It’s The Inequalities, Stupid – A Never-Ending Story

This is the one new thing: ever since the economy crashed and burned and the Occupy movements, at least, there has been talk about social inequalities in the past three years or so. Otherwise, look at the media of the past thirty, and inequalities was a non-existent topic: the poor were poor because of their own individual shortcomings or the culture of poverty, or government dependency, etc. So, sociologists were the lonely crowd of Cassandras warning that no, really, inequalities were growing and this is bad for society as a whole. But being a dominated academic profession, they suffered the fate of Cassandra: they were not listened to or not downright ignored and dismissed as a bunch of lefty whiners.

So, at least, that is less the case. At the same time, the evidence on the growth of inequalities and the deleterious impact of that growth on society as a whole is pretty much an open and shut case since the publication of the Spirit Level. Why then is it surprising to see articles that seem to discover this new thing that is widening stratification and its impact?

Income inequality has soared to the highest levels since the Great Depression, and the recession has done little to reverse the trend, with the top 1 percent of earners taking 93 percentof the income gains in the first full year of the recovery.

The yawning gap between the haves and the have-nots — and the political questions that gap has raised about the plight of the middle class — has given rise to anti-Wall Street sentiment and animated the presidential campaign. Now, a growing body of economic research suggests that it might mean lower levels of economic growth and slower job creation in the years ahead, as well.

“Growth becomes more fragile” in countries with high levels of inequality like the United States, said Jonathan D. Ostry of the International Monetary Fund, whose research suggests that the widening disparity since the 1980s might shorten the nation’s economic expansions by as much as a third.

Reducing inequality and bolstering growth, in the long run, might be “two sides of the same coin,” research published last year by the I.M.F. concluded.”

Well, yeah, but this is an interesting shift for the IMF:

“For years, economists have thought of such inequality in part as a side effect of policies that fostered the country’s economic dynamism — its tax preferences for investment income, for instance. And organizations like the World Bank and the I.M.F., which is based in Washington, have generally not tackled inequality in the world head on.

But economists’ thinking has changed sharply in recent years. The Organization for Economic Cooperation and Development this year warned about the “negative consequences” of the country’s high levels of pay inequality, and suggested an aggressive series of changes to tax and spending programs to tackle it.

The I.M.F. has cautioned the United States, too. “Some dismiss inequality and focus instead on overall growth — arguing, in effect, that a rising tide lifts all boats,” a commentary by fund economists said. “When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss.

The concentration of income in the hands of the rich might not just mean a more unequal society, economists believe. It might mean less stable economic expansions and sluggish growth.

That is the conclusion drawn by two economists at the fund, Mr. Ostry and Andrew G. Berg. They found that in rich countries and poor, inequality strongly correlated with shorter spells of economic expansion and thus less growth over time.

And inequality seems to have a stronger effect on growth than several other factors, including foreign investment, trade openness, exchange rate competitiveness and the strength of political institutions.

For developing economies, the channels through which inequality might drag down growth seem clear. Inequality might foster political instability and lead to violence and economic destruction, for instance, a theme that fits for Arab Spring countries, like Egypt and Syria.

For the United States, such channels are now the subject of intense research interest, with economists examining whether and how the gap between the rich and the poor fueled the recession and what it might mean.”

How did this increase inequalities happen? By redistribution… to the top:

The rise in inequalities is not new then but it has finally become an acceptable topic of discussion although not as much as one would hope considering its importance ans we know why: because it questions the system that created these income and wealth gaps that even the IMF says we should pay attention to.

Chrystia Freeland’s quick take on class warfare as ideological construct and rhetorical device to shut down discussion on inequalities.

Freeland from on Vimeo.

And a longer discussion between Chrystia Freeland and Matt Taibbi on Moyers’s program on the same topic (take the time to listen to and watch the whole thing, it is worth it):

Matt Taibbi and Chrystia Freeland on the One Percent’s Power and Privileges from on Vimeo.

So what is to be done? Mark Thoma suggests empowerment of the working class as a partial path through employment:

“Why doesn’t the unemployment problem get more attention? Why have other worries such as inflation and debt reduction dominated the conversation instead? As I noted at the end of my last column, the increased concentration of political power at the top of the income distribution provides much of the explanation.

Consider the Federal Reserve. Again and again we hear Federal Reserve officials say that an outbreak of inflation could undermine the Fed’s hard-earned credibility and threaten its independence from Congress. But why is the Fed only worried about inflation? Why aren’t officials at the Fed just as worried about Congress reducing the Fed’s independence because of high and persistent unemployment?

Similar questions can be asked about fiscal policy. Why is most of the discussion in Congress focused on the national debt rather than the unemployed? Is it because the wealthy fear that they will be the ones asked to pay for monetary and fiscal policies that mostly benefit others, and since they have the most political power their interests – keeping inflation low, cutting spending, and lowering tax burdens – dominate policy discussions? There was, of course, a stimulus program at the beginning of Obama’s presidency, but it was much too small and relied far more on tax cuts than most people realize. The need to shape the package in a way that satisfied the politically powerful, especially the interests that have captured the Republican Party, made it far less effective than it might have been. In the end, it had no chance of fully meeting the challenge posed by such a severe recession, and when it became clear that additional help was needed, those same interests stood in the way of doing more.


The imbalance in political power, obstructionism from Republicans designed to improve their election chances, and attempts by Republicans to implement a small government ideology are a large part of the explanation for why the unemployed aren’t getting the help they deserve. But Democrats aren’t completely off the hook either. Centrist Democrats beholden to big money interests are definitely a problem, and Democrats in general have utterly failed to bring enough attention to the unemployment problem. Would these things happen if workers had more political power?”

It boils down to class.

And more recently, Tim Noah makes a related case, arguing for stronger labor unions:

“The simplest thing government could do to reverse the 33-year growth in income inequality is to make it easier to start and maintain a union.

Although income inequality is growing in comparable nations around the world, it is more extreme and growing more rapidly here. A big reason is that labor unions, which have faced rough times everywhere with the rise of globalization, have declined much more in the United States.

Private-sector union density peaked in the early 1950s at almost 40 percent. Today it’s down to 7 percent, which is about where it was when Franklin Roosevelt entered office. It’s as if the New Deal, which made possible the rise of America’s labor movement, never happened.

Revitalizing labor is not a popular cause nowadays, even among liberals, but there’s little point in even discussing how to solve the inequality problem if you won’t consider ways the government could help rebuild — really, stop suppressing — unions. If you graph a line charting the decline in union membership and then superimpose another line charting the decline in middle-class income share, the lines will be nearly identical. That is not a coincidence.”

Of course, none of this is going to happen and for now, we are stuck in the vicious cycle of weak growth and inequalities deplored by Joseph Stiglitz.

But ultimately, it’s the inequalities, stupid.

One thought on “It’s The Inequalities, Stupid – A Never-Ending Story

  1. Pingback: Simoleon Sense » Blog Archive » Weekly Roundup 190: A Curated Linkfest For The Smartest People On The Web!

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