Too unequal to ignore

Neoclassical economists, as I have argued many times, mostly ignore the problem of economic inequality.

Robert H. Frank also observes that “many economists are reluctant to confront rising income inequality directly,” justifying their stance by “saying that whether this trend is good or bad requires a value judgment that is best left to philosophers.” Frank’s view is that their “disclaimer rings hollow.”

Why? Partly because economics began, with Adam Smith, as a branch of moral philosophy. Partly because “rising inequality has created enormous losses and few gains, even for its ostensible beneficiaries.” And partly because although economists “say we should relegate questions about inequality to philosophers,” they  “often advocate policies, like tax cuts for the wealthy, that increase inequality substantially.”

Frank puts it in terms a neoclassical economists might understand: not in relation to notions of fairness and justice (which they can’t be expected to understand or invoke) but in terms of cost-benefit analysis (about which they are assumed to be conversant).

We need not reach agreement on all philosophical principles of fairness to recognize that [inequality] has imposed considerable harm across the income scale without generating significant offsetting benefits.No one dares to argue that rising inequality is required in the name of fairness. So maybe we should just agree that it’s a bad thing — and try to do something about it.

The fact is, some groups in society do benefit from the existence of economic inequality. But to recognize that aspect of inequality requires the shift to a different, non-neoclassical approach to economics.