Why Rich People Hate Talking About Inequality

Ed. note: This is the third and final post in a TP Ideas symposium on Branko Milanovic’s The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality. The first installment is here here and the second is here.

The wealthy don’t like it when we talk about it inequality. Mitt Romney famously labeled President Obama’s critique of inequality “class warfare” motivated by “envy,” and proposed instead that debate about economic inequality be confined to “quiet rooms.” It’s fair to say he’s not alone among the super-wealthy in thinking this isn’t a “proper” subject for open, political debate.

At first blush, their motivation here is straightforward: it could cost them money. But given America’s one percent already has so much, and so little redistribution is on the table, they’d have to be exceptionally greedy to have such a strong reaction to even broaching the inequality discussion. Of course that’s possible, but the history of debates around inequality as surveyed in Branko Milanovic’s wonderfully readable book suggests another explanation. The rich don’t like inequality talk because, by its very nature, it involves making moral judgments about the way the rich live their lives into a topic for public discussion.

In the book’s first essay, “Unequal People,” Milanovic runs down the earliest modern economic theories about whether inequality is good for economic growth. The difference between early theories wasn’t, as we think today, whether or not you thought inequality was something that happened as a consequence of a roaring economy: it was whether, essentially, the rich are good people or not.

On the first view, defended to varying degrees by Max Weber and John Maynard Keynes, the rich were virtuous workers, dutiful, acquisitive folk who accumulated but spent no more on indulgences than the poor. Their massive savings were invested back in the marketplace, which, as Keynes put it, “made possible those vast accumulations of fixed wealth and of capital improvements” which redounded “to the advantage of the whole community.” The virtuous rich were uninterested in selfish consumption, serving principally as what Milanovic calls “saving machines” for the broader capitalist society.

Milanovic’s second view paints a dimmer picture of virtues of the rich. It assumes that the rich are selfish, greedy parasites who hold on to massive hoards and spend on themselves without investing in much of anything socially useful. In democracies, this leads the naturally-angry rest of society to impose punitive tax rates that slow economic growth. By being selfish misers, the rich end up taking money away from everyone.

What’s interesting about both sides of this debate is that they assume a public policy problem (“what grows the economy?”) needs to be discussed in terms of the moral character of the rich. This isn’t because economists have a yen for judging people; rather, it’s that when you have the amount of accumulated capital and power that rich do, the way in which one spend one’s money ends up having an extraordinary impact on everyone else in society. Invariably, assessing the desirability of rich people’s consumption choices will take on a moral cast, as what a person chooses to spend their money on says a lot about the person. Especially when they’re rich enough to spend it on anything.

It’s impossible to imagine that this point escapes wealthy people who follow the news. My guess (and I can’t prove this, but statements like Romney’s are certainly suggestive) is that when they hear that the one percent “should pay its fair share,” they hear the public calling the way they choose to live their lives unfair and unjust. No one likes being judged as a bad person, especially by the world’s most powerful politicians and in the pages of the world’s most-read newspapers. The wealthy, then, react negatively to public debates about inequality for the same reason many meat-eaters don’t like debating vegetarianism.

Uncomfortability, of course, isn’t a defense. The power wielded by America’s wealthy means that, like it or not, the rich can’t and shouldn’t be allowed to escape public scrutiny. Moreover, they often bring on themselves: see the pretty nasty things some wealthier folk say about poor and middle class Americans and the lengths to which others go to sing the praises of the “productive class.” But hypocrisy aside, the moral anxiety of the wealthy is both an interesting psychological fact and a neat window into the little, surprising ways in which the personal can’t be detached from the political.

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Five Things You Might Not Know About Inequality

Branko Milanovic’s book is a treasure trove of information and insight about inequality both within nations and across countries and populations. In the spirit of reducing inequalities of knowledge between readers of the book and those who haven’t yet had time to flip through it, here is a list of some of the more interesting findings and conclusions from his research:

1. John Rockefeller was the richest person ever. Comparing incomes across eras (adjusted as best as possible to a common standard that measures wealth and income in relation to historical and global context), John D. Rockefeller is probably the richest person in history because his wealth at its height in 1937 (about $1.4 billion) allowed him to command the most labor of others (about 116,000 people) in the then richest country in the world.  “The people whom he [Rockefeller] could hire would easily fill Pasadena’s Rose Bowl, and even quite a few would have remained outside of the gates.”

