Over the course of this series, we have made the case that inequality of wealth is a serious problem in the United States. Disparities between the wealthiest 1 percent and the bottom half are far larger in this country than in other democratic capitalist countries, and far larger than can be justified as reward for productive effort. Indeed, to an unhealthy degree, wealth in the United States is being gained through unproductive activity — “rent-seeking” — or simply through inheritance. Well-designed government interventions can reduce inequality from the top down, through more aggressive taxation of capital gains and estates, and from the bottom up, through better-targeted support for homeownership, higher education and retirement savings.
What remains to be considered are the counterarguments. One is that concerns about wealth inequality are exaggerated. Our counterparts at the Wall Street Journal advanced this point in a recent editorial, citing research showing that wealth distribution appears much more equal once the value to households of expected Social Security and other pension benefits is accounted for.
A new study has indeed found that the share of U.S. private wealth held by the top 5 percent of people ages 40 to 59 was 45.4 percent in 2019, including the value of future Social Security benefits and pensions, as opposed to 63.5 percent without them. The study confirmed that, between 1989 and 2019, the top 5 percent’s share of total wealth grew by 10 percentage points factoring in Social Security, as opposed to 15 percent without doing so. A 2020 paper, done by University of Pennsylvania researchers using different methodology, found that, including Social Security, the top 1 percent’s share of wealth remained essentially unchanged between 1989 and 2016.
Even taking pension wealth into account, however, wealth distribution in the United States remains far more skewed toward the top than in peer countries, as the Organization for Economic Cooperation and Development found when it estimated the impact in 2018. Given this context, the fact that a government intervention — Social Security — mitigated wealth inequality would seem to bolster our argument that additional interventions could reduce it even more.
But could a more aggressive attack on wealth inequality undermine incentives and result in an economic pie that is smaller and, inevitably, more difficult to distribute? If too aggressive, of course, at the bottom of that slippery slope lies Venezuela’s bankrupt socialism. That is why we argue for taxes that target passive capital income and intergenerational wealth transfers. This seems least likely to undermine incentives to engage in productive activity, while raising resources for productivity-enhancing education, training and infrastructure.
In fact, too much inequality can undermine growth, too. The precise effect of economic inequality on economic growth is a far-from-settled issue in economics, but a fair summary would be: Differential rewards for productivity are crucial to stimulating growth in the short run, but the perpetuation of steep inequalities, over generations, can turn into a drag on output. The latter effect may operate via several channels. One is by wasting the potential of those who might have acquired skills or started businesses if not consigned by poverty to society’s margins. Another, posited — prophetically — by Alberto Alesina and Dani Rodrik in an influential 1994 study, is that extreme inequality fosters demands for populist policies, which, in turn, damage growth.
We embrace the intrinsic benefits of individuals pursuing their dreams of wealth, which is part of what makes the United States a great country. Every billionaire is not a policy mistake. To the contrary, seven of the 10 richest individuals in the Forbes 400 are founders of transformational new businesses. (One, Jeff Bezos, the founder of Amazon, is also the owner of The Post.) We would even suggest that private wealth can serve democracy. Yes, the rich can and do manipulate the political system for special advantages, which must be curbed through tougher laws on campaign finance and lobbying, as we have often advocated. Yet private fortunes also can provide a bulwark against presidential authoritarianism and other forms of government overreach, a logic that extends to the broad middle class, which is less susceptible to government control and manipulation when it is financially independent.
Private wealth supports diverse alternatives to official institutions and policy, through universities, charter schools, the performing arts, scientific research, publishing and — yes — space travel. If malaria is ever eliminated, the Gates Foundation, which has donated tens of millions of dollars to that cause, will deserve much of the credit. Privately sponsored programs may help address the wealth gap itself. One effort that bears watching is the NinetyToZero program, supported by companies such as Starbucks and Goldman Sachs, with the goals of promoting Black-owned businesses and Black advancement in corporate America.
A more equal United States is a more legitimate United States, in perception and in reality. And legitimacy fosters political stability, which is the ultimate foundation of prosperity. In that sense, everyone, poor and rich, has a lot to gain from curbing wealth inequality. The policies that can achieve that goal are neither radical nor complicated. What’s needed is the political will to enact them.