We all know that income inequality in the United States has grown. A few of us, if we’re especially bookish and wonky, can even cite terms like “Gini coefficient,” a widely used measure of wealth disparity. By that measure, the United States is far more unequal in income than many other nations in the developed world. But, hey, we’re special, right? America is like no other country. Should we think of income inequality as something inextricably tied to American exceptionalism? In advance of “Does Our Wealth Disparity Matter?” a Zócalo event, we asked several economists, should we stop sweating it?
U.S. income inequality isn’t as bad as you fear–but the influence of bankers is even worse than you fear
A few points of fact. Much as we Americans like the feel of self-flagellation, there is little evidence that our inequalities are exceptional. Yes, some small north European countries are much more equal, thanks to high trade union membership and seven or so recent decades of social democratic rule. But the U.S. is much bigger. As a rich democracy with still-functional social insurance, the U.S. is more egalitarian than most countries. (You want inequality? Check out Brazil, South Africa or India.) As a nation, the U.S. is roughly comparable in income inequality to Italy or Spain. So far as pay-for-work is concerned, we are also more egalitarian than Europe taken as a whole–because the differences between rich and poor countries in Europe (Germany/Poland, for instance) are so large.
The U.S. also shows high inequality because we measure it well: we have an efficient tax system that measures high incomes with reasonable accuracy.
So don’t let’s put on airs.
That said, like most places we are run by bankers and other plutocrats, and like most places we have unemployment and poverty. A good jobs policy would help. I have also recommended a much higher minimum wage, a three-year window for more generous early retirement under Social Security, Medicare at 55 and a right-to-rent option for those facing foreclosure. I favor a stronger estate/gift tax to recycle accumulated fortunes into the non-profit sector. I would shrink the financial sector, prosecute past frauds, and take near-insolvent banks into federal conservatorship, as the law requires. These measures would reduce inequality and improve economic efficiency. They would also support a more democratic politics.
I wonder what Mr. Noah thinks of these ideas. He does not discuss them in his book.
James K. Galbraith is the author of Inequality and Instability: A Study of the World Economy Just Before the Great Crisis (Oxford University Press, 2012). He teaches at The University of Texas at Austin.
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We’re more equal than you’d think–but we could certainly do better
It is important to distinguish between two ways of measuring inequality. One is like a snapshot: it looks at the income of a large sample of individuals in a given moment in time. The other is like a movie, following the life of an individual and, possibly, the life of the offspring of that individual over time.
With respect to the “snapshot” measure there is no doubt that the U.S. is more unequal than other rich nations, in particular European nations. But with respect to the “movie” measure, the readings are not clear at all, and, actually, the meager evidence available suggests that the U.S. fares better than many European countries.
So which nation is more egalitarian: a nation with little inequality in a given moment in time or a nation that provides mobility opportunities over the life cycle and across generations? From the point of view of the individual, mobility is much more relevant, since it takes into account not only the current income but also the risk that an individual is facing, the chance that the current situation will improve or get worse, and the possibility that her children will have a better or worse life.
If this is so important, why is the debate on inequality not focusing more on mobility and on the “movie” measures of inequality? One important reason is that measures of mobility and lifetime inequality are very difficult to calculate. But this does not mean they are not relevant and should not be taken into account when comparing across nations.
Finally, is income inequality an inevitable product of American exceptionalism? Yes, social and economic mobility may well be one of the founding principles of this country. But why should more mobility come at the cost of higher inequality? A truly egalitarian nation is one that simultaneously generates a fair income distribution and guarantees mobility opportunities to all its citizens.
Luca Flabbi is Assistant Professor of Economics at Georgetown University and Senior Research Economist at the Inter-American Development Bank. The views in this comment are solely the responsibility of the author and should not be interpreted as reflecting the views of the Inter-American Development Bank.
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American exceptionalism does matter–but it doesn’t make inequality inevitable
The answer is a typical economist’s answer: it is a yes and a no. Yes, there is some American exceptionalism. No, high inequality is not inevitable, and the U.S. has done better in the past and can do better in the future
Among all countries in the exclusive club of OECD (Organization for Economic Development and Cooperation), the United States is the most unequal of all, save for Mexico. It is, depending on the measure used, some 50 percent more unequal than Germany and France, and a third more unequal than the United Kingdom. In short, it stands out, by its very inequality, among the rich countries: it is somewhere between Europe and Latin America.