This puts Rockefeller’s wealth above that of the rich Roman Marcus Crassus who could command the labor of around 32,000 people; Andrew Carnegie who could command the labor of about 48,000 people; and Bill Gates who could hire about 75,000 people.  Mexican billionaire Carlos Slim is probably the richest person locally, with wealth capable of commanding the labor of around 400,000 people (but the low overall wealth of Mexicans make this less commanding than Rockefeller who was at his height of wealth in a comparatively richer country.)

2. Communism improved income inequality, but created new forms of hierarchy in its place.  Socialist countries like Russia, Hungary and Poland recorded some of the lowest measures of inequality in the post-war era.  How?  Basically by reducing the wealth and income of the then richest people in these respective countries and implementing full employment policies, free education, and other transfers to level incomes among people.  However, these policies took away nearly all incentives to work harder since “individual education, skill, and the like are immaterial” in societies like these.  In turn, economic productivity in communist societies declined and new “status”-based inequalities emerged where well-connected party elites enjoyed riches and leisure and ordinary workers did not.

“The rise and fall of communism may be interpreted in many different ways…First,..[i]t shows that distributions can be altered by different political arrangements.  Second, it shows that economic leveling (combined with political coercion) leads to stagnation and ultimately decline.  Third, it shows that it is important that the elites’ behavior not be overtly out of step with the ideological justification of their rule.  The financial elite on Wall Street may be well advised to ponder the third lesson.”

3. Barack Obama’s family was poorer than you know. President Barack Obama’s paternal grandfather, Hussein Onyango Obama (born in Kenya in 1895), had a household per capita income of 240 shillings per year, making him better off than about 90 percent of the population of Kenya.  Despite this advantage relative to his compatriots, the average per capita income of Asian and European colonizers in Kenya was estimated to be about 3,300 shillings per year and 16,000 shillings per year, respectively.

The “current U.S. president’s grandfather was thus working as a manservant or cook in a household of people whose incomes were sixty-six times greater than his own.  Onyango would have to work for an entire year to make as much as his British employer would make in less than a week.”

4. Poor people really do carry the weight of the world on their shoulders. It takes 77 percent of the world’s population to make up the first 20 percent of global income.  It takes 12 percent of people worldwide to make up the next 20 percent; 5.6 percent the next tranche; 3.6 percent the one after that; and only 1.75 percent (the richest people in the world) to make up the final 20 percent of global income.

5. The global one percent is largely American. Adjusting global incomes based on purchasing power, government transfers, housing costs, etc, there are approximately 60 million people worldwide in the richest top percent of earners.  29 million of these people live in the United States.  “There is nobody from Africa, China, India, or from East Europe or Russia (in statistically significant numbers, of course).”

These are just a few of the fantastic bits of information in The Haves and Have-Nots.  For a truly global perspective on the subject of inequality, there’s no better book to pick up.

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Why Progressives Need To Talk About Economic Mobility If They Want To Fix Inequality

The conservative trickle-down approach to the economy assumes that maximizing rewards for those at the top is the path to both growth and prosperity for the society as a whole.  If inequality rises, that does not matter, runs the conservative argument, because absolute levels of prosperity will rise for everyone even if the top gains more.

The progressive approach to the economy is radically different.  This approach posits, based on a mass of accumulating evidence, that inequality is not a benign byproduct of growth, but rather a toxic barrier to both middle class prosperity and strong growth in general.  In other words, high levels of inequality interfere with the both the quality and quantity of growth experienced by a society.  Hence the idea that an economic agenda  must concentrate on lifting up the middle class to generate both broadly-shared prosperity and fast growth.  The two goals are inextricably linked and one cannot be attained without the other.

Of course, the progressive agenda may be the correct one, but that does not mean it can be easily sold to the public and politicians.  It would require a serious reorientation of national priorities and considerable investments in areas like education and infrastructure–spending that is likely to meet considerable resistance in the current environment.  Therefore, the question of how to frame the agenda in the political marketplace is key.

One obvious approach is to frame the agenda directly as a means of reducing inequality.  Call this the redistributionist approach.  This approach is not without merit.  Start with awareness of and views about economic inequality.

