Bloomsbury Press, 2012, 272 pp., $25
Penguin Press, 2012, 336 pp., $27.95
W.W. Norton and Company, 2012, 448 pp., $27.95
Basic Books, 2012, 336 pp., $27.99
Princeton University Press, 2012, 348 pp., $35
Princeton University Press, 2012, 728 pp., $35
For many observers, the recent scramble in Washington to avoid the so-called fiscal cliff and the attendant perils of sequestration exemplifies the contemporary state of American politics. Republican speaker John Boehner’s “plan B” proposal was scuttled by stiff opposition in his conference over its provisions to raise tax rates on the incomes of millionaires. Later, when Vice President Biden and Senate Majority Leader Mitch McConnell brokered a compromise, they limited income tax rate increases to individuals making in excess of $400,000 per year (or $450,000 for couples). This was a level that far exceeded President Obama’s campaign promise of higher tax rates for those making more than $250,000 per year. Several reports have suggested that the Administration made this concession not simply to secure Republican support; many Democratic legislators also wanted to lessen the impact of new taxes on their high-income constituents and so were more than happy to see the threshold increased. At the same time, the largest single source of tax relief to lower-income workers, a 2 percent reduction in payroll taxes dating from 2009, was allowed to quietly expire.
From the perspective of all of the authors whose works are reviewed here, whether journalists or social scientists, this heightened political sensitivity to the interests of the upper echelons of the income distribution is the new normal in American politics. The common theme throughout these six works is that over the course of the past thirty years or so, the United States has transitioned from a well-functioning middle-class democracy into something quite different. Income and wealth have become ever more concentrated at the top while average wages and opportunities for upward mobility have stagnated or even fallen. In turn, these economic changes have further shifted political power from the average citizen to the wealthy. An American plutocracy has emerged.
The best place for a general reader to get acquainted with these discussions about the causes and consequences of rising income inequality is Timothy Noah’s The Great Divergence. Noah, a senior editor at the New Republic, gives a lucid account of the often dry and technical economic debates about the growing levels of income inequality and falling rates of economic mobility. He provides a very accessible discussion about the ways that technological change and globalization have led to incomes rising faster at the top of the income distribution than at the bottom. But Noah is skeptical that economic explanations alone can fully account for the massive rise in inequality—especially the extent to which incomes have become concentrated at the very top of the spectrum. While the most prominent economic arguments center on the effects of technological shifts that favor those with education and skills, Noah points out the limits of such explanations. Over the past several years, inequality among workers at various skill levels has exploded relative to wage gaps between the skilled and unskilled. Moreover, theories rooted in technological change struggle to explain why inequality has grown significantly more in the United States than in other industrialized economies that have gone through similar shifts. Noah also reviews evidence for other factors, like changes in family structure, immigration and international trade, arguing that they too can only go so far to explain growing inequality.
So Noah then shifts the focus to politics and public policy. He begins by noting the obvious: All of the supposedly economic causes of inequality are aided, abetted and accentuated by public policies. If skills deficits are to blame, the U.S. government, whether at the Federal or state levels, has done little to invest in educational opportunities to correct them. If globalization is to blame, one must acknowledge that policymakers have been much more laissez faire with respect to the immigration of low-skilled workers and the offshoring of medium-skilled labor than with respect to higher-skilled workers. And much less has been done to redistribute resources through the tax system as tax rates have been lowered and made less progressive over the past several decades. Noah also blames the deregulation of the financial sector and changes in corporate governance for the massive income growth at the very top.
But despite his insistence that politics matters, Noah has little new or interesting to say about how or why it matters. He targets the usual suspects: the different ideological priorities of the Democratic and Republican parties, the expanding costs of political campaigns and the role of big donors, and the declining ability of labor unions to mobilize the working class. While his discussion draws on important work by political scientists like Larry Bartels, Jacob Hacker and Paul Pierson, and by the economic historian Peter Temin, his discussion makes all too apparent just how little we really know about the precise political causes of inequality. And his discussion of how economic inequality has fed back into the political process is unfortunately even thinner.
