Of all the economic problems of the Western world in our day and age, the rise of inequality is undoubtedly the most pressing one to solve. Even if one chooses to ignore the dimensions of social justice and fairness that inevitably accompany the debate (and which are not the focus of this piece), there are plenty of concrete, measurable reasons why more egalitarian societies are better off. Egalitarian societies tend to be happier, healthier (both physically and mentally), better educated, and more cohesive. They often work less and produce more. The fact that many of them consistently beat out some of the more unequal societies in areas such as competitiveness and productivity trump the argument that inequality is inevitably needed for economic progress. Boris Johnson, the clown-haired Conservative major of London, summarized this perverse view best when he claimed a few months back that inequality was essential to fostering “the spirit of envy” and that greed was “a valuable spur to economic activity”. Clearly he wasn’t speaking to a German or a South Korean crowd.
Unfortunately, despite the near consensus on addressing the issue of inequality by anyone other than full blooded Reagan/Thatcherites, Chicago School economists or libertarians, there is nothing even remotely approximating a set of universally shared public policy recommendations to achieve this. Occasionally, hardcore leftist proposals come to the fore on the op-ed pages of major newspapers but these are often hard to take seriously. And even the more sensible of the lot are brought down by the inevitable broadside from an indignant Right, which immediately lambasts them for not having market logic, or for villainizing the rich, or for any other excuse that comes to mind. Just a wee bit of extra regulation here and there at the margins, coupled with a dash of redistribution (but not too much!) and markets will take care of things in the long run (Lawrence Summers, one of the intellectual architects of deregulation, dixit).
Oh, if only things were so simple. Continue reading