President Barack Obama gave a very silly speech in which he affirmed that economic inequality is to be the centerpiece of his remaining time in office. He has made similar suggestions about other issues — global warming and gun control, notably — and, President Obama being President Obama, it is very likely the case that his laser-like focus will consist of a series of speeches and very little else. The politics of the moment will determine which issue actually gets his attention, though he could go with his admirers at Washington Monthly, who contend that some of them are the same issue: Mass shootings, Daniel Luzer argues in a particularly batty piece of connect-the-imaginary-dots, has “everything to do with the distribution of wealth in America.”
It is difficult to take President Obama seriously on these issues, but it is difficult to not take seriously Josh Barro and Paul Krugman, both of whom have offered what seem to me to be inconclusive arguments, Mr. Barro under the headline “Sorry, Libertarians, Inequality Does Matter,” Professor Krugman under “Why Inequality Matters.” Strangely, neither of these erudite gentlemen quite manages to establish that inequality matters.
Mr. Barro writes: “Economic growth is not the same thing as well-being. The point of economic growth is that it leads to improvements in standards of living. If the gains from economic growth are not broadly shared, but instead accrue disproportionately to people already at the top of the income distribution, then a lot of economic growth will only generate a little improvement in living standards for most people. For this reason, rising inequality is a problem even if it does not hold back GDP.” This is true in a sense, but it reverses cause and effect: Incomes among the bottom half of earners are not stagnating because of increasing inequality; inequality is increasing because incomes among the bottom half of earners is stagnating. It could have been the case that incomes among the bottom half of earners were stagnating while incomes for the top half were absolutely crashing, in which case you would have a situation in which there was less inequality but everybody was worse off, or at least no better off. Conversely, we could have an economy in which the poor and the middle class see strong gains in their income and their wealth, but the very well off experience twice those gains, which would mean a society of increasing inequality in which everybody is better off. I have encountered progressives who state their preference for the outcome in which we are all poorer but more equal over the outcome in which we are all richer but less equal, which puzzles me.
Mr. Barro and many other commentators on economics often write as though there were buckets marked “Income” and “Wealth,” the contents of which are ladled out by some agency or agencies according to a set of rules and procedures. There is in fact no such thing as income distribution — “distribute” is a transitive verb, and here it has no real direct object. What there is is the occurrence of income. The argument that inequality causes income stagnation or decline for those who have been worse off in recent years assumes that if the rich were earning less then the middle class and the poor would be earning more, which in most situations is not the case. If Goldman Sachs earns less money this quarter, that does not mean that some quantity of money is therefore liberated from their foul clutches to float about until lower-wage workers can claim it. High incomes at the top do not cause low incomes at the bottom, or vice versa. To assign economic agency to the abstraction that is inequality assumes the opposite.
Professor Krugman does not state that he prefers the poorer-but-more-equal model (and I do not think that he really would) but it is at least partly implicit in his analysis. Professor Krugman argues that inequality is a problem not because the poorer are poorer but because the rich are richer, which he believes to present a political problem: The wealthier they get, the more power they have, and the more they will exert a baleful influence upon the economy. He writes: “In my view, however, the really crucial role of inequality in economic calamity has been political. In the years before the crisis, there was a remarkable bipartisan consensus in Washington in favor of financial deregulation. . . . When crisis struck, there was a rush to rescue the banks. But as soon as that was done, a new consensus emerged, one that involved turning away from job creation and focusing on the alleged threat from budget deficits. . . . Both consensuses, however, corresponded to the interests and prejudices of an economic elite whose political influence had surged along with its wealth.”