Republicans and Inequality

Republicans and Inequality
Feb 9 2015

There can be no dispute that we are seeing a staggering rise in inequality in the US. This has rightfully become a political issue worth debating (and resolving).

When a right wing academic chides his own side of the political spectrum for disingenuously promoting a political solution to inequality, his analysis deserves reading, and he deserves recognition for intellectual honesty. This is the message from Ramesh Ponnuru of the American Enterprise Institute, a conservative think tank, in today’s NY Times.

He’s pointing out that Republicans have started blaming the Obama administration and the Democrats for the significant rise in inequality, and have even been so bold as to suggest that Republicans will provide a solution, less inequality, if only we elect a Republican President in 2016, giving them control of all three chambers of our federal government. If ever there was, this is truly the pot calling the kettle black!

Ponnuru explains–there is no real interest among the consensus of Republicans in addressing inequality.  There are no visible Republican proposals which would improve inequality. It’s worse. He goes on to explain a critical variable: That the Republican economic centerpiece is just economic growth. That’s all. He clearly explains that when growth is strong, everything else constant, guess what?  Inequality increases! So, in essence, the Republican agenda is indisputably inconsistent with improving inequality. It’s really that simple.

I’m impressed with this accurate and honest explanation, and most especially coming from a sound voice on the Right. He advises Republicans to give it up–it’s dishonest.

On the other hand, Republicans can honestly argue that they might be able to make the economy grow faster than Democrats can. Comparisons between Democratic and Republican administrations’ growth records across the Twentieth Century would not lend credence to that argument, at least not based on history. Nevertheless, I would trust Republicans might honestly believe they can do that.

However, they may not be able to pull it off.  As Ponnuru suggests, removal of some of the restrictive, burdensome and ineffective regulations would be helpful (although many have been added under Republican administrations, as well as Democratic).  So, they will find me with an open mind, interested, if they think they can grow the economy faster. I would listen to their proposals. Growth is good, beneficial. But, growth alone will not reduce inequality.

Ponnuru accurately observes that the American population still seems more interested in jobs and opportunity than in measures to reduce inequality. Faster growth might improve opportunity. Wages might increase. But wealth and income disparity will not diminish–it will worsen, unless there is some form of redistribution.  I believe it indisputable that at some extreme of inequality, depending (of course) on other variables, any country will eventually face revolution. I suppose the Republicans who really understand economics and history are banking on the hope that inequality will (somehow) level out on its own. This is known as the “Kuznets curve,” no longer believed by most economists. And in the meantime, they are betting that improving jobs and wages (a little) will suffice. The real questions are (a) is it getting worse? (b) at what rate? and (c) and how far are we from the precipice?

Redistribution is the only answer to reducing inequality. There is no other answer. Redistribution can come in many forms, however. Some are particularly painful to conservatives–like taxing the rich to provide welfare to the unemployed. But, there are more palatable forms of redistribution. Schools and infrastructure would be good places to start. We shouldn’t even be debating these priorities. They contribute to opportunity for all, which Republicans claim they support. These are properly called redistribution when the wealthy pay for more than their share of the benefit. But isn’t that better than wondering whether your children or grandchildren will have the wherewithal to hire enough vigilantes to protect their gated homes?

The rationale for the continuing tolerance among Americans (and for Chinese and other unequal developed nations) for rising inequality is perhaps best explained by a parable from the noted economist Albert Hirschman in 1973. Paraphrased by Debraj Ray, this is it:

“You’re in a multi-lane tunnel, all lanes in the same direction, and you’re caught in a serious traffic jam.

After a while, the cars in the other lane begin to move.  Do you feel better or worse? At first, movement in the other lane may seem like a good sign: you hope that your turn to move will come soon, and indeed that might happen. You might contemplate an orderly move into the moving lane, looking for suitable gaps in the traffic. However, if the other lane keeps whizzing by, with no gaps to enter and with no change on your lane, your reactions may well become quite negative. Unevenness without corresponding redistribution can be tolerated or even welcomed if it raises expectations everywhere, but it will be tolerated for only so long. Thus, uneven growth will set forces in motion to restore a greater degree of balance, even (in some cases) actions that may thwart the growth process itself.”

Americans and Chinese are still believers in the Horatio Alger story, but reality for the great majority is that bootstrapping it is harder than ever.

It’s not so easy to get into that fast lane. The traffic there is moving faster and faster these days. Those Bentleys and Rolls Royces only seem to brake to admit those of their own kind. Expensive private high schools in my neighborhood, feeders to Ivy League Universities, cost $35-40,000 per year, while the San Francisco public schools must get by on a budget amounting to about $9,000 per student.

The Republican stance on key economics defies rationality. For example, to promote growth, few would disagree that appropriate spending on our infrastructure is needed and would greatly benefit growth. Here we are talking about worn out roads and highways, bridges, tunnels, inadequate fast rapid transit, tired airports, our power grids, and even our internet (slower than many other nations). Note the powerful correlation between public investment and economic growth:

Paul Krugman has argued the key point repeatedly and does so again in today’s NY Times. Essentially, it comes down to the Republican attitude of severe austerity–that reducing debt and meanwhile reducing government (continuously) is the answer. Europe is demonstrating now that this cannot be the entire answer. I argue that the Obama administration (and the Federal Reserve) deserve great praise for rather miraculously dragging our economy to this stage of growth while continuously restrained in proper tools to do so, by Republican excessive adherence to austerity. Maybe austerity can be understood for Japan, with astronomical debt, but certainly not for the largest economy in the world, the reserve currency of the world.

If we are to continue across the next few years with Republican control of the purse strings, just how are they going to grow the economy? Removing regulations alone will simply not do it.

A better statement from Republicans can be suggested: “We don’t think inequality is important to fix. It is simply a factor of motivation, which is a good thing for everyone. As to those with motivation who have obstacles to their achievement, we’re sorry, but we simply can’t distinguish between those who really want to work and those who don’t, so we don’t favor any form of redistribution. We will only be able to contribute to improved opportunity for those who can take advantage of it. We hope you all continue to agree with us.”

I will close by acknowledging there are poor legislators on both sides of the aisle, as there are wise voices on both sides. However, it is now the Republican Party which has allowed itself to be hijacked by extremists on the far Right, such that it is unlikely Republicans can even stimulate growth. And, as Ponnuru so rightly states, Republicans have no interest in reducing inequality.

In just previous posts, I argue that Republican policies (neoliberalism) are largely responsible for the rise in inequality across the last 30 years.

References:

Paul Krugman: http://www.nytimes.com/2015/02/09/opinion/paul-krugman-nobody-understands-debt.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region&region=c-column-top-span-region&WT.nav=c-column-top-span-region

Ramesh Ponnuru:http://www.nytimes.com/2015/02/09/opinion/lets-not-mention-inequality.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region&region=c-column-top-span-region&WT.nav=c-column-top-span-region&_r=0

Debraj Ray on Hirschman: http://www.econ.nyu.edu/user/debraj/Papers/Uneven.pdf

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