The debate about inequality has been a dominant feature of discussions of capitalism since at least the mid-nineteenth century. In Das Kapital, Karl Marx famously claimed that “accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, the torment of labour, slavery, ignorance, brutalization and moral degradation at the opposite pole.” Though in some ways Marx was merely echoing and amplifying earlier utopian socialist critiques of the rich in a free society, he also added his unique concept of alienation and exploitation to explain how growing standards of living could nevertheless witness worsening status of workers. This so-called “immiseration thesis” of Marxian economics became a staple of debate in radical circles. The wider arguments about inequality have persisted and become commonplace even among not-so-extreme critics and even some purported friends of capitalism.
In American politics, inequality is one of the few evergreen topics that will repeatedly crop up, seemingly without resolution. It featured prominently in President Franklin Roosevelt’s first campaign for re-election in 1936. The student radicals of the 1960s made it a theme of their rhetoric, often standing ready to repeat the Marxist thesis of exploitation in the midst of material abundance and rising standards of living. Critics of President Reagan’s economic policies made it a centerpiece of their arguments. A mere decade ago, President Obama called inequality “the defining issue of our time.” That he did so while recalling the same argument of President Theodore Roosevelt a century earlier only further serves to illustrate the seeming timeless character of the topic.
In the years since Obama’s prognostication, scholars and pundits alike have produced a veritable flood of research on the topic. Think tanks and policy institutes across the gradations of the political spectrum regularly churn out white papers on the topic. It should come as no surprise, of course, that these studies’ conclusions are largely predictable as a function of their source.
As an educator, I considered myself fortunate to have been regularly teaching a unit on the popular debates about income inequality in the years between 2007 to 2013. Students always showed a heightened motivation to examine topics that touched on current events. I was able to walk into class armed with the latest salvos from commentators as raw material for our investigations. For my own part, I spent the better part of a few months of my own research time attempting to master at least a portion of the scholarly literature on the topic. A deeper familiarity with the central questions and methods, I thought, would make it a bit easier to navigate the exhaustive data and formulas that often accompanied the debate.
As I slogged through the papers and studies, I gradually came to realize a sad truth. Not only was something askew in the fundamental framing of the debate, but the topic had developed a paradoxical logic that made it seem that the more we knew about the intensive data about inequality, the less we actually knew how to have productive discussions about it. It was a classic case of investigations shedding more heat than light on a subject. Worse, the cause was not merely that there was intense, active, partisan disagreement about what to do or whether to do anything about whatever inequality we happened to find, but instead derived from the fact that there isn’t even a universally accepted way to measure the key variables. Indeed, even the widely used measurements have been criticized by proponents on both sides of the debate. In the end, though it seemed unjust and uncharitable to describe the bulk of the work being done in the area as cherry-picked or slanted, I had a strong sense that different proponents cherished their favorite approaches or emphases and brooked no translation to those of their opponents.
Consider the range of questions that one has to specify just to be able to compare the measurements or have a productive discussion. Should we measure income or wealth? If we measure income, is it best to use household units (a convenient tax reporting category) or individual income (a more refined slice of the data)? Do we count pre-tax or post-tax income? Do we include fringe benefits like health coverage or other non-monetary compensation so common in today’s market but not as prevalent in earlier periods? Do we aggregate government transfers as part of our income data or not? Should we consider intragenerational mobility and lifetime income change? If we measure intergenerational mobility, at what point in a lifespan of the descendant generations should we count as a final income bracket? How much role should inflation play in our cross-generational comparisons? If we make historical comparisons, what role do measures of living standards play in assessing different periods? Does using statistical devices that summarize inequality blur distinctions by aggregating too much? If that weren’t enough, consider that we haven’t even addressed how we should approach the interpretation of the figures provided that we could agree about how to get them.
The shifting sands of statistical selection and preferential proof have thus led to a quagmire. The good news is that there is a growing group of scholars and writers who have been able to navigate their way out and who make a compelling case for how to understand the issues. I’ll be collecting references and linking to that work over at the main Exploring Capitalism site, where you can find other suggestions.
What I want to do here is offer what I hope is a beginning perspective on a more fundamental way of approaching these questions.
On our way to these fundamentals, we have to ask a very basic question: is inequality bad? If so, why? Throughout the mess of contending arguments about how to measure inequality, there is a certain unexamined assumption that inequality is inherently bad. Though many people have noted this fact, challenged it, and even made the arguments that inequality can be good, I think we can simplify the question by focusing on the potential arguments in favor of thinking that inequality is bad. While I won’t quite “steelman” the argument, I think taking seriously what the possibilities are is useful.
As I see it, and taking analytical inspiration from a personal hero, inequality is bad and unjust either because of what causes it or because of its effects.
Regarding the causes of inequality, many note that there are multiple potential causes that can be broadly grouped into two categories. Some causes of inequality arise from natural human variation, that is, from unchosen and accidental differences in our endowments. This is frequently accepted as inevitable and not likely to produce significant justice concerns. Only a few of the most radical egalitarians advocate attempts to alter the consequences of human variety, less still to mitigate them at their source à la Harrison Bergeron.