There is no doubt Americans are aware of rising inequality.  In the Pew Research Center’s 2012 American Values survey, respondents were asked if they agreed that today the rich get richer while the poor get poorer. About three-quarters (76 percent) agreed, while just 23 percent disagreed.  And the public believes it’s not just the poor who are losing ground to the rich—it’s the middle class as well. In the same survey three-quarters (76 percent) also say the gap between the standards of living of the middle class and the rich grew over the last decade, compared to just 16 percent who think it narrowed.

No wonder that a poll from October 2011 conducted by Pulse Opinion Research for The Hill found that two in three Americans believe that the middle class is now shrinking. And in a Democracy Corps post-2010 election survey, the public endorsed the idea that America is no longer a country with a rising middle class by 57-36.  Finally, an October, 2007 poll conducted by political scientists Benjamin Page and Lawrence Jacobs for their book, Class War: What Americans Really Think about Economic Inequality, found 81 percent of the public saying that the gap in wealth between wealthy Americans and the middle class has grown over the last 25 years, compared to just 10 percent who said it has remained the same and 8 percent who said it had gotten smaller.

Of course high awareness of inequality does not necessarily mean that Americans disapprove of it.  But further data show that Americans’ high awareness of inequality is indeed matched by high levels of disapproval.  For example, in a Pew poll in December, 2011, 61% said our economy unfairly favors wealthy Americans, while only 36% thought the system was “generally fair.”  And in an ABC News/The Washington Post poll from January of this year, 55% of Americans said that economic unfairness that favors the wealthy is a bigger problem than overregulation by the government that hurts economic growth. Only 35% of respondents believed the latter was the bigger problem.

Moreover, in an October, 2011 nationwide survey conducted by Greenberg Quinlan Rosner Research and the Center for American Progress Action Fund, the public expressed the following views:

81 percent of those surveyed agreed that “Regular people work harder and harder for less and less, while Wall Street CEOs enjoy bigger bonuses than ever,”75 percent agreed that “Our economy works for Wall Street CEOs but not for the middle class. America isn’t supposed to only work for the top 1 percent”72 percent agreed that “right now, 99 percent of Americans only see the rich getting richer and everyone else getting crushed. And they’re right.”

In earlier data from the Page/Jacobs survey, 72 percent agreed that differences in income in America are too large, compared to only 27 percent who disagreed.  And 59 percent disagreed that large differences in income are necessary for America’s prosperity.  In an October 2008 Gallup poll, 58 percent thought money and wealth should be more evenly distributed among a larger percentage of the people, compared to 37 percent who thought it was fairly distributed.

None of these survey findings are idiosyncratic.  Careful academic reviews of public opinion on inequality over time by sociologists Lane Kenworthy and Leslie McCall indicate that Americans have typically been aware of inequality, sensitive to its increase over time and generally disapprove of the levels it has reached on our society.

So, beyond a shadow of a doubt, the public is both aware of rising inequality and disapproves of it.  Naturally enough, given these sentiments, the public would also like to see something done about this problem.  In a November 2011 poll from the Public Religion Research Institute, 60 percent agreed that “our society would be better off if the distribution of wealth was more equal.” And 63 percent believed that “we need to dramatically reduce inequalities between rich and poor, whites and people of color and men and women.”

But it does not follow from all this–awareness, disapproval and the felt need for action–that the public would necessarily be happiest with a direct attack on inequality as implied by the redistributionist frame.  On the contrary, in the February, 2009 Pew economic mobility survey, by an overwhelming 71-21 margin, respondents though it was more important to ensure everyone has a fair chance of improving their economic standing than to reduce inequality in America.

That preference for economic mobility over direct mitigation of inequality is also suggested by results of another question in the same survey.  By 71-27, Americans agreed that greater economic inequality means that it is more difficult for those at the bottom of the ladder to move up the ladder.  That is what Americans object to most vigorously about economic inequality: that it makes economic mobility more difficult.  In other words, for most Americans what we have is not an inequality crisis but a mobility crisis.  This is confirmed by results of a recent series of focus groups on inequality conducted by Greenberg Quinlan Rosner.  Participants tended not to connect their economic difficulties with wealth and income inequality but bemoaned, more than anything else, the rising cost of middle class expenses like housing, transportation, medical care and college relative to lagging wages and salaries.  This middle class squeeze, which prevents them from moving ahead in life, is what primarily concerns them.

