DOES ECONOMIC INEQUALITY MATTER?

 

In the coming days, Phronesis will present a series of pieces on economic inequality in America. We are specifically interested in addressing the question: Does inequality really matter, and if so, in what ways? We will draw on practical wisdom derived from our respective academic training and research as well as years of first-hand experience as American citizens living in an increasingly unequal world. Accordingly we will strive to offer evidence-based, commentaries on the issue of inequality. We hope to stimulate awareness and discussion of this important topic.

As an introduction to the inequality posts to come, let me say something about the main battle line in the inequality debate. Americans have widely varying beliefs and opinions about inequality. Those who embrace a free-market philosophy, usually people of conservative persuasion, tend to see inequality as a natural and healthy feature of an efficient running economy. Inequality is natural because in a free society with a free market system, individual differences in intelligence, education, talent, ambition, and work ethic will produce varying levels of achievement. Simply put, the best and brightest will earn and accomplish more than those who lack attributes for success. The recent spike in income inequality was an inevitable result of the globalization of finance and advances in technology in an increasingly complex world.

Free-market advocates cite two reasons why inequality is a natural thing. First, they believe it’s the people at the top, the accumulators of capital, who possess the necessary smarts and wherewithal to invest wisely in productive enterprises. This will stimulate growth, create jobs, and generally enhance national prosperity. Not surprisingly, they tend to oppose government meddling and other obstructions to capital accumulation. The second reason is the so-called goal gradient phenomena: the existence of a social hierarchy serves as an incentive for self improvement. People will strive to climb the ladder of success in order to, as the saying goes, “keep up with the Joneses.”

Other Americans have less faith in the capacity of the free market to promote the general welfare. Liberal in their worldviews, these people see a necessary role for government to intervene in the economy to protect consumers, stimulate growth, smooth out the boom and bust cycles inherent in a capitalist society, and generally ensure fairer economic outcomes for all citizens. This school of thought views inequality, when it reaches extreme proportions, as harmful to society. Extreme inequality confers disproportionate economic and political power on the wealthy, who without effective constraints will prioritize their own interests to the detriment of the public good. According to this school of thought, the “trickle-down theory” of economics is just that-- a theory. Without government intervention, the trickle is more likely to be up than down. Those at the top of the economic pyramid will be prone to conspicuous consumption, which will instigate a value shift in American culture toward an excessive preoccupation with money and materialism. Rather than striving to live like one’s peer-group Joneses, money-driven consumers will endeavor to emulate the lifestyles of the rich and famous, a preoccupation that will lead to all sorts of destructive behavior.

It won’t be surprising to those who follow Phronesis that we are sympathetic to the liberal perspective on inequality, propagated most passionately by British economist John Maynard Keynes. Our posts on inequality will reflect this worldview. Nevertheless, the overall objective is to encourage readers to think about the meaning of inequality and its effects on the American economy, culture and political system. Has it shaped your life for better or worse?