But is it fair to compare the U.S. to the European economies? That’s where the idea of American exceptionalism kicks in. The U.S. is a much more populous country (more than three times as populous as Germany, the largest European country), and we can expect that as the population becomes more numerous its heterogeneity will increase too. And indeed since the U.S. is the land of the proverbial melting pot, of immigrants from different parts of the world, the differences in incomes and living conditions among its inhabitants are likely to be greater than in the more homogenous European countries. Moreover, population heterogeneity, it is argued, diminishes the solidaristic element in the American polity compared to Europe. If Europeans redistribute more, it is because they feel closer to each other, and they do so because they are ethically and culturally more homogenous.
There is yet another argument for exceptionalism. The U.S. is at the vanguard of the technological revolution. And as the new technologies get introduced, they almost automatically create large income and wealth gains for the successful pioneers (as we see in today’s IT world). This in turn feeds income inequality.
But this can take us only so far. The hypothesis of American exceptionalism is eroded from two different directions. First, many European countries are rapidly becoming ethnically and culturally more varied as the result of a large influx of immigrants during the past 40 years. Second, historically the United States has been able to achieve much more reasonable levels of inequality and to prosper at the same time. (In other words, there was no apparent trade-off between equality and growth, as some people believe.) Between the Great Depression and the early 1980s, inequality in the United States decreased by about a fifth. It was not due just to the New Deal and the Second World War but also to proactive government policies, from Social Security to unemployment insurance and education. So, if the U.S. has done it before, there is no compelling reason why it cannot do it again. More widely spread education should be a key in doing so.
Branko Milanovic is lead economist at the World Bank Research Department.
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If you look at our history, American exceptionalism demands less inequality, not more
By every yardstick we have, the United States currently measures as either the world’s most economically unequal major developed nation or a close runner-up. Our “founding fathers”–the folks who invented our “American way”–would be appalled.
On the eve of the American Revolution, as recent research by economists Peter Lindert and Jeffrey Williamson documents, the 13 American colonies appear to have boasted “a more egalitarian income distribution” than “any other place on the planet.” Mother England’s top 1 percent were raking in 17.5 percent of the kingdom’s income. In the colonies, by contrast, the top 1 percent were pulling in only just over half that.
Our generation of 1776 valued America’s greater equality. The revolutionaries had read their history. They knew that previous attempts to establish republican rule–in Athens, Rome, Venice, and Florence–had eventually failed. Inequality had wrecked them. Our founders, observes historian James Huston, believed their new republic would endure only so long as they kept “an equal or nearly equal distribution of landed wealth among its citizens.”
The young American republic, Thomas Jefferson would note proudly, had “no paupers” and a rich of only “moderate wealth.” Gushed Jefferson: “Can any condition of society be more desirable than this?”
Jefferson and his fellow founders could never come to grips, of course, with slavery, the great stain on their new republic. But those who did battle against “the slave power” and later against the robber barons of the industrial age again and again invoked the egalitarian sensibilities that helped animate the original “American way.”
Our top 1 percent today, by the way, are now grabbing 19.8 percent of our national income–a greater share than Mother England’s top 1 percent were grabbing in 1776. The American way? No way!
Sam Pizzigati edits Too Much, an Institute for Policy Studies weekly on excess and inequality. His new book, The Rich Don’t Always Win: The forgotten triumph over plutocracy that created the classic American middle class, 1900-1970 (Seven Stories Press), will appear this fall.
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There’s nothing inevitable or American about American inequality today
High income inequality is neither inevitable nor inherently American. Just look back to the 1950s and 1960s, when income inequality was dramatically lower than it is today. Moreover, that period of low inequality and high social mobility coincided with a period of rapid economic growth and productivity, fueled by the booming post-war economy and by social policies, such as the GI Bill and the War on Poverty, that promoted widespread upward social mobility.
Nor is high income inequality inherently American. The two core cultural ideals of American society, ideals that are inherently American, are those of democracy and opportunity. The democratic ideal says that all citizens have an equal say in determining the law. The opportunity ideal, what we often call the American Dream, says that one’s economic or social status should be determined by effort and merit, not by accident of birth. Income inequality is not a necessary component of either of these ideals.
That is not to say that income inequality is inherently un-American, however. Indeed, income inequality itself, at least in moderation, is morally neutral, and some amount of inequality is probably necessary for an efficient, productive economy.
But when the level of income inequality reaches a point where it inhibits opportunity and democracy, then we should worry. When the economic power of the rich enables them to dominate political discourse and to wield outsized influence in democratic processes, we should worry that income inequality threatens our democratic ideals. And when income inequality is so high that it limits the opportunity of those born poor to climb the economic ladder and stifles the American Dream, then income inequality is too high. The current evidence about the functioning of our democracy and the distribution of opportunity in America indicates that we have reached that point. Income inequality has become decidedly un-American.
Sean F. Reardon is professor of education and (by courtesy) Sociology at Stanford University.
*Photo courtesy of alossix.