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Do People Care About Extreme Inequality?
Dear Dr. Dollar:
The extreme inequality we have in this country is not fair. According to a report from the National Bureau of Economic Research (NBER), in 2016 the bottom 40% of households on average had a negative net worth (assets minus liabilities) of $9,000. In that same year, the richest 10% of households had an average positive net worth of $5.2 million. For the top 1%, the average was $26.4 million. Income is less unequally distributed than wealth, but the same NBER report shows that in 2015 the top 10% of households obtained 50% of income, while the bottom 40% obtained 9%. There is every reason to believe that in more recent years, especially with the pandemic experience, things have only gotten worse. This extreme inequality is having negative impacts throughout society, affecting everything from health to education to the environment to crime. How long can this situation last? Will public opinion ever reflect my disapproval? — Ben Leet, by e-mail
Actually, polls indicate that public opinion tends to be consistent with your disapproval. A Pew Research Center poll from September 2019 found that 61% of adults believe “there’s too much economic inequality in the country.” In January 2020, Reuters reported that its poll found that “64% of those respondents strongly or somewhat agreed that ‘the very rich should contribute an extra share of their total wealth each year to support public programs,” a result that Reuters interpreted as support for a wealth tax.
Although in the Pew poll only 42% of respondents said inequality should be a top-priority issue for the federal government, at least two of the issues which more survey participants thought should be a top priority—“health care more affordable” and “addressing climate change”—are very much tied up with economic inequality. I’ll come back to the implications of the polls below, but whatever the polls say, one wonders why so many people do not see inequality as a top-priority issue, given how it has increased so greatly in recent decades and is so closely tied to many social problems. The increase is well known, but for now just one illustration: In 1965, the average compensation of CEOs in the top 350 companies (in terms of sales) was 20 times the average compensation of workers; in 2018, the CEO average was 278 times the worker average.
So Why Don’t More People Care About Inequality?
Not surprisingly, the polls show that the higher peoples’ incomes, the less they think inequality is a problem. Also, we can assume that the very rich, with few exceptions, oppose a wealth tax or higher income taxes on high incomes. But there are still many others who do not think inequality is a big problem, and even of those who think it is a problem, a good number do not view it as a high priority.
Many people seem to believe in two important and related myths. One of these is that markets are fair: If some people make a lot of money, they must deserve it; and if some people do not do well financially, it’s their own fault. People who accept this myth do not deny that there are exceptions—some people are born rich, and some people just have bad luck. But these exceptions don’t alter belief in the myth.
The second and related myth is that ours is the land of opportunity: No matter your origins, it is possible for you to rise to financial success. This myth was popularized and widely propagated during the 19th century in books by Horatio Alger, with their tales of people who (as stated in Dictionary.com) “begin life in poverty and achieve success and wealth through honesty, hard work, and virtuous behavior.”
Yet these two myths are in fact myths, not descriptions of reality. Markets are not fair, and to a large extent are created in ways that favor certain groups. For example, the fossil fuel industry has received extensive government support over the decades, and pharmaceutical and high-tech firms are protected by sets of patent and copyright laws that allow them to obtain monopoly profits. A very unequal public education system yields a labor market that is also highly unequal, and the labor market is also affected by sets of rules that tend to favor firms’ owners over workers and labor unions. Financial firms are allowed all sorts of manipulations that expand their profits. In addition to all this, markets are greatly shaped by racism and other forms of nefarious discrimination. (See Arthur MacEwan, “Are Taxes the Best Way of Dealing with Inequality?” D&S, November/December 2019 for more on how markets are constructed.)
As to the United States being the land of opportunity, several studies indicate that social mobility is less here than in many other high-income countries. Also, an authoritative study of recent years, reported in a 2014 article in the American Economic Review, showed no significant improvement in social mobility over the last several decades of the 20th century and concludes,
Based on [several] measures, we find that children entering the labor market today have the same chances of moving up in the income distribution (relative to their parents) as children born in the 1970s. However, because inequality has risen, the consequences of the “birth lottery”—the parents to whom a child is born—are larger today than in the past. [Emphasis added.]
Widespread acceptance of the myths about fair markets and social mobility, and thus an aversion to the redistribution of income, go back a long way in the United States. James Madison, the principal author of the U.S. Constitution, in his famous Federalist No. 10, expressed the importance of a constitution that would protect against “...a rage for paper money, for abolition of debts, for an equal division of property, or any other improper and wicked project....” This view of redistribution as improper and wicked seems to have had a long life. (Madison, who became the fourth U.S. president, owned about 100 slaves and had been born into a wealthy plantation-owning family.)
Although higher taxes on the incomes and wealth of the very rich would be desirable in attenuating our severe inequality, this action would leave these myths in place. Improving income distribution through taxation implies that the basic operation of the system is okay, and that we just need some post hoc “fix up” to take care of the bad results of an “okay” system. More needs to be changed.
What Can Be Done?
Change is difficult and becomes more difficult as economic inequality rises. Regardless of democratic processes, the rich have great influence and power. Greater inequality increases their power, and thus it seems we are caught in a vicious circle—inequality increases the power of the rich, who then use that power to maintain the status quo, which generates more inequality, and so on.
Nonetheless, public opinion does matter, and through the spread of information and organizing, public opinion can be changed. Following from the points above, there are at least three things that could be useful in the effort to advance public opinion on economic inequality.
First, recognize and confront the myths that lead people to accept great economic inequalities. When people recognize that markets are not set in stone and that they are created in ways that are not fair, they are less likely to accept the inequalities generated in our markets.
Second, support higher taxes for the rich, but also support altering markets in ways that will lead to a reduction of inequality. Demand, for example, that the subsidies to fossil fuel industries be eliminated. As another example, work to change the regulations constraining the formation and activities of labor unions. And, as the other cases of unfair market structures listed above suggest, there are many opportunities for such efforts. Third, demonstrate the connections between economic inequality and issues that are often of immediate practical concern to many people, such as the concerns given high priority by respondents in the Pew poll. Our excessively expensive health care system, with insurance companies and private hospitals playing a central role, both generates economic inequality and operates to serve the wealthy well while serving the poor badly. And climate change, education, housing, and many other social issues are also bound up with inequality.
Focusing on these points, along with other initiatives, could lead to some reductions in economic inequality. Moreover, reductions of inequality could move us in the direction of broader changes toward social justice.
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