1) It’s perhaps useful to begin with what I was not saying. I’m not saying inequality isn’t a serious problem. I’m not saying declining social mobility isn’t a serious problem. I’m not saying that the difficulty of finding firm evidence that inequality impedes growth means that inequality doesn’t impede growth. The column is about whether inequality should be seen as the central economic problem of our age. Amidst mass joblessness and weak growth, I’m skeptical.
2) Obviously this whole conversation is moot if inequality is a primary reason for mass joblessness and weak growth. I don’t find the evidence on that score hugely compelling. We've had nearly full employment during periods of high inequality (say, 2005) and we've had high unemployment during periods of relative equality (say, 1982). The same is true internationally: Some relatively equal countries suffer from extremely high unemployment (Portugal, for instance) while some relatively unequal countries are seeing fast growth and low unemployment (Singapore, say). But Dean Baker at the Center for Economic and Policy Research find this argument more persuasive, and you should read his case.
3) I’m quite convinced, however, that joblessness makes inequality much worse. As former White House economist Jared Bernstein writes, “Over the period when labor markets were tight 2/3′s of the time, incomes grew together. Over the period when labor markets were tight 1/3 of the time, they grew apart." Here's the graph:
“Full employment”, I think, probably is the correct rallying cry for this age, and Baker and Bernstein’s free e-book on the topic is something you should read right now. While there are ways to reduce inequality without doing much about employment (say, by taxing the rich and using the proceeds on defense spending), it's hard to imagine full employment not doing much to reduce inequality.
4) Basically everything I just wrote about full employment applies to median wage stagnation, too. I'm not convinced that the top one percent's acceleration is the same problem as the stagnation of median income. For one thing, median wage stagnation began in the '70s, while the top one percent only began pulling away in the mid-'80s. So it's easy to imagine policies that could "solve" inequality while doing little for median wages. By contrast, I'm much more convinced that median wage stagnation is connected to slack labor markets, and it's really hard to imagine full employment not boosting median wages.
5) A hypothesis of the column is that worrying about inequality and social mobility is politically easier than worrying about mass joblessness. Inequality at levels we’re seeing today is morally offensive. Declining social mobility is the kind of thing that hedge fund managers feel good worrying about. If that’s right, it creates a political bias toward too much concern over inequality, much as there’s a political bias toward too much concern over the deficit.
6) In this way, my argument is the direct opposite of Third Way’s argument: They think the problem with worrying about inequality is that “nothing would be more disastrous for Democrats.” They’d prefer more focus on the deficit. But inequality is great politics — as you can tell by the number of politicians taking up the banner — and making the deficit your central worry right now is absolutely nuts. (For more on this, read Neera Tanden at New Republic.)
7) Anecdotally, I find that people in politics simply find joblessness, at this point, frustrating and sad. They want to move on from it because they don’t see worrying about it further to be either politically advantageous or obviously productive. Most voters are employed, and there aren’t the votes to do something new about joblessness anyway.
8) Since new measures to combat joblessness or inequality are similarly implausible, it’s fair to ask why this conversation matters at all. One answer I proposed is that it focuses intellectual resources on one problem rather than the other. Krugman replies, “We know how to fight unemployment — not perfectly, but good old basic macroeconomics has worked very well since 2008…The causes of soaring inequality, on the other hand, are more mysterious; so are the channels through which we might reverse this trend.” That’s a good point. In particular, there should be a lot more research on the possible connection between inequality and financial crises.
9) A second point Krugman makes (and that’s also been made by political scientists Jacob Hacker and Paul Pierson) is that inequality is a driving force in our politics, and as such, is a key impediment to better economic policymaking more broadly. On this, I'm more skeptical. The last five years have seen the passage of, among other things, a universal health-care bill that funds itself in large measure by taxing the rich -- higher marginal tax rates on the rich, massive expansions and extensions of progressive elements of the tax code, the reelection of the political candidate promising higher taxes on the rich, and so on. Today's tax code might well be the most progressive since 1979. Inequality was lower in the 1980s, but policymaking was much more regressive.
10) That said, worrying about political inequality leads you to different policy emphases than worrying about income inequality. In particular, massive campaign-finance reform should probably be the top priority if you're worried about wealthy individuals and corporations buying off our politics. That's not the direction this conversation seems to be going in here in Washington, though.
11) Within the general rubric of "inequality," income inequality gets a whole lot more attention than wealth inequality. But wealth inequality is much more concentrated and, in various ways, much more dangerous for the social structure. In particular, it's wealth inequality that really ossifies social mobility.
The children of the top one percent only occasionally manage to match their parent's incomes. But they often receive massive inheritances that grow over time, installing them atop the economic ladder and giving them a political reason to fight like hell against progressive tax policies (the Walton family is a good example here). And this kind of inequality doesn't have any of the salutary benefits of income inequality: Massive inheritances don't make people work harder. They give them a reason to never work very hard at all, and to try to influence public policy so they never have to work hard in the future, either.
12) All that said, income inequality and social mobility really are startling trends that people should be very worried about and that the political system should be working aggressively to solve, or at least ameliorate. I don't have many policy disagreements with the folks focusing on inequality. But politics is about prioritization, and what politicians end up doing is in part driven by what problems their political coalitions are most worried about. Next time someone like Jared Bernstein is advising the president of the United States about what her top economic priority should be I'd prefer if the answer was full employment rather than inequality, and I'd prefer if her political advisers agreed.