Does Inequality Matter?

Government should help the middle class. Inequality is beside the point.

Not convincing.

Photographer: Spencer Platt Getty Images News

We conservatives tend to get less worked up about economic inequality than liberals do, and I think we're right about that. We should want most people, and especially poor people, to be able to get ahead in absolute terms. We should want to live in a society with a reasonable degree of mobility rather than one where people are born into relative economic positions they can never leave. But so long as those conditions are met, the ratio of the incomes of the top 1 percent to the median worker should be fairly low on our list of concerns; and if those conditions aren't met, we should worry about our failure to meet them rather than their effects on inequality.

QuickTake Income Inequality

Because they so dislike inequality in principle, and would like to get others to care about it as much as they do, liberals are biased toward finding that inequality is the cause of a great many other phenomena that everyone regards as problems. Conservatives, because we don't worry so much about inequality per se and oppose many of the most obvious ways of combating it, have the opposite bias: We're inclined to skepticism about evidence that inequality in itself causes trouble.

These biases go some way toward explaining why George Packer, in an essay for the New Yorker, is frustrated with conservatives for not being up to dealing with the economic challenges facing the U.S. -- which he takes to be all about inequality -- and why I'm just not convinced by his case.

So, for example, Packer takes Alan Krueger's argument that rising inequality has damaged mobility as Gospel truth:

The Princeton economist Alan Krueger has demonstrated that societies with higher levels of income inequality are societies with lower levels of social mobility. As America has grown less economically equal, a citizen's ability to move upward has fallen behind that of citizens in other Western democracies. We are no longer the country where anyone can become anything. 

Krueger has made such a case, but it's a disputable one. Scott Winship, a fellow at the Manhattan Institute, summarizes the counter-case:

New research by Raj Chetty and his colleagues shows that mobility did not fall for Americans born between the early 1970s and the early 1990s, a period that both saw inequality rising below the top one percent and income becoming concentrated within the top one percent. Similarly, my own forthcoming research finds that men born in the early 1980s had the same mobility as those born in the late 1940s. …

Chetty and his colleagues found that there is essentially no correlation across countries between income concentration and immobility. Nor is there a correlation across American labor markets.

Chetty does find lower mobility rates in American labor markets with greater general inequality. But if one controls for differences between large urban areas and small rural ones by confining the analyses to the 100 biggest labor markets, even this correlation disappears

When he moves to macroeconomics, Packer is on even shakier ground:

Inequality saps the economy by draining the buying power of Americans whose incomes have stagnated, forcing them to rely on debt to fund education, housing, and health care. At the top, it creates deep pools of wealth that have nowhere productive to go, leading to asset bubbles in capital markets bearing little or no relation to the health of the over-all economy. (Critics call this the "financialization" of the economy.) These fallouts from inequality were among the causes of the Great Recession. 

Saying that "inequality" has caused income stagnation is question-begging. If most Americans are experiencing stagnant incomes, that would cause difficulties regardless of how the top 1 percent is doing. In the 1980s and 1990s, though, income growth for most people coincided with rising inequality. And the theory that inequality leads to financial crises has a weak evidentiary basis. The economics professors Michael Bordo and Christopher Meissner looked at booms and busts in 14 countries between 1920 and 2008 and found that "rising income concentration, measured by changes in the income share of the top 1% of tax units, plays no significant role in explaining credit growth."

The skeptics seem to me to have the better of the arguments: Packer is leaning hard on highly speculative claims about the negative impact of inequality, and accusing conservatives of being blind to empirical reality because we won't join him in doing so. He concludes his essay by expanding on the hard times that have afflicted the steelworkers of Canton, Ohio. They're being ravaged by global competition and suffering from the decline of unions. Even those conservatives who think Republicans should do more to address the economic concerns of middle-class voters, Packer says, can't help these people because they're unwilling to acknowledge the bleak realities of modern capitalism:

Global competition is making these workers disposable, and so they are turning for insight and inspiration to Sanders, or Piketty, or Trump. The reformocons, for all their creativity and eloquence, don't grasp the nature of the world in which their cherished middle-class Americans actually live. They can't face its heartlessness.

I don't mean to sound heartless myself when I say that no sensible policy agenda is going to protect all towns and industries from the effects of global competition and technological change. (I can't imagine that Hillary Clinton disagrees.) But most members of the vast American middle class -- the 85 percent or so of the country who see themselves as neither rich nor poor -- aren't looking for work in the steel mills or wishing they could be. A conservative agenda that reduces taxes for these middle-class families, makes it possible for them to buy cheaper health insurance, gives their kids new higher-education options, and so on -- keeping in mind that this "so on" needs a lot of filling in -- would do a lot for them. Because while they're frustrated with their government, what they want from it, most of them, is not to be rescued from a heartless world.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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    Ramesh Ponnuru at

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