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The Conservatives’ Challenge on Economic Inequality

November 18, 2011 By 6 Comments

[This is the first in a set of pieces by Benjamin Lusty, lawyer and an occasional contributor to Publius Online, on the topic of economic inequality]

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Americans tend not to wage class war.  The rugged individual within us celebrates economic success.  True, we loathe profit by malfeasance, but we do not begrudge those who prosper fairly.  No Occupy Wall Street protestor demanded expropriating Steve Jobs’ vast fortune (despite his legendary indifference to philanthropy).  But a hazy mistrust of “the rich” is falling over the nation’s collective conscience.  Although most Americans do not believe that wealth is theft, many are questioning whether playing by the rules profited them.  Occupy Wall Street represents only the radical rim of America, but it is speaking directly to a new discontent enveloping the middle class.

It is tempting to conclude that the nation simply suffers from anxiety naturally accompanying prolonged periods of high unemployment.  But America’s trouble is of a different quality all together.  Economic mobility, and more importantly, Americans’ perceptions of economic mobility is stalling.  Business Insider (in a fascinating series of graphs available here) reports that since 2009, average annual household income dropped 10% even though the S&P 500 gained 80% over the same period.  Likewise, since the 1960s, inflation-adjusted wages have essentially flat-lined, despite rising productivity.  A 2008 Pew Research Study reported 79% of Americans felt that it was harder to maintain middle class living standards.  Critically, new surveys report that 57% of Americans no longer believe their children will lead better lives.  It all makes for a plaintively stoic resignation of the typically tough American psyche.

And yet, America’s economic inequality is growing.  As of 2007, the wealthiest 10% of households owned two-thirds of the nation’s wealth.  Since 1979, the top 1%’s share of income nearly doubled.  Not surprisingly, the left wants to leverage economic anxiety to pass a “new” New Deal of high taxes, high spending, and busy regulation.  Their operative assumption is that inequality is the problem and redistribution is obviously the answer.

For conservatives, the current economic nervosa poses an existential threat.  Conservatives traditionally ignore economic inequality, dismissing it as a necessary (if unfortunate) by-product of liberty, property rights, and free markets.  Although income equality may be vaguely desirable, it is elementally inconsistent with freedom.  In truth, it is inevitable that a free society facilitates different economic outcomes.  People have different tastes, capabilities, interests, ethical creeds, and willingness to work.  The market divides rewards based upon value created, but free societies allow people to choose how much value they wish to create and how they create it.  We do not force people to work.  Nor do we assign occupations, locations of residence, or educational levels.  This results in a vibrant and mercurial society where each individual chooses her school, her study, her occupation, her location, her family situation, and ultimately her life.  The tricky thing though, is that choices are hard and free societies are harder.

But choice explains the gulf between rich and poor.  Educational attainment and annual income are positively correlated, but educational achievement is a choice (or rather thousands of choices made over a lifetime).  Careers, too, result from cascades of choices, each with varying degrees of compensation and commitments.  The unbreakable truth, of course, is that nobody is free to make choices outside of the context of everybody else’s choices.  Indeed, the economy is nothing more than a tangled, spider web-like matrix of trillions of choices made every day by billions of people.  This swirling commotion of commerce spins unpredictably, but in a surprisingly coordinated fashion.  It is, after all, the supposedly chaotic and merciless free market that feeds and clothes billions.  It also links hearts, minds, and pocket books across supply chains, web links, and telephone calls.  And only choice really controls it.

The conservatives’ challenge is stark.  Occupy Wall Street wants less choice because it demands higher taxes, more regulation, and forgiveness of debt (e.g., undoing financial choices).  The left wants now, as it has always wanted, more government control and less private initiative; all to make us “equal.”  They call it “social justice,” “common sense,” or “middle class solutions,” but the upshot is always more central command and less choice.

Of course the danger is not that the left is now demanding these things–it always has.  The danger for conservatives is that Americans’ confidence in their ability to make effective choices is eroding. Why should good choices matter if the average worker hasn’t gained over the course of an entire generation?  Why go to college for a highly leveraged piece of paper (formerly known as a diploma)?  The left promises free health care, food stamps, and debt forgiveness. Why not accept that, especially if (as the left would have us believe) this is all somebody else’s fault anyway? After all, taxing somebody else will make us all richer anyway….

 

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  • Cameron

    I think the dilemma is not so much our confidence in our own ability to prosper, but a lack of confidence that “the poor” can prosper.  We’ve been convinced that there’s a wide swath of the public we call “poor” that just can’t overcome their poverty.  We don’t really know who these people are, but our heart strings have been tugged.  And now that belief is being leveraged into a crisis of confidence in a free market system.

    No matter that there is a high amount of income mobility, that it really is up to you how much money you can make.  No matter that every single income category has increased its income level substantially over the last 30 years.  

    Polling shows that most Americans feel fine with where they are personally, that they feel they have enough of what they need and are comfortable.  And unemployment data supports this. The college graduate unemployment rate is right around 5%.  So why the higher overall number?  It’s driven by no college and no high school workers.  

