Debating inequality: a tragic stalemate?

A hiatus can last for far too long. Feeling somewhat ashamed for such a lengthy break, regular posts – some short, some long – are the aim. First, some thoughts on the current conversation on income inequality.

Few topics of discussion leave me as pessimistic as does that of inequality in income. My pessimism is over the chances of consistent and effective policy stemming from the debate. The topic is high on the discursive agenda, especially at the moment. Inequality characterises the capitalist economic system, a fact most famously conceived by Marx in his writings (inequality specifically between the worker and the capital-owner), which inspired his theory of the self-destructive nature of that system. Today, the uncomfortable truth about the unequal distribution of our prosperity has once again been articulated in academic style, this time grounded in empirical data from tax returns over the past century. I am speaking of Thomas Piketty’s Capital in the Twenty-First Century, which has received a huge amount of media attention and is currently a bestselling work in the United States. The French economist’s book has returned inequality to the forefront of the agenda in academic and media discussion. Yet, for all the hype, I do not find myself hopeful for the prospects of seeing a coherent long-run consensus, involving action against this social ill, stem from the debate.

Why is this? Income inequality, as a topic in social science, is a typical example of an issue where empirical, tangible arguments are almost always conflated with an ideological starting-point. By taking an essentially political premiss as a complement to the empirics, one can use economic data to reach a conclusion that fits a specific political bias. And this is what we see all too often in discussion of the economy and its various attributes. Studies like Mr Piketty’s Capital may process a colossal amount of data in between their introduction and conclusion, but eventually, there must come a normative judgement when policy design is at hand. This is evident in his work as he guides us from evidence to essentially socialist conclusions (recommending a highly redistributionist agenda, chiefly involving a global wealth tax and high top rates of progressive income tax). Once facts entail trade-offs, objectives must compete for attention, and recommendations like Mr Piketty’s, as we shall see, are often to the dislike of those who do not share his normative principles. Policy design is therefore largely arbitrarily dictated by the prevailing political mood. In short, your political and ideological bias plays no small role in leading you to your standpoint on such issues.

I appreciate that at this point, it is tempting to deny me my discontent and point to seemingly innumerable examples of dramatic policy change – the 1980’s, featuring Thatcherism and ‘Reaganomics’, jump out – that have shaped the direction and pace of economic transition. Yet here I am concerned with long- and medium-term developments – not just what happens because a new government comes to power. The greatest sadness lies in the fact that differing opinions on inequality and the economy can be so intractable that little or no effective, consistent action is taken. This is surely the case over a significant time period. Indeed, Mr Piketty’s main point is that inequality, notably between the extremely rich and the averagely poor, has remained around the same since one hundred years ago. It saw a decrease after the world wars, which acted as reshuffles of wealth on an enormous scale, but has been on the rise again in recent decades, back to the initial level. This is due to the fact that the rate of return on capital exceeds the growth rate in a capitalist economy, and so if you own capital in the first place, then you become richer and richer compared to those who do not. Such little change implies, to me, that as the topic has swung in and out of the political agenda and democratic governments change their mood and their composition, work improving the equality of the distribution has been done and undone back and forth over time. My aforementioned despondency is due to the idea that any long-run policy direction is confounded by underlying political bias.

An examination of recent standpoints and arguments on the matter tells us this much. It is easy to claim that the work Mr Piketty has produced and our newfound understanding of inequality as ushering in a revolution in the debate, as Paul Krugman, the influential US economist, claimed in his review of the book. Since Mr Krugman is clearly not talking about a change in policy outlook – the book has been of mainly academic or hype-driven interest, as I have said – then we must look for changes in the ideological climate. But Mr Krugman is already a member of the converted; preaching to him is bound to produce such assertions. As a left-wing economist (as they go in the US), his excitement to see a shift towards dramatic work on inequality comes as no surprise.

If we take a look at other viewpoints, the future, particularly regarding policy, begins to look much more miserable. Mervyn King, the former Bank of England Governor, tells us that the ‘serious, thought-provoking book is to be welcomed.’ Mr King then proceeds to disagree with the basic premises Mr Piketty appends to his empirical work in order to reach his social-democratic conclusions, and thus takes issue with the project as a whole, at least in the political realm. The Economist, renowned as a liberal, pro-free market newspaper, published a range of pieces on the work. In this article, they claim that ‘as a guide to action, [Capital] is deeply flawed.’ Despite the fantastic empirical work, which they support, they deny the usefulness of policy suggestions, based on the fact that Mr Piketty ‘asserts rather than explains why tempering wealth concentration should be the priority.’ That people such as those who edit and write for The Economist, a publication of high intellectual credibility, integrity and authority, dismiss alternative conclusions so quickly because of a clash of foundational ideas is indicative of the problem as a whole.

What is at play here? Ideological identity sorts the debate’s participants into groups of allies, fortified against their opponents’ attacks by the ever-so-simple device of basic, logical disagreement. I say logical of course because in far too many debates, the participants are not speaking on the same frequency. They speak cross purposes, starting from different positions, identifying themselves with different fundamental ideas, so that they cannot reach the same conclusion. Therefore, it is not logic that fails such debaters. What fails them is their disagreement at the core of their world-views. It is for this reason that empirical work is so valued in the social sciences, and why political philosophy can only carry us so far.

I find myself strongly swayed by philosophical arguments condemning the presence of income inequality in society. I, like many others, therefore become very animated when economic reality seems to support this inclination. Yet, for the most part, the camps are divided fairly equally between those who want to push the limits of how far economic growth can take us, heedless of the problems that befall society due to far too much wealth and capital under the ownership of far too few fortuitous individuals, and those who insist that this pattern cannot and must not continue. Empirical evidence bounces to and fro between these groups, exchanging blows while essentially moving nowhere. An ideological stalemate on a grand scale characterises the debate. Mr Piketty’s personal argument may suffer from a normative leap. With the help of his formidable quantitative methodology, we at least have a much more narrow framework to ground the normative battle. Yet only empirical work that uncontestably points us towards a consensus, like the dramatic conclusion reached by this project, authored by Andrew Berg, Haris Tsangarides and Jonathan Ostry, can take us beyond the scope of a straightforward political clash between fundamental premises. When, as these authors have shown, less is left to ideology to interpret and indisputable outcomes are found, policy progress is much more likely to be made. That is, Mervyn King will argue against the importance of correcting inequality so long as he can believe that doing so harms growth. When empirical grounds for furthering growth through some redistribution are focused upon, he has less room to manoeuvre. For this reason, we should pay close heed to the kind of work featured in the article linked above, and take conclusions like Mr King’s and Mr Piketty’s with a pinch of ideological salt.

All of the above bears strongly on the upcoming battle for the 2015 general election in the U.K (a discussion of which on this blog will follow in the near future). I would recommend that the party leaders bring some especially strong empirical data to bear during their debates, lest they resign themselves to attempts to sway voters’ heavily engrained, theoretical ideas about politics and economics.

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