Debating Wealth’s Concentration

Most observers would likely rank the UK-based Economist as the world’s most influential business news magazine. Week in and week out, the Economist offers perspectives that shape how corporate movers and shakers see the universe. In other words, the Economist matters.

Does inequality matter, too? The Economist has posed that question — in an online debate designed to dovetail with the magazine’s January 22 cover report on the global mega wealthy.

“What’s the correct way to think about the rise of the global super-rich?” this debate’s intro asks, “Is there any reason to be concerned about recent changes in the income distribution, in America, across rich countries, or globally? Is there reason to believe that inequality contributes to financial or economic instability?”

Analysts have been debating all these questions, of course, for some time now, ever since inequality began skyrocketing three decades ago. Most apologists for our unequal economic order, in the early years of that surge, simply denied that anything unnatural — or untoward — was going on. Many still do.

The new Economist inequality debate, for instance, includes a contribution from Hal Varian, the chief economist at Google. In a global marketplace, Varian argues, grand accumulations of wealth will always be inevitable, since new technologies are forever amplifying talent.

“Ocean voyages, railroads, and the telegraph, along with the businesses they enabled, created vast amounts of wealth,” writes Varian, “so we should expect the same from modern communications technologies.”

But new technologies don’t always create vast personal fortunes. In the 1950s, television swept the United States and recast the daily routine of nearly every American. Yet the TV tsunami left no new vast fortunes behind. The progressive tax structure then in place kept those fortunes from accumulating.

Varian’s boss, outgoing Google CEO Eric Schmidt, has just received a $100 million stock award. On that windfall, he’ll pay taxes at not much more than one-third the rate his CEO predecessors faced a half-century ago. The “globalized marketplace” isn’t making Schmidt fantastically rich. Friendly tax laws are.

Another inequality-matters denier in the new Economist debate, Bentley University’s Scott Sumner, dismisses the study of income maldistribution as “not a very useful way to think about economic inequality.” Income inequality simply reflects, he pronounces, the natural ebb and flow of the modern lives we lead.

“I spent my first eight adult years in the bottom 20 percent of the income distribution,” says the University of Chicago-trained economist. “Now I’m in the top 10 percent, but will drop down sharply when I retire at 62.”

But how do personal income trajectories explain why America’s richest 1 percent today have nearly triple the national income share of our richest 1 percent back 50 years ago? Sumner has nothing to say on that matter. He’s too busy advocating lower taxes on capital, to stimulate the economic growth that will surely, as another Economist debater argues, enrich us all.

“As long as the tide is rising,” writes Michael Heise, an economic adviser for the German financial industry giant Allianz SE, “the emergence of a class of super-rich causes limited social frictions.”

Nothing new here. Rationalizers for the rich have always gravitated toward the rising-tide analogy and its growing-pie cousin. With a growing pie, the argument goes, you can be better off even if your share of the pie is decreasing.

Most Economist corporate readers will no doubt nod in smug satisfaction at the claims that Heise, Sumner, Varian, and their what-us-worry soul mates so self-confidently assert in this new Economist debate.

But what will the Economist‘s readers make of the debate’s contributors who directly challenge these claims, who contend that rising inequality is making it ever easier, as Konstantin Sonin of Moscow’s New Economic School posits, for the rich to rig the economic game in their favor — at the expense of everybody else.

The greater the economic inequality that this rigging manufactures, University of Oregon economist Mark Thoma goes on to explain in his debate contribution, the weaker future economic growth will be — and the fewer the future opportunities, adds MIT’s Daron Acemoglu, for social mobility.

The solution? We need, Thoma urges, to get serious about redistributing wealth — from the top down. We can all expect, Thoma acknowledges, “considerable protest when the wealthy are asked to give up a portion of the growth that has been flowing exclusively to them for so long.”

“We’ll hear every reason you can think of and a few more as to why redistributive polices are bad for jobs and bad for America more generally,” he continues. “But sharing economic gains among all those who had a hand in creating them is the right thing to do.”

Will perspectives like Thoma’s give the Economist‘s corporate readers pause — or just stomach pain? We can only hope for the former. And keep pushing for the greater equality this Economist debate demonstrates we so desperately need.