Is Inequality a threat to Democracy?

Or does the claim just deflect from the real problems?

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I recently watched a debate between Robert Kuttner and

Tyler Cowen

on Income Inequality. It inspired me to write down some of my thoughts on the subject.

Full disclosure: Tyler Cowen generously dominated $10,000 to pay for the publishing cost of my book series via Emergent Ventures, but that generous act in no way impacts the policy views stated in this Substack. I am my own man.

Below is the debate if you care to watch it. I think the tenure of the debate is well-captured by their answers to the opening question:

A few statements of my beliefs on Equality and Inequality before I get into the details:

• Inequality is not a threat to democracy.
  Every democratic nation that has ever existed has had high levels of inequality (including all of American history). Those who make the claim have obviously decided a priori that inequality is bad, and they are looking for justifications for their moral stance.

• Everything else being equal, I would rather live in a society with equality than one without equality, but I am willing to acknowledge the obvious fact that anything approaching true equality is impossible (with the partial exception of Hunter Gatherer societies, which we are not going back to anytime soon).

• I would also love to live in a society where:

  • We had World Peace

  • Everyone had perfect health

  • We had no violence or crime

  • Everyone was happy and had no mental disorders

  • Every child had a loving father and mother

  • etc, but I see no reason to dwell on the fact that the above do not exist.

• Ever since the invention of agriculture roughly 10,000 years ago, rampant inequality has been the human condition. The only periods with declining inequality have been marked by what the historian Walter Scheidel calls “The Four Horsemen of the Apocalypse:”

  • Total wars, such as World War I and II

  • Revolutionary violence, particularly from Communist regimes

  • Complete collapse of the state, such as the collapse of the Western Roman empire and numerous collapses of Chinese imperial dynasties.

  • Lethal pandemics, such as the Black Death.

    

• For over 200 years, the Left has been trying to create Equality. By their own standards, this Leftist Quest for Equality has been nothing but a miserable failure. One would think that more than 200 years of failure should cause a rational person to question their prior assumptions, but… well…

• So debating whether Equality is good is like debating whether World Peace is good. It is pointless, as we have no means to get there. And World Peace is actually far more achievable than Equality.

• Most important, the Quest for Equality tears everything else down. Genetics, geography, culture, family structure all vary greatly between individuals and societies. In addition, individual make critical Life Choices that heavily influence their income/wealth outcomes. Some people also simply work harder than others. We should focus on increasing the distribution of what works, rather than trying to tear down those who have more of it.
  Everything that creates material progress and life satisfaction is unequally distributed and difficult for governments to grant people. Therefore, the only way to move towards Equality is to tear down everything that creates material progress and life satisfaction. This is for the simple reason that it is much harder to build someone up than it is to tear someone down.

• Having said all the above, I strongly support:

  • Equality of legal rights for adult citizens (which has largely already been attained in wealthy Western societies).

  • A social equality that says we should treat all individuals with respect and courtesy until their behavior proves that we should do otherwise. Governments cannot force this. It is an individual choice. And many of those who are obsessed with Income Equality are also obsessed with their own personal Social Status and moral superiority.

• Therefore, the goal should not be Equality. It should be:

  • Material progress (i.e. long-term economic growth), which I wrote two books about.

  • Upward Mobility, which I wrote one book about.

Reasons for declining inequality 1947 to 1965

More specifically, Robert Kuttner is largely incorrect in his opening remarks about the causes of egalitarian economic growth after World War II. Kuttner makes the standard argument of the Left that “neo-liberal” public policy enacted by the Reagan administration is the central cause of increased inequality. Kittens also views the period from 1947 and 1973 as a period of government policies that reduced inequality.

While I agree that government policy was far more beneficial to the American working class during that time period, Kuttner completely misunderstands the actual policies of the time and the extent to which it was the Democratic party who dismantled them in favor of “progressive” policies.

The actual causes of Upward Mobility 1947-73

Since I already wrote an article about this topic, I will only hit the high points here.

1. Government social spending from 1947 to 1965 was far less than today pretty much no matter how you measure it. Far from cutting social spending, supposedly “neo-liberal” policies dramatically increased social spending after 1980.

