It has taken an amazingly long time, but inequality is finally surfacing as a significant unifying issue for progressives in the United States – including the president. And there is also, inevitably, a backlash, or actually a couple of backlashes.
One comes from groups like the organization Third Way. Josh Marshall, the editor of Talking Points Memo, characterized that position best in a recent article: “That captures a lot of what the ‘Third Way’ is about: a sort of fossilized throwback to a period in the late 20th century when there was a market for groups trying to pull the Democrats ‘back to the center and away from the ideological extreme’ in an era when Democrats are the fairly non-ideological party and have a pretty decent record of winning elections in which most people vote.”
There’s also an intellectual backlash, with people like the Washington Post columnist Ezra Klein arguing that inequality, while an issue, doesn’t rate being described as “the defining challenge of our time.” This in turn infuriates other commentators.
Well, I’m not infuriated, but I would argue that Mr. Klein has gotten this one wrong. The case that inequality is a major, indeed defining challenge – and is something that should be at the center of progressive concerns – rests on multiple pillars. Taken together, the reasons to focus on inequality are overwhelmingly convincing, even if you are skeptical about particular arguments.
Let me make four points. First, in sheer quantitative terms, rising inequality is what Vice President Joe Biden would call a Big Something Deal. Data on income shares shows that the share of the bottom 90 percent in income excluding capital gains fell from 54.7 percent in 2000 to 50.4 percent in 2012. This means that the income of the bottom 90 percent is about 8 percent lower than it would have been if inequality had remained stable.
Meanwhile, estimates of the output gap – the extent to which our economy is operating below capacity – are generally less than 6 percent. So in raw numerical terms, rising inequality has done more than the slump to depress middle-class incomes. Someone might argue that the damage done by unemployment is greater than the mere income loss, and I’d agree. Still, it’s hard to look at this kind of calculation and dismiss inequality as a secondary issue.
Second, there is a reasonable case for assigning at least partial blame for the economic crisis to rising inequality. The best story goes something like this: There was high saving by the 1 percent, with demand sustained only by rapidly rising debt further down the scale – and since this borrowing was itself partly driven by inequality, it led to expenditure cascades and so on. Is this a slam-dunk case? No – but it’s serious, and reinforces the rest of the argument.
Third, there’s the political economy aspect, where you can argue that policy failures both before and, perhaps even more crucially, after the crisis were distorted by rising inequality and the corresponding increase in the political power of the 1 percent. Before the crisis, there was an elite consensus in favor of deregulation and financialization that was never justified by the evidence, but aligned closely with the interests of a small but very wealthy minority.
After the crisis, there was the sudden turning away from job creation to deficit obsession; polling suggests that this wasn’t at all what the average voter wanted, but that it did reflect the priorities of the wealthy. And the insistence on the importance of cutting entitlements is overwhelmingly a 1 percent thing.
Finally, very much tying in with this, is the question of what progressive think tanks should research. Mr. Klein suggested recently that “how to fight unemployment” should be a more central topic than “how to reduce inequality.” But here’s the thing: We know how to fight unemployment – not perfectly, but good old basic macroeconomics has worked very well since 2008.
There’s no mystery to the economics of our slow recovery – that’s what happens when we tighten fiscal policy despite private deleveraging at a time when monetary policy is constrained by the zero lower bound. The question is why our political system ignored everything macroeconomics has learned, and the answer to that question, as I’ve suggested, has a lot to do with inequality