The mobility crisis touches something very, very important to Americans.  Americans retain a deep faith in their personal ability to get ahead even in adverse circumstances, provided they have a fair opportunity to do so.  Here are some results from a survey I helped conduct for the Economic Policy Institute in March, 2006.  That poll found that 69% thought they had already attained the American Dream or would attain it in their lifetimes (note: this figure was actually higher–75%–in a CAP poll conducted in February, 2009 after the financial crisis had hit). And while 60% rated themselves between poor and middle class now on a 10 point economic scale (1-5), 59% said they would be between middle class and wealthy (6 to 10) within 10 years. Finally, while 80% described themselves as working class, middle class, or lower class today, 44% believed it was very or somewhat likely that they would become wealthy in the future.

This personal optimism can and does co-exist with negative views about the overall state of the economy.  In the EPI poll, respondents were asked whether economic uncertainty and inequality or success in achieving the American Dream characterizes the economy today.   Here is the choice posed by the question:

Most people today face increasing uncertainty about employment, with stagnant incomes, paying more for health care, taxes, and retirement, while those at the top have booming incomes and lower taxes

OR

Our economy faces ups and downs, but most people can expect to better themselves, see rising incomes, find good jobs and provide economic security for their families. The American dream is very much alive.

By 2:1 (64%-32%), respondents selected the first statement about increasing uncertainty as coming closer to their views. But of that group that said that increasing uncertainty, rather than achieving the American Dream, characterized the economy, an amazing 63% nevertheless thought that they themselves would achieve the Dream.

This personal optimism and aspirational outlook is broadly shared across social groups. For example, 69% of the white working class and 74 % of the white middle class believed they have reached or will reach the American Dream, as did 67% of women, 72% of men, 66% of blacks, and 74% of Hispanics (blacks and Hispanics were less likely than whites to believe they had already attained the Dream, but made up for it by being more likely to believe they will attain it in the future).

This aspirational outlook helps explain a stunning finding from the Page/Jacobs survey.  A whopping 97 percent agreed (including 85 percent who strongly agreed) that everyone in America should have equal opportunities to get ahead.  This is as close to a consensual viewpoint as you find in American public opinion, suggesting the power of a mobility, rather than redistributionist, frame for the progressive economic agenda.

The mobility frame has a strong connection in the public mind to the need for government action. In the 2011 Pew economic mobility survey, an overwhelming 83 percent said they wanted the government to either provide opportunities for the poor and middle class to improve their economic situation or prevent them from falling behind or both.  In the same survey, education, a central part of the progressive economic agenda, loomed especially large as a way the government should  help provide those opportunities.  Ensuring all children get a quality education was rated the highest among options to help people get ahead (88 percent rated it as one of the most important/very important).  And improving the quality of elementary and secondary education and making college more affordable were two of the top four options for preventing downward mobility (84 and 80 percent, respectively, one of the most effective/very effective).

Other options that rated highly in this or the 2009 Pew economic mobility survey included promoting job creation, providing basic needs to the very poor, reducing the costs of health care, helping small businesses and business owners, more job training programs and education for adult workers, making it easier to save for retirement and early childhood learning programs.  All these mobility-promoting steps are central, of course, to the progressive economic agenda.

In conclusion, the mobility frame lends itself to an “aspirational populism” that makes explicit the argument that current levels of inequality are not just unfair but directly interfere with mobility and economic growth.  Not only is there a growing body of economic evidence for the argument but it accords well with the common sense of voters.  And perhaps the common sense of an increasing number of politicians.

As the President himself has remarked (April, 2012 speech in Florida):

In this country, prosperity has never trickled down from the wealthy few. Prosperity has always come from the bottom up, from a strong and growing middle class. That’s how a generation who went to college on the GI Bill — including my grandfather — helped build the most prosperous economy that the world has ever known. That’s why a CEO like Henry Ford made a point to pay his workers enough money so that they could buy the cars that they were building. Because he understood, look, there’s no point in me having all this and then nobody can buy my cars. I’ve got to pay my workers enough so that they buy the cars, and that in turn creates more business and more prosperity for everybody.

That about says it all.

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World Economic Forum: Income Inequality Is A Major Global Risk

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