The Fraudulent Case for the Benefits of Wealth Inequality

Americans, having seen the fruits of their productive lives waste away over the past decade in a free-market fantasia, have evidently resorted to the most efficient psychic adjustment on offer. They steadfastly refuse to believe that we live in conditions of dire wealth inequality—while also persisting in the belief that the comparatively level social order of their fond imagining needs to be more equal still. The sheer scale of this fancy calls to mind the epitaph that William Holden delivers for Gloria Swanson’s character in Billy Wilder’s classic study in Hollywood delusion, Sunset Boulevard: “Life, which can be strangely merciful, had taken pity on Norma Desmond. The dream she had clung to so desperately had enfolded her.”

Of course, Norma Desmond was packed off to the hoosegow, and in all likelihood the sanitarium, once the cameras panned away. Today’s Americans have to continue indulging their socioeconomic delusions amid savage inequalities that make just about every facet of their own lives worse.

But not to worry: Bloomberg reporter Drake Bennett is on hand to break the whole paradox down and reassure us that, even as we kid ourselves about the basic operation of economic reward and punishment, we surely continue to live in the best of all possible worlds.

Bennett first sums up the research of psychologists Michael I. Norton of Harvard Business School and Dan Ariely of Duke University, who’d polled a research sample of respondents on both the existing and ideal levels of wealth inequality in these United States with the sobering finding that “Americans think they live in a far more equal country than they in fact do.” Ariely and Bennett discovered that most of their respondents believed Americans in the top quintile of our wealth hierarchy controlled 59 percent of the nation’s wealth; the actual figure is around 84 percent. These same Pollyannas believed that the bottom 20 percent of Americans held 3.7 percent of the country’s wealth, while the actual figure is 0.1 percent.

Now, if these same respondents were handicapping horse races or Oscar pools, they would be considered abject failures, blowing the tremendously significant top-quintile figures by a bit less than a third, and the lower figure by a factor of, oh, 37. Their perfect-world scenario for inequality would transform the United States into a society “like Sweden, only more so,” Bennett notes, with the top 20 percent owning 32 percent of the wealth, and the bottom 20 percent tripling their already imaginary stake up to 10 percent.

So, screw the Tea Party—everyone meet on Wall Street for the paralyzing French-style general strike and ensuing social revolution! Well, not so fast, Bennett cautions: The American public, even as it dulls its jobless ennui with fantasies of a robust welfare state, also has a curious tolerance for enormous levels of political cognitive dissonance:

Studies have also shown that voters have an impressive ability to absorb information that contradicts their beliefs without letting it change their minds. People support the abstract goal of equality, it seems, while staunchly opposing specific government measures—whether increasing tax rates or limiting executive pay—designed to impose it.

In other words, the lodestar Reaganite faith of government-shredding, tax-squelching economic policy continues to tantalize the U.S. public in roughly the same fashion that the dogma of the divine right of kings kept generations of Old World peasants from revolting—even though Ronald Reagan himself continued both to hike government spending and raise taxes. (Also, it turns out that whole Excalibur thing was pretty much a put-on, as well.)

And that, Bennett explains, is the unique genius of our terminal cluelessness about one of the most important issues of our age: Believing that we inhabit a more just social order—and militantly not caring should we encounter the all-too abundant evidence to the contrary—is what keeps us from raising a dread populist hew and cry about what is a non-issue anyway. In fact, Brother Bennett preaches in the fashion of hordes of free-market propagandists everywhere, wealth inequality is a good thing: It bespeaks the robust dynamism of an innovative economy, where the quest for marginal competitive advantage greases the skids for everyone else. After all, Bennett explains, the comparatively flatter distribution of American wealth in the Eisenhower years came about in large part because “the wealthiest earners paid far more in taxes,” with the top marginal rate for incomes over $400,000 topping out at 90 percent. So all together now, in the requisite scowling, world-weary mien of a journalist employed by one of the richest men on Earth: “Any attempt to reimpose that sort of tax rate today would lead to a flight of wealth and talent from the U.S. And with apologies to the social scientists, other ideas for dramatically reducing the income gap are in short supply.”

Hmm, where have we heard that “talent flight” mantra before? That’s right—from the defenders of the outlandish executive bonuses doled out under the misbegotten early days of the TARP bailouts. It would indeed be a shame to have to send the Fabrice Tourres of the world packing for greener pastures. And with apologies to Bloomberg savants, there are plenty of ideas for reducing our objectively perilous levels of wealth inequality, from single-payer health care to nationalized universities to unionized workplaces. Most industrialized western democracies have all these things, and as a result, the pain of massive economic contractions like the one we’ve been enduring is actually less lethal in exotic far-off lands like Canada and France.

But of course, that’s just part of the free-market scaremongering kit when it comes to wealth inequality—just think of all the innovation senselessly sacrificed in a more equal social order! Most economists, Bennett contends, would concede that “the degree of wealth equality that the study’s respondents identified as ideal would be disastrous, because it would seriously retard growth—sapping incentives to work and innovate, perhaps even requiring coercive measures mandating that the poor save rather than spend their money on necessary consumption.” Right—that’s clearly why Sweden, which by Bennett’s own account is the poster society for gray egalitarian social engineering, ranked third in the 2008 global innovation index, and has powered all manner of successful global technological breakthroughs, from IKEA to Skype.

But surely there must be a professor at a right-wing economics department who can give these rather desperate gyrations on behalf of unsupportable inequality the ring of truth. Well, is Mr. Bennett ever glad you asked! Meet George Mason University’s Bryan D. Caplan, who duly delivers his free-market shibboleth: “It’s probably a good thing that the public underestimates how much wealth inequality there is,” Caplan says with a patronizing air rather unbecoming of a doctrinaire libertarian. After all, he explains, “they tend not to understand the ways that wealth inequality is good.” And how does Caplan possess the magisterial authority to proclaim a crushing paucity of material justice “good”? Well, we’re not sure, exactly—though his homepage autobiography helpfully explains that “It began with Ayn Rand, as it proverbially does.” He does go on to explain that he later came to regard his youthful infatuation with Objectivism and hardline Austrian economic theory as “mistakes.” Still, his selfsame homepage offers a “libertarian purity test” as well as an opportunity to “test your knowledge of the Communist holocausts,” just in case you fear your Pol Pot trivia mastery may be atrophying. There’s also a .pdf of his graphic novel, Amore Infernale, which is frankly pretty amateurish in its production values.

So there you have it: the great inequality debate waved away with the assurances of a sloganeering libertarian. So much for the abundant evidence that high levels of inequality help to precipitate, and certainly to prolong, depressions. So much as well for the striking range of positive social goods associated with more equal societies, from higher life expectancy to diminished crime rates to greater literacy rates and lower infant mortality. As if the United States needed any more reminding of its generally poor performance on such quality-of-life indices, the World Justice Project just released a study showing that we rank dead last among 11 developed nations on the crucial question of democratic access to the justice system—a figure that, among other things, neatly sums up the logic behind the squalid clusterfuck known euphemistically as “the foreclosure mess.” Nope: A business reporter found a libertarian ideologue to tell us that everything’s just fine—so, end of story. Now, if you’ll excuse me, I’m off to spend the rest of the afternoon pretending that I live in Sweden.


Chris Lehmann‘s book, Rich People Things, is available now! Like you could download it into your digital e-thingie reader right this second or even get it printed on ye old-fashioned paper.

Photo from Flickr by Frank Vest.