Ramesh Ponnuru: Is income inequality a big deal?

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.

Because they so dislike inequality in principle, 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, expressed frustration 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.

“The Princeton economist Alan Krueger has demonstrated that societies with higher levels of income inequality are societies with lower levels of social mobility,” Packer wrote. “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 for Policy Research, has summarized 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 1 percent and income becoming concentrated within the top 1 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.”

When he moved to macroeconomics, Packer was 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 overall 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.

Packer concluded his essay by expanding on the hard times that have afflicted the steelworkers of Canton, Ohio.

“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,” Packer said. “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. But most members of the vast American middle class 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, would do a lot for them. Because though they’re frustrated with their government, what they want from it, most of them, is not to be rescued from a heartless world.

This story was originally published November 8, 2015 at 6:01 PM with the headline "Ramesh Ponnuru: Is income inequality a big deal?."