2. In particular, means-tested government social programs that target the poor and near-poor were almost non-existent in the United States before 1965. The Great Society completely changed that. Far from cutting means-tested government programs, supposedly “neo-liberal” policies dramatically increased spending after 1980.

3. Since 1973 government regulations have increased dramatically . Far from cutting government regulations, supposedly “neo-liberal” policies dramatically increased regulations after 1980. Are you noticing a trend?

4. Much of the economic growth from 1947 and 1973 was making up for the extremely poor economic growth during the 1930s and very low consumer spending during World War II. The post-war boom was to a large extent “catch up” growth that is extremely unlikely to be repeated.

5. A key part of the economic growth from 1947 and 1973 was little foreign competition. Europe and Japan were devastated by World War II, and took decades to fully recover. This is extremely unlikely to be repeated without massive tariffs, and even with tariffs international trade will likely be higher than in 1960s.

6. A big factor in egalitarian economic growth was the sector and skill level of that growth. Economic growth and jobs growth from 1947 and 1973 was dominated by manufacturing. At that time, relatively unskilled factory workers could earn a good wage. Due to automation, it is difficult to see how this will be duplicated in the future.

7. Very low rates of immigration played a key role in egalitarian economic growth from 1947 and 1973. It was the Democratic party that undid that.

8. Kuttner is correct that unaffordable housing is a key problem for the working class, poor and young, but that is overwhelmingly due to public policies implemented by the Democratic party to fight suburban “sprawl.” That has nothing to do with “neo-liberalism.”

   The New Deal Democrats supported suburbanization, helping to make housing more affordable. Currently, Democrats are opposed to that. That has nothing to do with “neo-liberalism.”

9. Same as above for highway construction and cars.

10. Affordable energy from fossil fuels was another key to benefitting working class standard of living in this period. Democrats are not opposed to that today. That has nothing to do with “neo-liberalism.”

11. Kuttner correctly points out that expensive health care undermines egalitarian goals, but he neglects how much Democrats have caused the problem by constantly subsidizing and mandating health care spending. That has nothing to do with “neo-liberalism.”

12. A big part of the egalitarianism from 1947 and 1973 was:

    1. very high rates of male labor participation

    2. very high rates of marriage

    3. very low pregnancy rates outside marriage due to female sexual abstinence outside marriage

    4. low pay for educated women, so they had a strong incentive for women to get married and stay married. Democrats have no desire to go back to any of those.

Robert Kuttner, was correct about the influence of trade unions, but unless foreign competition is completely eliminated, it is difficult to see how private-sector trade unions will make a come back. No trade unions are largely among government workers.

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In short, the entire “neo-liberal policies caused increased income inequality” is completely incorrect. If government policies implemented by New Deal Democrats between 1947 to 1965 were the key to strong egalitarian growth, then we should aim for have much smaller government spending and regulations.

The reality is that Progressive Democrats have:

• Increased government social spending since 1965 (and still do well into the 21st Century), particularly Social Security, Medicare and Medicaid.

• Increased means-tested social spending for the poor and near-poor, which New Deal Democrats were strongly opposed to.

• Increased federal government regulations.

• Consistently sponsored government policies which increased the cost of energy, housing, health care, food, education for the working class and poor.

And unfortunately Republicans did little to undo those bad policies when they had power.

Kuttner completely ignores how much policy changes that undermine long-term economic growth and upward mobility for the working class and poor were implemented by Democrats. And those Democrats were striving for Equality and Social Justice, or at least they claimed they were.

So why not pivot?

The problem is that the Results of Left-of-Center policies were opposite of the intentions. Given that this has been going on for over 200 years, it is hard to believe that the Left is based on the “good intentions” that they claim. Obviously, something else is going on.

I cannot help but believe that those who are on the Left and talk endlessly about inequality are more concerned about:

• Feeling moral virtuous (while doing nothing but talk)

• Projecting an image of being morally virtuous to other

• How they feel rather than the impact that their ideas have on other people.

Otherwise, why would they refuse to honestly assess the results of their own policies?