A second valuable entry into the political dimensions of increasing inequality is journalist Chrystia Freeland’s Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else. As her title reveals, she is far more focused on the mass of wealth concentrated at the top than is Noah, who divides his discussion between the emergence of the “stinking rich” and changes in other parts of the income distribution. Despite the provocative subtitle, Freeland manages to be evenhanded about the economic contributions of the super-wealthy even as she raises concerns about the negative political and social implications of concentrated wealth. Freeland’s effort is far less data-driven and wonky than Noah’s. Her book is primarily ethnographic, based on her observations of plutocrats both from the vantage point of a business journalist and a frequent panelist on the Davos circuit. This perspective allows her to put questions of plutocracy into a more global context—and to reveal that globe as seen through the often self-serving worldview of the economic elite.
Not surprisingly, Freeland’s approach is most compelling when it comes to examining the politics of the top one-hundredth of 1 percent. She argues that the super-rich have developed a distinctive ideology, about both how the economic pie should be divided and the ineffectiveness and inappropriateness of government attempts to re-slice it. The core of this ideology is the idea that markets provide “just rewards.”
But the ideology of the global super-rich goes much further than simple, principled libertarianism. It is not just pro-market, but pro-business and pro-rich. This faith in the fairness of market rewards is necessary to eliminate the cognitive dissonance associated with the plutocrats’ enormous efforts at what economists call “rent seeking”: socially unproductive efforts to increase one’s wealth at the expense of others. Freeland offers a telling quote from an interview with the billionaire Foster Friess:
If you look at what Steve Jobs has done for us, what Bill Gates has done for society, the government ought to pay them. Why do they collect money from Gates and Jobs for what they have contributed? It’s ridiculous.
Never mind that, through a myriad of subsidies, tax preferences and beneficial regulations, the U.S. government has paid America’s billionaires quite a lot already.
Some of the super-rich go so far as to argue not only that wealth should be concentrated in the top hundredth of a percent but that political power should be as well. Hedge fund billionaire Ken Griffin told the Chicago Tribune that the ultra-wealthy “actually have an insufficient influence” on politics. Even the more empathetic billionaires throw up their hands at the idea that globalization would allow for greater checks against the concentration of income and wealth. While prominent billionaires such as Bill Gates and Warren Buffett have occasionally deviated from this orthodoxy, Freeland provides ample evidence that it is alive and well among the super-rich.
conomists themselves have begun to recognize that purely economic factors cannot fully explain the increasing disparities in America’s income and wealth and have turned to more political explanations. While the likes of Paul Krugman and Simon Johnson have been making these broader-than-economics arguments for years, they have lately been joined by two economists who span the ideological spectrum: Joseph Stiglitz and Luigi Zingales. Although Stiglitz and Zingales present starkly different views of the role of economics and markets in producing inequality, they share similar ideas about the role of politics.
In The Price of Inequality, Stiglitz, a Nobel Prize-winning economist, argues that the increase in economic inequality is rooted in a series of market failures that have distorted the allocation of economic rewards. He primarily blames an increased market concentration in several industries that has resulted in near-monopoly power, as well as failures in corporate governance that have allowed corporate officers to capture a larger share of firms’ profits. These developments, argues Stiglitz, have broken the link between the social contribution of economic actors and their compensation. Standard economics textbooks, especially including Stiglitz’s own, generally call for government to intervene in order to realign private and social returns. But, of course, this is where politics comes in.
Those who benefit from market failures use the political clout generated by their economic power to protect their windfalls from the government. Moreover, the winners try to expand their windfall by using the power of government to make markets even less competitive and more prone to offer outsized returns to the powerful. In A Capitalism for the People, Zingales, an economist at University of Chicago’s Booth School of Business, starts at a very different place in terms of the economics. He believes markets and competition work well for society despite the fact that some degree of inequality is inevitable and even desirable, because talents, abilities and productivities are not equally distributed. But Zingales laments the extent to which corporations and the wealthy use their clout and resources to lobby the government to stifle competition and interfere with the market in ways that enrich and entrench. But unlike plutocracy’s critics on the Left, who are generally concerned with fairness, Zingales is mainly afraid that concentrated wealth will undermine the social trust on which the market depends. The resulting appearance of unfairness will sow the seeds of anti-market populism. Ultimately, Zingales wants the political Right to take inequality and declining opportunity as seriously as the Left. To paraphrase the title of his previous book, capitalism needs to be saved from capitalists.
