TCS Daily

What's Wrong With Income Inequality?

By Glenn Harlan Reynolds - January 7, 2004 12:00 AM

We've been hearing a lot lately about growing income inequality in the United States. There's a good deal of disagreement about the facts on the ground: A lot of people are invoking Gregg Easterbrook's assertion that American income inequality is an artifact of immigration, as summarized by Irwin Stelzer in The Times of London:

There is no question that statistics show a rise in inequality. The main reason: America welcomes more immigrants - legal and illegal - than all the other countries of the world combined. These newcomers typically start on the bottom rung of the economic ladder. Exclude them from the statistics, calculates Easterbrook, and the increase in inequality disappears. Indeed, for the nine out of ten Americans that are native born, inequality is declining. And here is the reason that will surprise America's critics: the decline in inequality is due in good part to the rising affluence of African Americans.

I don't know whether this is true or not -- though it certainly wouldn't surprise me if it were -- but I want to ask a different question. If, as critics claim, ordinary Americans are getting richer, but rich Americans are getting richer faster, is this bad? And if so, why?

One objection to the rich getting, relatively speaking, richer might be aesthetic. And, in fact, when we hear about "obscene" wealth, it seems that what is being expressed is an aesthetic objection. I don't have much to say about this -- de gustibus non disputandum est -- though it seems to me to be a rather morally dubious aesthetic choice. (The old saw about radicals is that they're offended not that the many are poor, but that the few are rich. That's a question of taste, but it sounds like bad taste.)

Conservatives like to criticize this sort of complaint as "class warfare," or "the politics of envy," and such criticisms have force because they're often true. But that's not the only criticism of rising income inequality. If the rich are getting richer on a steep curve, while the rest of us are getting richer on a less-steep curve, then if you project the trend far enough ahead we'll have Bill Gates owning entire solar systems while the likes of me make do with a Porsche. Not exactly a tragic scenario (though I'd prefer a Bugatti) but if wealth disparities are great enough, I suppose it becomes harder to maintain civil society, as the rich will have too little in common with the rest of us.

The response, of course, is that if you project any trend far enough into the future it leads to bad scenarios -- and usually worse scenarios than the one where I have to settle for a Porsche. But such projections rarely come true. Today's rich people might get richer than the rest of us, relatively, but it's not likely to turn them into Galactic Overlords. In fact, in terms of daily life experience, I suspect that today's rich are less different from, say, ordinary upper-middle-class Americans than their counterparts were a hundred years ago, or even twenty (a point buttressed by Easterbrook's new book, The Progress Paradox), and that doesn't seem likely to change in the foreseeable future.

But there is a reason to be concerned about the rich becoming too very rich, and it can be summed up in two words: George Soros.

I had an argument some years ago with an economist. The subject was antitrust laws, and Robert Bork's critique that antitrust laws don't increase consumer welfare. Bork's critique missed the point, I argued, because the antitrust laws weren't so much about consumer welfare as they were about power, and the potential for economic power to extend into the political sphere. And that, perhaps, is a reason to worry about the rich becoming super-rich, and the super-rich becoming colossally rich.

Soros, the 38th richest man in the world, has famously promised to put his immense wealth behind defeating President Bush. Whether this will work is unclear -- being publicly targeted by a billionaire currency-speculator is likely to be a political benefit for Bush in other ways -- but there's no question that Soros has resources, and political clout, that make him a political force to be reckoned with in a way that your garden-variety millionaire, or multimillionaire, isn't. If guys like Soros become as rich as Bill Gates, while Bill Gates becomes as rich as, say, Malaysia, then the imbalance in political power between the super-rich and the rest of us might become colossal. Of course, campaign finance reform might conceivably land Soros in jail, but the point still holds: if the super-rich become rich enough, they'll become laws unto themselves. And if that happens, it doesn't matter that the rest of us are getting richer, too.

Or does it? Soros's money is useful to Bush's opponents, of course, but it would have been more useful twenty years ago. Money in politics goes mostly for television ads. But Americans are watching less television, and find political ads less persuasive. The real revolution in politics, as illustrated by Howard Dean's campaign, is in bottom-up approaches, which don't cost a lot of money. As Dean's Internet guru Joe Trippi has discovered mobilizing people via the Internet is cheaper (actually, it's a profit center for a campaign, instead of a money-sink like television) and far more effective.

The twenty-first century, I think, will belong to those who can persuade others to voluntarily give of their time and energy in support of their goals. And genuine enthusiasm is hard to buy. To the extent that the super-rich become rich enough to be alienated from the rest of us, they're likely to become less persuasive.

Am I sure of this? No. And if Bush is defeated, I'll take it as proof that rich people have too much influence on the political process -- and I'll argue for a 100% income tax on currency traders worth more than a billion dollars...


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