Last week’s New York Times reported that the Hillary Clinton campaign has tapped more than 200 experts to solve a problem: how to address the public’s anger over income and wealth inequality without “overly vilifying the wealthy.” We are left to ponder whether the campaign might vilify the wealthy some, but not too much.
Parsing definitions or grammar in press reports based on campaign sources is often fruitless, but this is an exception. How does vilification, whether too much or too little, have anything to do with good economic policy, presumably the shared goal of the 200 experts.
Secretary Clinton undoubtedly knows that there are both good and evil rich people. But social science has not told us what percentages of the rich are good and bad. Maybe that is what the 200 experts are to do so that appropriate doses of vilification can be administered. It is true that Jesus is quoted as saying that it is “easier for a camel to pass through the eye of an needle than for a rich man to enter the kingdom of God.” That suggests preponderance of bad.
I am, of course, being facetious. I understand that this story is really about the campaign’s quandary over how to push policies that promote the well-being of middle and lower classes without saying that the rich do not deserve their wealth. The mere fact that this poses a quandary is what is puzzling.
The real point is that the rich do not have to be vilified to support a policy that effectively addresses inequality of income and wealth. Inequality is bad for the whole economy and the current trajectory is unsustainable. The long-term increase in growth and equality that characterized developed economies for most of the 20th century inverted around 1980. Especially in the US, growth has slowed and inequality has increased. The OECD has studied the long-term effect of inequality on member state GDPs. The US is found to have lost cumulatively about 6% per annum in annual growth over the last two decades because of its drift toward inequality. That is more than GDP dropped in the Great Recession.
Thus, solving inequality is good in the long-term for the wealthy as well as for the rest of us. Nevertheless, it should surprise no one that most rich people do not want to give up a slice of their wealth right now for the future greater good. It is better if someone else gives up his or her wealth. Of course, the decision to redress income and wealth disparity is for government to make, not individuals.
Remember government, that collective voice of the people with the job of taking decisions in the public’s interests?
The worst part of our new form of inequality is that the income and wealth of average Americans have stagnated or fallen. No doubt, the rich have gotten richer at a staggering rate, but that alone is not what generates anger. It is that their increased wealth has not translated into improved income and wealth of everyone else. It is as if the idea that a “rising tide lifts all boats” simply does not apply anymore. We are approaching a “zero sum” economy in which an individual’s increased wealth is a cost to someone else.
Larry Summers provided a quote for the Times article that was useful up to a point: “It’s not enough to address upward mobility without addressing inequality. The challenge, though, is to address inequality without embracing the politics of envy.” Focusing on the useful half of his statement, it is true that the conventional progressive idea of upward mobility is not going to do the trick by itself, even though progressives who are overly concerned about offending rich people wish that it could. It is certainly good policy to give families the wherewithal to compete in the marketplace for employment. But that will not be good enough if there are no jobs that pay good wages to compete for.
Summers shied away from what should be done in lieu of embracing the politics of envy. One thing is certain: if progressives can identify things that cause unsustainable inequality and propose how to fix them, there is no reason to insult the wealthy or to incite the middle class.
A new Demos report analyzes the new reality of inequality. It observes the important structural changes to the economy that have stifled the kind of investment that could generate jobs and levels of income for work that would support the 90% of the households that have suffered so badly.
This new report digs into the way we have come to allocate investment capital to various possible uses in the last 35 years. Since 1980, inequality has grown, economic growth has slowed and the relative size of the financial sector has soared. The report explains how these are causally interconnected. While the quality of employment and wages for 90% of American households has been damaged by many forces, the financial sector and its role in capital allocation is found to be a major driver.
Summers and the others who recoil from vilification of the wealthy may have to come to terms with the fact that financiers have a major role in stifling the incomes of the vast majority of Americans. Does this mean the Clinton campaign might have to vilify bankers? That could be a chilling prospect for them, especially given her past associations on Wall Street. But again, the campaign does not need to call out “fat cat bankers.” The role of finance in inequality need not be an indictment of the character most financiers. The fact that lions kill weaker creatures for food is not a character flaw. Nonetheless, sensible societies constrain what lions are permitted to do and similarly finance needs to be further reigned in.
There is a general concern that the Clinton campaign is just too close to Wall Street to do anything that encroaches on its interests. If the primary way to structurally redress inequality is to change Wall Street in ways that go far beyond the defense of existing financial reform, we may see a real test of the commitment of the Clinton campaign to the public’s interests, even if that ruffles some Wall Street feathers.