    But heaven forbid we look at that number and figure out what keeps people from graduating high school.  Hint: it’s the break up of the family.  That just doesn’t fit the narrative.

  • Steve Burt

    Started strong, Ben, but ended up a pretty disappointing post, in my opinion.  You begin by outlining some of the concrete, demonstrable reasons for the malaise we seem to all sense, if not feel acutely, and how it cannot be explained by a prolonged period of unemployment alone.  So far so good.  But then you trot out the overly simplistic “it all comes down to choice” mantra, and pretend that it explains the whole problem.  It doesn’t.  Then you double down with the “what the left is demanding” drivel, and what began as a promising post ends as nothing more than predictable polemicism, reinforcing unhelpful stereotypes (about both conservatives and liberals) without advancing the ball.

    Incidentally, the title of your post is compelling — conservatives do have a challenge on economic inequality.  The fact that you’ve identified it as a challenge for conservatives in interesting in its own right.  But then you undermine the very point you seemed to be trying to make by relying on stale arguments that lead to the conclusion that the problem you’ve identified isn’t a problem at all.  It’s incoherent, and leads nowhere.  What are you trying to say?

    Here’s what I say: growing economic inequality in America is a problem.  It undermines the great American ideal that all men are created equal, and that anyone, regardless of where their family came from, where they are born, who their Daddy is, what they look like, etc., can work hard and be successful because they will be competing on an equal playing field.  The playing field is becoming less equal, and income inequality is one of the reasons for that.  An unequal playing field distorts the market, and the market cannot always course-correct on its own.  Policies, even (*gasp*) regulations, sometimes need to be implemented in order to ensure that the market functions the way we would like it to function.  Football would not be fun to watch if we just did away with all the rules, many of which are necessary to make the game more, not less, competitive.  

    We take it for granted, but the very idea of creating a place where people can come to pursue their version of happiness, where anyone can compete and achieve their potential, is one of the most significant developments in the history of the world.  That idea, the American Idea, writ large, must be protected.  It must be nurtured, and encouraged to continue to grow.  Sometimes that means adopting “conservative” ideas, sometimes “liberal” ideas.  Sometimes it means less regulation, but not always.  Sometimes it means more taxes, but not always.  But it’s simply self-defeating to dismiss one or the other of those ideas, or any particular idea, out of hand, just because it doesn’t happen to jibe with one’s ideological perspective.

    • Ben L

      Thanks for the criticism Steve.  One of the arguments I hope to make (and make better) in a few more posts is that most of the policies advanced by Democrats for reducing economic inequality would have catastrophic for the economy and for America’s basic values.  But I’m more interested in this piece in finding some reasons why conservatives need to worry about economic inequality. 

    • http://publiusonline.com Daniel Burton

      Ben’s being nice, but I think he must have struck a nerve with you if you’ve got to levy words like “drivel,” “incoherent,” and the standardized talking points from firedoglake.If we’re going to “advance the ball” forward, recognize this for what it is: an attempt at discussion, not a request for mindless…drivel. Ben is pointing out a problem that he sees–that conservatives see the world differently that liberals, and that makes it difficult to communicate why conservative solutions work better.

      Unlike Ben, I’m not willing to concede as mere “criticism.”

      You seem to argue that “Inequality equals loss of opportunity.” Unless i mistake your argument, and I am open to correction if I do, you see the malaise in America as the result of a growth in inequality between the haves and the have-lesses (i.e the so call 99%, right?). While making wealth the old fashioned way (inheriting it) is still the best way, I’d hardly say that we are in a us v. them contest. Further, I don’t fail when my rich friend Steve succeeds. He’s not taking away from me…in fact, quite the contrary. This is not football–we are not succeeding by tearing down and defeating an opposing team. We are a society that celebrates elitism by merit, be it those who are strong and beautiful by exercise and effort, wise and learned by study in the academy, articulate and clever by their maneuverings in the court room, or, yes, rich and prosperous by their investments and/or business skill. Why should someone who does something better be penalized because we have chosen–by admiring their beauty, heeding their wisdom, or purchasing their product?

      Also, I find it difficult to swallow that “Income inequality is one of the reasons for the malaise.” If it is, how do you solve it? By limiting the amount of income a person can make? By capping the number of assets a person can own? By diminishing the level of wealth one can acquire?

      That’s just silly. But back to the point: why is inequality causing a tough economy? Resentment by people who want more?

      If that’s it, then I find nothing in “life, liberty, and the PURSUIT of happiness” that promise a fair return on your investment, efforts, or time. We are all born equal under God, but so help me if we deserve equal treatment for unequal choices. You chose one answer on an exam in law school and I another–should i have received the same score?

      And yet, this is the logical conclusion of your argument.

