Growing Income Inequality, Redux

The Wall Street Journal op-ed page today has a piece a with an uncharacteristic topic: growing income inequality, which the author calls potentially "the mother of all electoral issues."  The author, investment-banking and media mogul Steven Rattner, writes that one can't deny "the failure of robust top-line growth in the U.S. economy to filter into the wallets of Americans below the top of the pyramid. . . .  From 2000 to 2005, for example, average weekly wages for the bottom 10% dropped by 2.7% (after adjustment for inflation), while those of the top 10% rose by 5.3%."

This reminded me of the MOJ discussion a few months ago, in which Rick asked,

why, exactly, is [growing income disparity] a problem?  If we put aside -- just for the sake of discussion -- entirely appropriate concerns about, for example, a consumption culture that is fed by images of the super-rich on spending binges, or about whether those at the low end of the scale (or in the middle, or at the high end, for that matter) are being compensated justly, and just ask about "income disparity" . . . why, from a CST perspective, is this objectionable?

Catholic social doctrine clearly regards some level of income disparity as the inevitable product of morally commendable freedom and initiative; moreover, you obviously can't identify a precise point at which income disparity becomes too great.  But let me try a few suggestions why large and growing income disparity may be ground for concern in itself, and not just as a symptom of other things like a high poverty rate.

One is that great disparity seems likely to make it harder for people to practice the value of solidarity, that is, "see[ing] the 'other'-whether a person, people or nation-not just as some kind of instrument, . . . but as our 'neighbor,' a 'helper'(cf. Gn. 2:18-20), to be made a sharer on a par with ourselves in the banquet of life to which all are equally invited by God."  Solicitudo Rei Socialis, para. 39.  Again, this is not talking about equal results; but the more that different classes of people lead entirely different lives determined (heavily at least) by income -- with radical differences in housing, schooling, neighborhoods, work, leisure, transportation, and almost everything else -- the more they will find it hard to sympathize with each other (especially the rich to sympathize with those of modest means).  Around the time of our discussion last year, Michael Kinsley wrote about threats to "the role of civil equality as a consolation prize for economic inequality":

[W]hole areas of life that were part of everyday democracy have fallen to the empire of money. People increasingly go to schools with people of their own class, live in class-sifted neighborhoods, hold their Fourth of July picnics in their own back yards rather than the public park.

Of course Catholic doctrine calls on all people to develop empathy across the lines that will always be there.  But realistically, people will find it harder to do so when income and life-condition disparities are really large.  This effect seems independent of what percentage of the population falls below some absolute measure of poverty.

Related to this is that greater income disparity can make it harder to have economic and social mobility.  The further you have to go to reach a different class, the harder it is.  And I would presume, though I don't have time to get the cites right now, that mobility is a positive goal in Catholic social doctrine with its emphasis on opportunity and full participation by all in economic life.  There are studies showing that we now have less intergenerational mobility than we thought and less than many other developed Western nations.  (And don't get me started on the estate tax.)  I don't deny that the effects here may be complicated; I can imagine that a more laissez-faire economy that produces greater income disparity can promote greater mobility in some situations.  But the evidence suggests this is not always the case, and it seems to me that there is a prima facie reason for concern about large and growing inequality in itself.

Finally, there is a concern that relates to, but is distinct from, Rick's mention of "a consumption culture fed by images of the super-rich." It's the concern about "expenditure cascades," defined (in this paper) as "[i]ncreased expenditures by top earners . . . that resul[t] in increased expenditures even among those whose incomes have not risen."  The author, Cornell economist Robert Frank, emphasizes that he is not talking about increasing spending caused solely by a psychological need to emulate the rich (the "consumption culture fed by images" to which Rick referred) -- which Christian doctrine might classify as envy that we ought to encourage people to overcome.  Rather, increased top-end spending puts pressure step by step on people down the line for more concrete, objective reasons as well.  For example, houses mushroom in size and price in the suburbs with the decent schools (which non-wealthy parents want for their kids too); huge Hummers or other SUVs on the road render a cheap or small car not just less fashionable but more dangerous; the suits you're expected to wear to be presentable in formal situations, or the gifts you're expected to give to satisfy etiquette, also balloon in luxury and price; and so forth.  Nor, as far as I can see, are these increases even fully reflected by inflation measures, since we're often talking about new, higher-level goods, not simply higher prices for the same basket of goods.  Several of these affect primarily the middle class, not the poor (at least not directly).  But the paper argues, using regression analysis on the data, that higher income inequality in various areas produces significantly higher average home prices and also matches up with "higher personal bankruptcy rates, divorce rates, [a]verage commute times," and total hours worked -- all of them matters of real concern to CST.  Cf. Elizabeth Warren's work on the relation of home prices to families' economic troubles.  I'm no economist, but those interested in the issue might want to read the Frank paper, with his statistics.

Tom