Posts Tagged ‘equality’

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Inequality

Mainstream economists have gotten much better estimating the obscene levels of inequality that exist today. But imagining equality? They still find that almost impossible.

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Emmanuel Saez, Gabriel Zucman, and Thomas Piketty have been at the forefront of estimating the extraordinary growth of inequality that has taken place since the late-1970s and early-1980s in the United States—when incomes for the top 10 percent grew about three times as fast as those of the bottom 90 percent, thus reversing the trend of more than three decades of the postwar period when they grew at roughly the same rate.

But then, when the BBC asked mainstream economists about the effect inequality has on growth and prosperity, well, they just can’t get themselves to imagine an equal or even a substantially less unequal distribution of income.

Deirdre McCloskey, of course, is very relaxed about inequality “as long as it’s not force or fraud that caused it.” Jared Bernstein, for his part, just wants a better balance between productivity and incomes for middle-class families. And then there’s Jonathan Ostry, who is worried about opportunity and not inequality, and Branko Milanovic, who think we need inequality to provide incentives.

And there, in one package, we have all the ways mainstream economists demonstrate their long-held justification of inequality and their profound inability to imagine an equal distribution of income. Basically, for them, inequality is not a problem and equality is not the goal—because capitalism alone is capable of producing growth (McCloskey); even the levels of inequality we saw in the late-1970s (when the top 1 percent captured about 10 percent of all income) are too high a goal (Bernstein); inequality is not a problem as long as there are “adequate opportunities for the less well-off in society” (Ostry); and, finally, because inequality has always existed (Milanovic).

Milanovic, at least, imagines there might be problems down the road:

“If the gaps keep on increasing as they’ve increased in the last 20 years, you would end up with two types of societies within a single country. If there is no sufficient middle class and if the poor really are very far from the rich, then you really cannot speak of a single society.

“We could end up with a kind of a global plutocracy, this global one per cent or even half a per cent that are very similar among themselves, but really belong to different nations.”

But, basically, all of them, along with most other mainstream economists, take the world as it is—based on capitalist commodity production—as normal, such that inequality is either benign (it’s what we get in exchange for more stuff) or necessary (as the condition for getting people to work).

And they simply can’t imagine anything like what the rest of us envision: a world in which we have eliminated the obscene levels of inequality that current economic arrangements are creating.

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I remember my dismay, when I first began teaching economics, how enthralled my colleagues (at least the liberal ones) were with Arthur Okun’s notion of the fundamental tradeoff between equality and efficiency (which they supplemented with John Rawls’s theory of justice). No critique of capitalism, no critique of political economy. They believed the democratic process would find the appropriate balance between market efficiencies and nonmarket interventions to create greater equality.

I was never happy with the idea of such a tradeoff (or, for that matter, with the veil of ignorance), because it was based on denying the fundamental injustice embedded in a capitalist economy—the appropriation and distribution of a surplus produced by the majority for the benefit of a tiny minority at the top. And no amount of celebrating the supposed efficiencies of capitalist markets (which, for the most part, were simply assumed) or tinkering with the distribution of income (with tax-based redistribution) was going to fix that.

But what strikes me now is ultimately how disastrous was the framework developed by Okun (and by Rawls), given what has happened to the distribution of income and wealth in the United States since then (since 1975, when Okun first published Equality and Efficiency: The Big Tradeoff and when the first revision of Rawls’s A Theory of Justice appeared).

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Consider, for example, the distribution of income. In 1975, the top 1 percent managed to capture almost 9 percent of national income; by 2013, its share had risen to over 20 percent.

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A similarly dramatic change has occurred with the pay of top corporate executives. The CEO-to-worker compensation ratio has risen from 28 when Okun wrote to 296 today.

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And, of course, the distribution of wealth—which has always been more unequal than the distribution of income—has also worsened: according to Emmanuel Saez and Gabriel Zucman [pdf], the share of the top 0.1 percent rose from 7.6 percent in 1975 to 22 percent in 2012.

I have every reason, then, to be even more critical of Okun (and, for that matter, Rawls) today than I was then. The idea that there was a tradeoff between equality and efficiency (or, in Rawls’s case, the notion that those at the bottom might benefit from inequality), and that we shouldn’t veer too far in creating more equal economic outcomes in the name of efficiency (and of justice), steered us away from imagining and implementing policies and institutions that would have prevented the return to a more and more unequal distribution of income and wealth. As a society, we could have taken such measures but we didn’t.

In retrospect, Okun’s approach (and that of Rawls) was the problem, not the solution.