Democracy, of which I was part. The Task Force considered the political effects of growing economic inequality from a variety of perspectives and drew on a huge range of cutting-edge research. Its conclusion was that growing inequality did in fact threaten political equality in the United States:

Generations of Americans have worked to equalize citizen voice across lines of income, race, and gender. Today, however, the voices of American citizens are raised and heard unequally. The privileged participate more than others and are increasingly well organized to press their demands on government. Public officials, in turn, are much more responsive to the privileged than to average citizens and the least affluent. Citizens with lower or moderate incomes speak with a whisper that is lost on the ears of inattentive government officials, while the advantaged roar with a clarity and consistency that policy-makers readily hear and routinely follow. [11]

For all I know, Schmidtz may not disagree with this assessment. Indeed, he suggests at one point that political inequality is the fault of those who foolishly try to reduce economic inequality. “When we insist on creating enough power to beat the best players in zero-sum games,” Schmidtz claims, “it is just a matter of time before the best players capture the very power we created in the hope of using it against them.”

The best (or at least the richest) players do seem to have captured power in American politics, but it is rather perverse to suggest that this is the fault of egalitarianism. Instead, what we have here is a classic story of cumulative advantages—people who have more are being heard more by political leaders, and what government does reflects this imbalance. The political scientists Larry Bartels and Martin Gilens have found, for example, that the votes of elected representatives and the direction of public policy are both greatly more responsive to the opinions of high-income citizens than they are to the opinions of Americans of more modest means. [12]

Let me close by returning to a point briefly glided over earlier—the place of “brute luck” in assessments of inequality. Schmidtz approvingly cites Elizabeth Anderson’s claim that “The proper negative aim of egalitarian justice is not to eliminate the impact of brute luck from human affairs, but to end oppression.” Whether that claim is correct or not, it does seem to me that any consideration of the role of government in tempering market forces does hinge greatly on whether we think brute luck is an important cause of observed inequalities. This is because inequalities caused by free choice naturally offend us less than inequalities caused by brute luck—which is one reason why even highly individualistic Americans are highly supportive of government programs that provide insurance against such financial catastrophes as disability, ill health, unemployment, and the loss of private retirement savings.

In my own research, I’ve shown that over the past thirty years these sorts of economic risks have come to be borne increasingly by individuals, rather than larger risk pools. [13] In the perspective embodied in Schmidtz’s essay, this is a victory for freedom. Yet Americans do not seem to feel more free. Instead, they are feeling greater anxieties about their economic future than at any time in the last two decades. It may well be that inequality will only start to “matter” politically when Americans begin to interpret recent economic shifts in terms of growing insecurity, rather than the rising gap between the rich and the rest.

Notes

[1] Now, I may well be reading too much into Schmidtz’s essay, and I hope I can be forgiven if I am. But how else am I to understand his highly stylized example of tax cuts, which suggest there’s nothing inherently wrong with providing 90 percent of the benefits of a tax cut to the rich? Or his story about the stolen wallet, which suggests, none too subtly, that redistribution is theft? Or his unlikely paean to Karl Marx (“To redistribute under real-world conditions, we must alienate producers from their products”), which just goes ahead and says redistribution is theft? And what else can I take to be the verdict of the following?

We form societies with the Joneses so that we may do well, period, not so that we may do well relative to the Joneses. To do well, period, people need a good footing, not an equal footing. No one needs to win, so no one needs a fair chance to win. No one needs to keep up with the Joneses, so no one needs a fair chance to keep up with the Joneses. No one needs to put the Joneses in their place or to stop them from pulling ahead.

And no one should worry when people like the Joneses hold 90 percent of the wealth, reap 90 percent of the income gains of the last thirty years, and get 90 percent of the tax cuts.

[2] Congressional Budget Office (CBO), Historical Effective Federal Tax Rates: 1979 to 2003 (Washington, D.C.: CBO, December 2005).

[3] Ian Dew-Becker and Robert J. Gordon, “Where did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income, Brookings Papers on Economic Activity 2005:2 (forthcoming).