Critics of inequality also speak about artificial causes of inequality. They describe rules being set up to favor certain classes, of systems being rigged, of decks being stacked, and of favortisms being granted. In essence, these critics allege that the framework of how we create laws and institutions contains biases and distortions. It is here that we must exercise some caution and acknowledge a distinction that is often blurred or forgotten.
The two approaches to this argument about inequality are the liberal and the radical. The liberal approach, broadly speaking, comes at the question of causes of inequality by noting that these distortions and biases are a violation of the norms of justice and equality before the law that are a foundational part of our society. That the Enlightenment-inspired idea of liberal society was meant to guarantee rights to all citizens, to devise an politico-economic system that accrued rewards to effort and ingenuity, and that recognized the value of opportunity while avoiding the entrenchment of power through political means. Despite disagreements about specifics of economic policy, this liberal critique of inequality is significantly rooted in the ideals of America, but with an emphasis that we weren’t fully living up to those ideals.
The radical critique of the causes of inequality runs far deeper and, unfortunately, is becoming more prominent. The radical approach comes at the question by launching a wholescale institutional critique. Inequality arises not from misplaced favoritism, but in the very nature of market exchange. In the section of Das Kapital that follows Marx’s condemnation of capitalism’s power to exploit, he alleges that the very nature of exchange and of the market, the “cash nexus,” is inherently unequal. The very institution of private property, which the liberal recognizes as one of the foundational bases of a liberal order, is in the radical view a mechanism of distortion that antedates civil society. Whatever distortions in the legal code or political order that the liberal fears, the radical considers frivolous since the very roots of that order are malignant. As Marx lamented in the German Ideology, “as soon as the division of labor comes into being, each man has a particular, exclusive sphere of activity, which is forced upon him and from which he cannot escape.” For the radical, money and prices themselves—the hallmarks of a division of labor economy—represent Marxian “unproductive labor,” and thereby create ineluctable inequality. I am not sure that there is much common ground to be had with this perspective. Those who advocate it certainly add to the quagmire, but they offer little besides revolution as a way out.
These differences are important because the possibilities for productive discourse must differentiate between the two. Indeed, if we address ourselves to the liberal, who at least shares some values in common, and focus on the inequalities that arise from distortions and bias, we ultimately can understand these as violations of rights. The catalog of causes of inequality here—from government imposed sanctions or benefits accruing to privileged classes, from legislative cronyism to favored companies, from manipulations of markets that differentially favor certain groups to distorted tax policies that reward some forms of wealth while confiscating others—all point to an over-reaching government that has exceeded its proper role of being a right-protecting institution. Instead, by embracing these policies and interventions, they have sacrificed the rights of some to other goals, whether it be economic growth, protection of the needy, or anything else.
The question that remains, though, is how to address these causes of inequality. The most relevant, and I hope clarifying, question here is: what’s on the table? That is, as a society, what is to be done? For those who make this liberal case against inequality, what do they suggest we do? What policies or programs or laws will fix this situation? Is there a level of inequality that is acceptable? How do we know when we reach it?
If we can arrive at an agreement that the kinds of inequalities that arise from prior violations of rights should be eliminated, then perforce, the simple answer is to stop those prior violations. If we eliminate the institutions and laws and political corruption that unjustly create inequality, then whatever resulting inequality that remains will have arisen from natural human differences and it ought to be considered benign. Alas, that simple solution is too often ignored, and instead the liberal critics will propose addressing the rights-violating causes with a wholly different set of rights-violating remedies. Whether it be the post-hoc redistribution of wealth or the further refinement of distorting policies (minimum wages, universal basic income, preferential tax credits, etc.), it ultimately comes down to the question of whether the way to fix a misalignment of liberal norms is to further distort them, or to remove the original distortions.
The other conceptual possibility is, of course, a belief that no ex ante violations of rights occurred and no distortions to justice entered the system as a cause of inequality, but that the effects of inequality themselves must be fixed. In this case, as seems likely, the inequalities arise from natural human variation, the inevitable consequence that produces the variation and beauty of humanity in full bloom. The most serious objection here that I have confronted is an argument that “excessive” inequality in a liberal society can lead the rich and powerful to have unfair advantages, often in the form of being able to access the corridors of political power more easily, to bend justice to their ends. Again, I think the fundamental question here comes down to whether we can eliminate this danger more easily and more justly by preventing money from having an influence on politics. I’ve long since forgotten where I first heard it, but the basic answer is: to get money out of politics, get politics out of money-making. In other words, ensure that political actors are prevented from interfering with, regulating, or otherwise distorting the rights-respecting actions of private citizens in the marketplace by constraining their power to its rightful place—upholding and protecting rights, not in specifying wages, prices, terms of trade, etc., where free and voluntary bargaining works.
I harbor more than a few doubts that I’ve definitively figured out a simple and easy way out of the quagmire that we find ourselves in about this debate. Indeed, recent political posturing and counter-posturing leads me to believe there is not much to be done in the short term. In the longer term, however, it will pay dividends if we can refocus the debate on the fundamental questions—namely, are we merely tinkering to achieve a mathematical norm of “acceptable” inequality, or are we aiming to achieve a society of opportunity and freedom and to embrace the wonders of human variation that flows from a more robust and consistent protection of individual rights?