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The Single Best Argument Against Inequality

David Callahan

Progressives have typically attacked economic inequality on fairness grounds, arguing that it's just not right that so much national wealth is funneled to the top even as millions struggle to get by. 

Americans are definitely open to this argument, especially during times like now when a warped, anemic economy is mainly just raising the yachts, and not the boats of ordinary people. This is a key finding of Leslie McCall's recent book, The Undeserving Rich, which carefully scrutinizes years of public opinion polls on inequality. 

The problem, though, is that when economic times are fairly good, the fairness critique of inquality tends to lose traction. We saw that in the late 1990s and also the Bush years. The yachts were soaring into the stratrosphere, but ordinary boats were also inching up just enough that it was hard to raise concern about near-record levels of inequality. 

We could easily see this same movie again in coming years. Recent public concerns about inequality could quickly melt away if the economy cranks back up and modestly good times return. The fact that tens of millions of workers will still be trapped in low-wage hell while a sliver of Americans live better than the kings of old will seem like a minor detail. Remember, this is America, where people will seize any chance they get to blame themselves for their economic misfortune as opposed to larger systems or the elites who run things. 

All this is why opponents of inequality need a truly sustainable critique of the huge gaps of income and wealth in America today -- one that seems relevant in both good times and bad. Fortunately, such a critique has finally emerged in recent years -- one which focuses on how inequality undermines growth and hurts everyone.

This argument follows a simple causal chain: unequal growth concentrates wealth in the hands of a tiny slice of consumers who can only spend so much money. In turn, the vast majority of earners are left with little extra cash for goods and services. Resulting weak demand undermines growth. Low growth makes everyone poorer than they otherwise might be, including those who own the means of production. 

Inequality produces other bad economic outcomes, too, such as the underutilization of the nation's human capital, inadequate public investment in both human and physical capital, and social ills that are costly to address, diverting away resources from investment. 

It all makes sense. And it makes sense whether the economy truly stinks like it does now, or is simply underperforming, which was the case through much of the Bush years.

What's more, this critique of inequality doesn't just appeal to those who are hurting or care about fairness. It appeals to anyone who wants more customers for their goods and services. Or anyone who wants America to compete well against China and Germany in coming decades. 

This new critique has been popping up often lately. Demos has used it to analyze inequality in the retail sector and make an argument for higher wages. 

And just last week, the Center for American Progress launched the Washington Center for Equitable Growth, which aims to deepen the economic critique of inequality. As the mission statement of the Center says:

New research suggests that growing inequality in the United States may have broad social and economic effects — by reducing stable demand for goods and services, dampening entrepreneurialism, undermining the inclusiveness and responsiveness of political and economic institutions, limiting access to education, and stunting individual development.  Yet our understanding of how these mechanisms interact with the broader economy is limited.

Thanks to this initiative, and other work, we are likely to soon know more about how inequality affects everyone's economic fortunes in America. That knowledge will be a powerful thing in making a far stronger argument for inclusive growth.