Rent-seeking arguments of the sort proffered by Stiglitz and Zingales must ultimately confront the issue of how such behavior is tolerated in a democracy, where votes should measure more than dollars. While Zingales does not address this problem directly, Stiglitz offers two lines of argument. The first relates to changes in the quality of democratic practice, and the second to the role of elites in manufacturing a “false consciousness” among the 99 percent.
For the first, Stiglitz argues that American democracy suffers from four “disses”: distrust, disillusion, disenfranchisement and disempowerment. The causal dynamic works something like this: First, upon observing the rich getting richer, ordinary citizens lose trust in government and other social institutions, undermining social capital and civic participation. Then disillusionment with unfair economic outcomes further undermines citizen engagement. Voters now require greater mobilization and inducements to get to the polls, but since mobilization costs money, political power shifts to the wealthy. The wealthy in turn use their resources to disenfranchise the poor through gerrymandering and artificially stringent voter identification laws. The combination of big-money elections and the disenfranchised poor disempowers the 99 percent.
Unfortunately, Stiglitz does little to ground these provocative claims in empirical evidence about voter participation, attitudes or opinions. Moreover, his claims about the pernicious effects of gerrymandering and voter identification laws are certainly overblown.
Stiglitz’s second line of argument centers on the ability of corporations and the wealthy to sell the idea that free markets, low taxes and inequality are good for America. Much of this argument draws heavily on recent innovations in psychology and behavioral economics regarding things like framing effects (influences on decision-making generated by the way alternatives are presented) and confirmation biases (the idea that people find information that is consistent with their existing beliefs most persuasive). But here, too, Stiglitz does little to engage the large literature on the psychology of political decision-making and media effects.
nto the economists’ blindspots about politics and inequality step the political scientists. In Affluence and Influence, my Princeton politics department colleague Martin Gilens makes an important empirical contribution to the discussions about the effects of inequality on policymaking in the United States. His aim is to measure the extent to which American policymakers are responsive to the views of citizens at different levels of income. To address this question, Gilens has collected information from more than 1,900 national polls from 1981 to 2002 that asked voters whether or not they support or oppose some policy change. For some analyses he used additional data from the Johnson Administration and two years of the second George W. Bush Administration (2005–06). In each of the polls used in his study, voters were also asked about their family income, allowing Gilens to calculate the likelihood that a policy changed (within a four-year window) as a function of the level of polling support for the change from different income groups.
Many of Gilens’s findings are consistent with the conventional wisdom about political representation in the United States. New policies tend to move in directions favored by most voters. Yet the status quo bias of our system means that policy typically does not change unless there is a very high level of voter support. For example, when 80 percent of voters favor a policy change, there is only about a 40 percent chance that the change will occur within four years of the poll. When Gilens examines policy responsiveness to voters in different income groups, he finds only a modest difference between the effect of public opinions for low- and high-income voters. If 80 percent of the voters at the ninetieth percentile of incomes favor a change, it will occur within four years of the survey 45 percent of the time. If 80 percent of poorer voters (in the tenth percentile) favor it, it will pass at an only slightly lower rate of 41 percent.
But Gilens argues that this apparent triumph of democratic equality is illusory. The apparent finding of equality is due to the fact that rich and poor voters often have similar preferences on many policy questions. This is possibly consistent with Stiglitz’s argument that the wealthy have manipulated public opinion. What is relevant, Gilens argues, is what happens when the rich and poor disagree. Here his findings are disquieting. When the rich and poor (ninetieth and tenth percentile incomes) disagree by more than ten percentage points on a poll, the odds show a marked lack of responsiveness to the views of the poorer voters. Conversely, if 80 percent of high-income voters support a change, it has a 50 percent chance of passing, compared to only a 32 percent chance of passing with 80 percent support from the poor. Middle-income voters fare no better when pitted against high-income opposition: When the ninetieth percentile voters disagree with the fiftieth percentile voters, Gilens’s finding are the same: Policymaking is responsive to the higher-income group, but not the middle-income group.
