One positive outgrowth of the various Occupy demonstrations and encampments around the country (and the world) is the increasing attention being paid to inequalities of wealth and power. In the United States, inequality has been increasing significantly and is no longer in serious dispute.
A recently released study by the Congressional Budget Office shows that since 1980, the after-tax incomes of the top 1 percent of American households have more than doubled. By contrast, households in the broad middle of the income spectrum saw their incomes increase by about 1 percent per year. And for those in the bottom 20 percent, incomes rose by much less.
As a result, whereas the top 1 percent of households accounted for about 7 percent of total income in 1979, they now account for more than 15 percent. And the real action is in the top tenth of 1 percent, which is largely responsible for that dramatic concentration. To a staggering degree, wealth in America since 1980 has become concentrated in a tiny stratum of the population.
Even if many prominent conservatives concede that the growth in income inequality has been real and substantial—a big if—many like to point out that it's OK because the typical person in 2011 is vastly better off, in terms of health, access to consumer goods and the amenities of a comfortable life than even the wealthiest person a century ago.
Jonah Goldberg, for example, in dismissing concerns about inequality, has proudly proclaimed that whereas 2 percent of homes had electricity and 10 percent had flush toilets in America in 1900, now virtually all homes have both. Similarly, many defenders of the current distribution of income in the U.S. argue that our high degree of social mobility obviates concerns about that distribution.
The evidence is mounting, however, that inequality in the United States does not reflect a free-wheeling capitalism that encourages initiative-taking, innovation, wealth-creation and widespread opportunity. Instead, it is becoming ever clearer that our exploding inequality represents a basic dysfunction in the nature of our economic system and impedes, not promotes, successful pursuit of the American dream.
In fact, a raft of studies demonstrates that upward mobility in America is lessening over time. This is especially troubling because, as former White House economic adviser Jared Bernstein has noted, we need more mobility to offset the potential effects of increasing inequality, much as we would need a hotel elevator to cover greater distances if the floors of that hotel were spaced farther apart. Instead, increasing inequality is being coupled with decreasing social mobility. Many studies show that mobility in the U.S. lags well behind that of our wealthy-country counterparts: those countries with supposedly incentive-destroying welfare states, which are presumed to be deadening initiative, ambition and, consequently, real opportunities to climb the social ladder. The idea of an opportunity society is central to the American ethos; it is a reason why we tolerate relatively greater levels of inequality than do other rich countries. The evidence suggests that this ethos rests increasingly on a delusion.
One can debate whether some inequality is a good and necessary feature of a productive society: It purportedly gives talented people opportunities and sufficient incentives to create wealth that ultimately contributes to the public good. But it is something else altogether to insist that no matter how much inequality increases, there's no appropriate point at which to try to reverse it. If members of a society believe that wealth basically reflects individual effort and hard work, they may tolerate a good bit of it. But the reality is that the intensification of wealth concentration in America reflects, to a considerable degree, the growing political influence over the past three decades of the already-wealthy and powerful. They have leveraged their pre-existing advantages into further successful pursuit of rent-seeking opportunities—defined as something that diverts resources from productive uses—which greatly increase their own fortunes but do little to add to the wealth of society as a whole.
For example, private health insurers make enormous profits, but what is their contribution to overall health and wealth in America? Most rich countries have some version of a government-run or government-directed insurance system. The result is that their citizens pay far less for their health care per capita and enjoy better health outcomes overall than Americans. Similar concerns apply to high finance: "Wall Street." High finance accounts for an exploding share of American corporate profits. But whether this development is good for America more broadly is highly debatable. Leave aside the fact that the financial sector has benefitted enormously and fundamentally from the implicit and explicit guarantees it receives from the government. Many economists, and not just liberal ones, contend that a finance-centered economy is, in addition to being susceptible to great volatility, likely to undermine productivity and distort resource distribution.
If it could be shown that returns to rent seeking also delivered a clear, categorical benefit to the economy, one could justify them. But there is no evidence of such a benefit. Some people are getting incredibly wealthy off these arrangements. But the country as a whole has not especially thrived, and many people are running in place or falling behind. You don't need to be a communist sympathizer to believe that the measure of a political economy's proper functioning is that it serves the public weal. Adam Smith considered it, in fact, to be at the heart of what made commercial society morally justifiable (and Smith took it as a given that powerful merchants would always have an interest to "deceive and even oppress the public").
To hear much of the modern right tell it, any effort to reverse inequality is an affront to some perfect state of nature prior to the intrusion of the government into all areas of our lives. Returning to Goldberg's electricity example: Does he think electricity is a universal amenity today because Americans started exercising their rights as consumers to go to electricity stores en masse to buy that particular good? The typical citizen in a wealthy country in 2011, including in the United States, enjoys the material comforts she does for many reasons. Among the most important have been far-reaching government efforts to provide electricity to the remotest areas, to ensure a far-flung modern infrastructure of usable roads, reliable transportation and telecommunications and by extraordinary investments in public health.
The right's response to virtually every negative piece of economic news is to insist on further reduction of taxes on the wealthy (though many now seem eager to increase taxes on the less well off), further reduction of public services and further minimization of regulations on their true heroes—the so-called job creators. The only surety of that approach is to increase inequality, while likely making it harder for folks in the middle and at the bottom to move up the ladder. It's no longer credible to deny that inequality has increased dramatically in the United States. It should be no more credible to deny the deleterious effects of that fact for the future prospects of ordinary Americans.