      In reality, it comes down to this: we wouldn’t be having this discussion but for a rotten economy, and we wouldn’t even be in a rotten economy but for the actions of so many more actors than just those more endowed with wealth than the rest of us, actors that inequality has little to do with. We are living through the burst of a housing bubble, a bubble caused not only by lending to people who should never have been allowed to borrow, but by folks in Washington, too, including the Barney Franks of the world who insisted on making housing loans easy to get, and the Fannie and Freddie Macs that are STILL in debt for government loans to save the over-leveraged lenders. (and no, I’m not saying the causes of the recession are partisan…that’s just the person who headed out the finance committee that pushed the REGULATIONs that allowed such reckless lending in the early to mid-00s).

      And why the lingering slow recovery (if such is happening at all)? Ok, I suppose that’s a different discussion, but to sum up: it has little to do with inequality. It sounds like resentment, yes, but that’s human, and it does little to address the real problem that it covers–the loss of wealth creation in general (we call that a recession for short).

      “Last, I don’t see it as an either/or solution, and I don’t think Ben does either, though he does address the tact often taken by liberals–government is the answer to your problems, be they X, Y, or Z. In this you are right, to a certain extent. It’s not an either or situation where we either DONT raise taxes or we DO raise taxes and increase regulation. However, we’re not talking about just that–we’re talking about the difficulty of changing incentives that distort the elective process of democracy. Entitlements, as Ben lays them out, have made it difficult for conservatives to argue that their solutions matter. However awkwardly put his argument, the fact remains–its often in ones interest to go on the doll, not to stick it out, sacrifice, risk a new business, or live off ramen. (Apropos, I personally know individuals who have opted to not only skip marriage because of they would lose government benefits that equaled their combined income, but also chose to forego graduation and education because it would require more effort than just maintaining status quo.) It’s difficult to argue that liberal solutions have not changed America, have not introduced perverse incentives in the market and our culture, and have not resulted in the high level of government debt. With those incentives to individuals, regardless of how damaging they are to the long term collective wealth of the nation, how can we begin to change or even make an argument for change?

      In short, “people vote with their pocket books.” Even shorter, when the government is like Caesar providing “bread and circuses,” how can Cicero convince the people to vote against their own personal short term interest?

      Really, though, Ben is addressing a problem he sees in conservatives ability to communicate, not proposing a solution, yet. At least that’s how I see it.

      In the mean time, calling it “drivel” does seem a lame way to dismiss his argument without actually having to address it.

      • Steve Burt

        Dan: First of all, if there’s something inherently offensive in the word “drivel” that I missed, I sincerely apologize to you (and to Ben, though he certainly didn’t seem as incensed about it as you are).  One of the definitions on Dictionary dot com is “nonsense,” and that’s what I meant.  If replacing the word “drivel” with the word “nonsense” in the post makes it less incendiary, then consider it replaced.  As for “firedoglake,” I honestly have no idea what that is.

        Ben: I suppose I should have said up front that I very much appreciated your post.  My apologies for failing to do that.  On a second read (with the benefit of a night’s sleep), I could have, and should have, been more diplomatic.  I don’t often take the time I took to read, think about, and analyze a post to the extent that I did to yours last night.  That’s because it was well-written and thought provoking.  Thanks for taking the time.  I look forward to reading those to come.

        Back to Dan: I’ve committed to watching a RomCom with my wife tonight, so I’ll be brief: my basic point is that the staggering growth of income inequality over the last 25 years or so is a symptom of a distorted market.  That symptom is, itself, “harmful,” if only in its effect on the American psyche.  To me, the most interesting thing about the Tea Party and Occupy movements is their common origin – anger about TARP.  In my opinion, TARP sucked, but was necessary.  My Tea Party friends focus on the former, but either don’t agree with, or don’t care about, the latter.  I don’t have any friends who specifically identify as “Occupiers,” so to speak, but it’s clear that anger about TARP was an important factor in that movement’s genesis.  I understand the anger, but I think we had made our bed by dismantling Glass-Steagall, by encouraging homeownership for many who were far from creditworthy, and by collectively buying into the self-serving assumption that “home values never go down.”

        More importantly, however, is the larger problem of the distorted market.  For example, we have allowed certain private financial institutions to become so big and complex that we cannot allow them to fail without seriously destabilizing the economy.  By doing so, we are exposed to all the risks of a nationalized financial system with none of the benefits.  But we can change that, because We the People have the right to make the rules we want to get the results we want from the economy.

        • http://publiusonline.com Daniel Burton

          Oh, I don’t know if I’d say incensed. I’ve known you far too long to get incensed. “Strident,” maybe, would be a more accurate description of my intended emotion, if one is to be attached to it. Yes, I think strident works.

          As it is, I think I can appreciate your arguments better in your most recent response. It’s easier to swallow than a mere dismissal, whether the word is “drivel” or “nonsense.” Both really do fall into the “Quod gratis asseritur gratis negatur” category. 

          Thanks for engaging, Steve. You’re thoughts and arguments are ALWAYS enjoyed, appreciated, and needed…