In my latest essay, in The Guardian, I argue that now is a strange time to be debating whether capitalism is broken: The economy is very strong, and the strong economy is generating considerable benefits for low-wage and vulnerable workers.
In addition, while I’m not particularly concerned about the growth in income inequality, it has been leveling out or even declining.
A recent report from the nonpartisan Congressional Budget Office belies the general claims that economic divisions are rapidly widening. The CBO examined inequality on several measures: income generated in markets (employment, business and capital income); the sum of market income and payments from social insurance programs; and income with and without safety net benefits and services and before and after federal tax payments.
Across these different measures, inequality rose between 1979 and 2006 by between 24 and 28%, depending on the precise definition of income. (The report uses the standard “Gini coefficient” inequality measure.) But since 2007 inequality has leveled out or even declined. Market income inequality has increased by 3%; once government transfer payments and federal taxes are taken into account, however, inequality has actually narrowed by 5% over the last decade.
And yet populism is driving both the political left and right way off course. On the right, you see populism fueling concerns about the merits of our economic system — Henry Olsen and I went a couple rounds on this, in part here on the Corner, yesterday — and you see populists and their sympathizers downplaying the importance of economic growth and liberal international institutions, warming to protectionism, and backing away from the importance of personal responsibility. (And even, bizarrely, questioning the merits of dual-earner families.)
The left is responding badly to populism, as well. They also have concerns about capitalism as an economic system. And their suggested policy response is problematic.
Frustrated by “the elites” in their own way, some populists on the left are eager to use the tax code to go after the wealth of the 75,000 US households worth more than $50 million. Having special, punitive tax rules for 0.06% of US households is not just bad economics, it is morally objectionable. Fueled in part by populism, Democrats running for president are proposing a dizzying array of entitlement programs, including “Medicare for All”, free college tuition, the government paying off a large share of existing student loan debt, and universal childcare.
Populism didn’t spring from nowhere, of course. Where did it come from? Is it here to stay? And are the populists right that capitalism needs to be checked? Check out my full essay here. Your comments, as always, are very welcome.