The New York Times
By: Eduardo Porter
March 21, 2012
Inequality undermines democracy
Americans have never been too worried about the income gap. The gap between the rich and the rest has been much wider in the United States than in other developed nations for decades. Still, polls show we are much less concerned about it than people in those other nations are.
Policy makers haven't cared much either. The United States does less than other rich countries to transfer income from the affluent to the less fortunate. Even as the income gap has grown enormously over the last 30 years, government has done little to curb the trend.
Our tolerance for a widening income gap may be ebbing, however. Since Occupy Wall Street and kindred movements highlighted the issue, the chasm between the rich and ordinary workers has become a crucial talking point in the Democratic Party's arsenal. In a speech in Osawatomie, Kan., last December, President Obama underscored how ''the rungs of the ladder of opportunity had grown farther and farther apart, and the middle class has shrunk.''
There are signs that the political strategy has traction. Inequality isn't quite the top priority of voters: only 17 percent of Americans think it is extremely important for the government to try to reduce income and wealth inequality, according to a Gallup survey last November. That is about half the share that said reigniting economic growth was crucial.
But a slightly different question indicates views have changed: 29 percent said it was extremely important for the government to increase equality of opportunity. More significant, 41 percent said that there was not much opportunity in America, up from 17 percent in 1998.
Americans have been less willing to take from the rich and give to the poor in part because of a belief that each of us has a decent shot at prosperity. In 1952, 87 percent of Americans thought there was plenty of opportunity for progress; only 8 percent disagreed. As income inequality has grown, though, many have changed their minds.
From 1993 to 2010, the incomes of the richest 1 percent of Americans grew 58 percent while the rest had a 6.4 percent bump. There is little reason to think the trend will go into reverse any time soon, given globalization and technological change, which have weighed heavily on the wages of less educated workers who compete against machines and cheap foreign labor while increasing the returns of top executives and financiers.
The income gap narrowed briefly during the Great Recession, as plummeting stock prices shrunk the portfolios of the rich. But in 2010, the first year of recovery, the top 1 percent of Americans captured 93 percent of the income gains.
Under these conditions, perhaps it is unsurprising that a growing share of Americans have lost faith in their ability to get ahead.
We have accepted income inequality in the past partly because of the belief that capitalism can't work without it. If entrepreneurs invest and workers improve their skills to improve their lot in life, a government that heavily taxed the rich to give to the poor could destroy that incentive and stymie economic growth that benefits everybody.
The nation's relatively fast growth over the last three decades appeared to support this view. The United States grew faster than advanced economies with a more egalitarian distribution of income, like the European Union and Japan, so keeping redistribution to a minimum while allowing markets to function unimpeded was considered the best fuel.
Meanwhile, skeptics of income redistribution pointed out that inequality doesn't look so dire when it is viewed over a lifetime rather than at a single point in time. One study found that about half the households in the poorest fifth of the population moved to a higher quintile within a decade.
Even though the wealthy reaped most of growth's rewards, critics of redistribution noted that incomes grew over the last 30 years for all but the poorest American families. And in the 1990s, a decade of soaring inequality, even families in the bottom fifth saw their incomes rise.
Some economists have argued that inequality is not the right social ill to focus on. ''What matters is how the poor and middle class are doing and how much opportunity they have,'' said Scott Winship, an economist at the Brookings Institution. ''Until there is stronger evidence that inequality has a negative effect on the life of the average person, I'm inclined to accept it.''
Perhaps Americans' newfound concerns about their lack of opportunity are a reaction to our economic doldrums, with high unemployment and stagnant incomes, and have little to do with inequality. Perhaps these concerns will dissipate when jobs become more plentiful.
Perhaps. Evidence is mounting, however, that inequality itself is obstructing Americans' shot at a better life.
Alan Krueger, Mr. Obama's top economic adviser, offers a telling illustration of the changing views on income inequality. In the 1990s he preferred to call it ''dispersion,'' which stripped it of a negative connotation.
In 2003, in an essay called ''Inequality, Too Much of a Good Thing'' Mr. Krueger proposed that ''societies must strike a balance between the beneficial incentive effects of inequality and the harmful welfare-decreasing effects of inequality.'' Last January he took another step: ''the rise in income dispersion -- along so many dimensions -- has gotten to be so high, that I now think that inequality is a more appropriate term.''
Progress still happens, but there is less of it. Two-thirds of American families -- including four of five in the poorest fifth of the population -- earn more than their parents did 30 years earlier. But they don't advance much. Four out of 10 children whose family is in the bottom fifth will end up there as adults. Only 6 percent of them will rise to the top fifth.
It is difficult to measure changes in income mobility over time. But some studies suggest it is declining: the share of families that manage to rise out of the bottom fifth of earnings has fallen since the early 1980s. So has the share of people that fall from the top.
And on this count too, the United States seems to be trailing other developed nations. Comparisons across countries suggest a fairly strong, negative link between the level of inequality and the odds of advancement across the generations. And the United States appears at extreme ends along both of these dimensions -- with some of the highest inequality and lowest mobility in the industrial world.
The link makes sense: a big income gap is likely to open up other social breaches that make it tougher for those lower down the rungs to get ahead. And that is exactly what appears to be happening in the United States, where a narrow elite is peeling off from the rest of society by a chasm of wealth, power and experience.
The sharp rise in the cost of college is making it harder for lower-income and middle-class families to progress, feeding education inequality.
Inequality is also fueling geographical segregation -- pushing the homes of the rich and poor further apart. Brides and grooms increasingly seek out mates with similar levels of income and education. Marriages among less-educated people have become much more likely to fail.
And a growing income gap has bred a gap in political clout that could entrench inequality for a very long time. One study found that public spending on education was lower in countries like Britain and the United States where the rich participate more in the political process than the poor, and higher in countries like Sweden and Denmark, where levels of political participation are approximately similar across the income scale. If the very rich can use the political system to slow or stop the ascent of the rest, the United States could become a hereditary plutocracy under the trappings of liberal democracy.
One doesn't have to believe in equality to be concerned about these trends. Once inequality becomes very acute, it breeds resentment and political instability, eroding the legitimacy of democratic institutions. It can produce political polarization and gridlock, splitting the political system between haves and have-nots, making it more difficult for governments to address imbalances and respond to brewing crises. That too can undermine economic growth, let alone democracy.