A rising tide lifts all yachts.
So says Nicholas Kristof, in a recent NYTimes column discussing the best-selling albeit not-so-well-read book on Inequality by Thomas Piketty. In recognition of the fact that few of those who’ve purchased Piketty’s tome have had the time or background to wade through 685 pages of graphs and charts, Kristof proposes to boil the subject down to five main points( a “Cliff Notes” version which should allow you to sound very erudite the next time you discuss economics at a cocktail party). They include the following four:
- Inequality has significantly increased in the U.S.
- The disparity is mostly not due to the hidden hand of the market, but to its corruption–to game-playing, manipulation, successful lobbying for “special” treatment and the like.
- The rich aren’t necessarily happy, despite their greater wealth, because so many of them are caught up in a never-ending cycle of “can you top this?”
- Progressives need to talk more about restoring genuine opportunity and less about plutocracy.
Hard to argue with any of these, but it is Kristof’s final point that is–at least in my view–the most important: inequality of this magnitude is profoundly socially destabilizing. As Kristof explains:
Some inequality is essential to create incentives, but we seem to have reached the point where inequality actually becomes an impediment to economic growth.
Certainly, the nation grew more quickly in periods when we were more equal, including in the golden decades after World War II when growth was strong and inequality actually diminished. Likewise, a major research paper from the International Monetary Fund in April found that more equitable societies tend to enjoy more rapid economic growth.
Indeed, even Lloyd Blankfein, the chief executive of Goldman Sachs, warns that “too much … has gone to too few” and that inequality in America is now “very destabilizing.”
Inequality causes problems by creating fissures in societies, leaving those at the bottom feeling marginalized or disenfranchised. That has been a classic problem in “banana republic” countries in Latin America, and the United States now has a Gini coefficient (a standard measure of inequality) approaching some traditionally poor and dysfunctional Latin countries.
We are on our way to destroying the most beloved American myth: the belief that with grit and talent, anyone can be successful, can “make it.” That promise, more than any other, has brought immigrants to our shores, given poor parents fortitude because “the kids will be better off than we are,” and encouraged millions of poor and middle-class workers to submerge envy of the “haves” and substitute a belief that with just a bit more effort, they too can join the privileged class.
When that myth explodes, when that promise is no longer plausible, look out. It will get ugly.