Why is economic inequality bad?

The headline: Economic Inequality: It’s Far Worse Than You Think, March 31, 2015;

Why More Education Won’t Fix Economic Inequality, March 31, 2015

The dig: Why is economic inequality bad?

Economic inequality exists but isn’t unique

Economic inequality in the US is not new; twenty years ago, the top 1% of Americans owned “between 40% and 50%” of wealth in the US. Nor is it unique, as other countries such as Canada, Australia, and the UK have also been experiencing a rise in economic inequality over the past few decades, albeit to a less extreme rate. The US is unique, however, among developed states with respect to the degree of economic inequality.

Source: https://www.aeaweb.org/articles.php?doi=10.1257/jep.27.3.3

The headlining Scientific American article notes that even self-identified political conservatives know economic inequality exists and ideally would like to see less of it. Despite this, we have all heard the argument that our tax code is already sufficiently progressive. The rich already pay more in taxes than the rest, what more should society do?

Source: https://www.cbo.gov/publication/43373

While it is true that the top 20% of Americans do share 67.9% of tax liabilities, that same top 20% “own more than 84% of the wealth”. This means that the lower 80% of Americans control less than 16% of the country’s wealth, yet pay double that, 32.1%, of the tax burden.

Economic inequality is cause for worry

So we can see that economic inequality is rising. That much has been covered widely in popular media. One question which is less often discussed is why inequality is a societal ill at all. Three reasons follow.

First, economic inequality cannot be separated from political inequality. Following the Citizens United cases and other related US Supreme Court cases which have struck down many regulations regarding campaign financing, our elections have seen an unprecedented flood of money. And it’s not only legislative and executive elections: money has also penetrated judicial elections in pervasive ways. Thus, as increasing economic inequality creates greater differences in the disposable incomes and policy interests of Americans, it will lead to stark difference in the nature and amount that American interact with political campaigns. This may lead—and probably has already led—to cases being decided and laws being passed, enforced, and interpreted with bias toward those with the funds to contribute to campaign war chests.

Second, inter-generational mobility is correlated with income equality (insert standard ‘correlation does not imply causation’ warning here). This makes intuitive sense: the greater differences in economic context in which children are born, the greater the differences of the resulting lives of the children. At present, that traditional American notion that one must simply work hard in order to overcome any adversity is all but a falsity: educated children from poor backgrounds have lower incomes than uneducated children from wealthy backgrounds. However, note that it is difficult and perhaps impossible to account for non-economic contributions, such as genetics and parenting. While these non-economic factors are important, they aren’t as important as financial influences.

Third, happiness increases with economic equality. This is likely due to increased perceptions of fairness and societal trust; people are less happy when they see huge gaps in wealth. The few haves may be happy, but the have nots see the haves as unfairly gaming the system. While the correlation has been challenged by Columbia researchers, they nonetheless concede that humans derive displeasure from their natural instinct to compare their economic station to others around them.

There are many other possible correlations, such as health and conflict, which are continuously debated in academic literature. I’ll leave those for the reader. Oddly, some argue from the concept of fairness: regardless of the results, vast economic inequality is just not fair. I find this argument highly unpersuasive. If economic equality didn’t correlate with core principles such as political influence, social mobility, equality of opportunity, or even just happiness, policy focus should be on poverty reduction instead of income inequality. Of itself, what does economic equality achieve within a society? Even in the philosophies of the Yong Hegelians, the intellectual inspiration for communism and socialism, economic equality is merely a means to an end. As discussed above, inequality correlates with sufficient ills to articulate reasons to combat it without invoking such as argument.

Where to go from here

As this post did not address possible causes of the problem of economic inequality, it will not address possible solutions, either. Those are both important discussions, of course. But it should be clear that increasing economic inequality is related to various public policy concerns which should be important to all Americans, and as such mitigating it is a reasonably policy goal itself.

It will be interesting to watch the 2016 elections to see if this issue is addressed and, if so, how it is framed. Pay attention to which organizations, parties, and candidates seek to mitigate inequality and which do not—and be sure to ask what interests dictate the decisions of each. Don’t hold your breath, though; deep pockets might just keep everyone quiet.