[4] Thomas Pickety and Emmanuel Saez, “Income Inequality in the United States, 1913-1998,” Quarterly Journal of Economics 118 (2003). Updated data available at http://emlab.berkeley.edu/users/saez/.

[5] Marco Cagetti and Mariacristina De Nardi, “Wealth Inequality: Data and Models,” Federal Reserve Bank of Chicago Working Paper 2005-10, http://www.chicagofed.org/publications/workingpapers/wp2005_10.pdf.

[6] These data are from the Luxembourg Income Study (http://www.lisproject.org), a cross-national research project that harmonizes and standardizes micro-data from national income surveys in order to facilitate comparative research.

[7] But I will pause here to note that there is plenty of empirical research that suggests that inequality itself has negative social effects, although this research is certainly contested. My impression, for example, is that the seminal research on the relationship between inequality and economic growth indicates that inequality impairs growth. And there is a growing body of research that suggests that inequality itself is harmful to the physical and sociological health of citizens on the bottom of the economic ladder, though, again, I have seen dissenting views that seem to have solid empirical grounding.

[8] Everett Carll Ladd and Karlyn H. Bowman, Attitudes toward Economic Inequality,/em> (Washington, D.C.: American Enterprise Institute Press, 1998),

 

[9] For an accessible review, see “Meritocracy in America: Ever Higher Society, Ever Harder to Ascend,” Economist, 29 December 2004, http://www.economist.com/world/na/displayStory.cfm?story_id=3518560.

 

[10] Sidney M. Verba, “Would Dream of Political Equality Turn Out to be a Nightmare?” Perspectives on Politics 1:4 (December 2003), http://www.apsanet.org/imgtest/verba.pdf

[11] Task Force on Inequality and American Democracy, American Political Science Association (APSA), American Democracy in an Age of Rising Inequality (Washington, D.C.: APSA, 2004), http://www.apsanet.org/imgtest/taskforcereport.pdf.

[12] For discussions of these studies and others, see Lawrence R. Jacobs and Theda Skocpol, ed., Inequality and American Democracy: What We Know and What We Need to Learn (New York: Russell Sage Foundation, 2004).

[13] Jacob S. Hacker, “Privatizing Risk without Privatizing the Welfare State: The Hidden Politics of Retrenchment in American Social Policy,” American Political Science Review 98:2 (May 2004), http://www.apsanet.org/imgtest/hacker%20APSR%20(May%2004).pdf. These themes are explored in my forthcoming book, The Great Risk Shift: The New Economic Insecurity—And What Can Be Done About It (New York: Oxford University Press, 2006).

Also from This Issue

Lead Essay

  • When Inequality Matters by David Schmidtz

    “Everyone cares about inequality. Caring about inequality, though, is not enough to make inequality matter,” writes political philosopher David Schmidtz. “Unless we have the right sorts of reasons to care, equality does not matter, at least not in the way justice matters. So, why care about inequality?” Drawing on his illuminating new book, Elements of Justice, Schmidtz lucidly clarifies which inequalities matter, and why, in a world where our fellow citizens are partners in a cooperative system of joint production, not competitors in a race.

Response Essays

  • Why Care About Equality? by Peter Singer

    “When Jeremy Bentham first suggested that the pains and pleasures of an African should count as much as the happiness of an English person,” philosopher Peter Singer writes, “this view had radical implications, for slavery was still legal in the British colonies. Today, the suggestion that the pain of a nonhuman animal might count as much as the pain of a member of our own species is still radical. That is why this sense of equality remains important.”

  • Which Inequalities Are Ours to Arrange? by Tom G. Palmer

    Picking up where David Schmidtz’s lead essay ends, Cato Institute Senior Fellow Tom G. Palmer argues that a common line of reasoning used to justify the authority of the state to rearrange the unequal distribution of wealth is based on a mistake. The kind of equality that matters, Palmer argues, is the “equal right of every person to exercise choice over his or her own person.” The inequalities that emerge from the voluntary interaction of persons exercising that right are not “ours” to reconfigure.

The Conversation