Economic inequality has been growing steadily for three decades. According to the most definitive data, assembled by economists Emmanuel Saez and Thomas Piketty, the top 1 percent received 10 percent of all U.S. income in 1979. By 2007, just before the Great Recession, that share had risen to 23 percent.
What most Americans don’t know, however, is that before the late 1970s, inequality had been falling for five decades. The Golden Age of capitalism—the 30 years from the end of World War II through the mid-1970s, when gross domestic product, wages, and incomes grew faster than at any comparable period in American history—was marked not by financial excesses and widening inequality, but by equalizing growth and broadly shared prosperity.
Of course, not every Occupy Wall Street protester has reviewed the hard data. But the thread running through the range of grievances voiced at occupations around the country is anger over high and rising inequality.
Few measures would help the long-term health of the economy more than reducing the economic and political clout of Wall Street. The financial sector exists to connect savers with investors and to do so at the lowest feasible cost and risk. In a sensible world, we would view the financial sector as nothing more than a transactions cost to be minimized along the way to producing the goods and services that the economy is really about.
The flip-side: AN UNREALISTIC GOAL
Here’s the difference between opposing the outsize gains reaped by financial-industry companies and demanding an end to “unequal income distribution.” The former is justified anger at a specific abuse of taxpayers by politically connected financiers. The latter is a fool’s errand.
No society has come close to making wealth distribution equal. The great egalitarian experiments of the 20th century proved this, as attentive readers have known since the 1957 publication of Yugoslav dissident Milovan Đilas’ The New Class: An Analysis of the Communist System, which revealed shocking disparities in quality of life in the “workers’ paradises” of Eastern Europe. China gave the world a horrific double-shot of rural poverty and (relative) urban wealth; it is only since the country joined global trading markets that it has seen provincial poverty decline.
At the same time, income inequality in China has grown, as it does in every rising economy. Growing wealth disparities are in fact a sign that overall prosperity is increasing in a competitive marketplace. The economist Gary Becker recently described how this works: “It would be hard to motivate the vast majority of individuals to exert much effort, including creative effort, if everyone had the same earnings, status, prestige, and other types of rewards. Fewer individuals would engage in the hard work involved in finishing high school and going on to college if they did not expect their additional education to bring higher incomes, better health, more prestige, and better opportunities to marry.”
Creating general equality of opportunity is among the greatest U.S. achievements. But creating equality of outcomes has caused misery everywhere it has been tried.
Source: Bloomberg Businessweek