Gilens’s findings, however, do not always corroborate the claim that increasing levels of inequality have damaged American democracy. When he considers trends in responsiveness to different income groups, his findings are surprising. He does not find that the political system was more responsive to middle- and low-income voices before the era of increasing inequality. Rather, his data show that Johnson’s Great Society was not very responsive to voters anywhere in the income spectrum; much of the Great Society legislation passed despite its lack of public support. To the extent that one cares about democratic responsiveness, the early George W. Bush days are, perhaps surprisingly to some, halcyon. Many pieces of legislation popular across income groups passed, while unpopular stuff was stymied by polarization and gridlock. While Gilens does find a trend toward greater responsiveness to high-income views, there are parallel if somewhat weaker trends in responsiveness to lower-income voters.
Gilens considers a number of potential explanations for these findings, such as whether wealthier voters have stronger, more informed and homogeneous preferences than lower-income voters. He finds that none of these factors can account for his results. Moreover, he finds that exaggerated responsiveness to higher-income voters occurs across all policy domains. The bias is not limited to economic issues. Much of it comes from the victory of culturally and socially liberal measures much more likely to be supported by high-income voters.
Gilens also asks whether the bias toward high-income voters is caused by the fact that their interests are more likely to be reflected in the lobbying activities of organized interests. But the bias toward high-income voters persists even when he controls for the alignment of powerful interest groups on each policy issue. Unable to find any smoking gun among these potential causes, he concludes with a discussion of the research on the role of money in politics. But his review of this literature reveals how difficult it has been for social scientists to establish a direct link between changes in our system of campaign finance and the income biases in representation.
As worrisome as Gilens’s findings are, his study probably underestimates the tilt toward higher-income interests. The policies likely to be included in polls tend to be those that are salient enough to attract ample media coverage. But most of what the Federal government does is never subject to opinion polling or media coverage. This is especially true of regulatory decisions, where evidence points to an increasing dominance of business interests over groups representing the broader public. Moreover, studies such as Gilens’s struggle with the effects of the second and third “faces of power”, which is to say that it is difficult to discern how often policy initiatives opposed by the wealthy fail to make it far enough on the agenda to be polled. It is equally hard to know the extent to which lower-income voters have internalized the views of higher-income groups at the expense of their own true interests.
In a second valuable contribution, political scientists Kay Schlozman, Sidney Verba and Henry Brady have updated and extended their classic work on political participation and civic engagement in the United States. In The Unheavenly Chorus, the authors take direct aim at how economic inequality contributes to inequality in citizen involvement in politics. Over the course of 600 pages, they assiduously document that politics in America is a sport played mostly by members of the upper and upper-middle classes.
The authors’ main focus is on gaps in participation and engagement across groups with different “socio-economic status” (SES). Their measure of SES combines both income and education. This methodological decision helps the authors draw comparisons with their earlier work, but it unfortunately obscures comparisons with other work focused on income, such as Gilens’s. Their measure is also not entirely appropriate for contemporary discussions of inequality, since increases in income inequalities among groups with a given educational attainment have grown tremendously. Nevertheless, their findings are striking. Compared to voters in the lowest socio-economic quintile, the top quintile votes more often, discusses politics more, works on a campaign more often, contacts more office-holders, and makes more campaign contributions. These gaps range from about thirty percentage points for contacting public officials or making campaign contributions to about ten percentage points for working on a campaign. The only activity in which low socio-economic status citizens are more active than high socio-economic status citizens is protest. But in contemporary America, neither group engages in a whole lot of that (so far).
But as was the case with the Gilens analysis, these authors’ data do not tell a story that clearly matches the trends in economic inequality with trends in political behavior. Growing economic inequality has dramatically increased the material advantages of the top group relative to the bottom and has been associated with the institutional decline of lower- and middle-class mobilization platforms such as labor unions. But the authors of The Unheavenly Chorus argue that the gaps in political participation between groups have not grown over the past thirty years. In the 1960s, the gap between high and low groups for the percentage engaging in at least one political act other than voting was about 35 points. It rose to 45 in 1990, but settled back to 35 by 2008. As a summary of inequality in political activities, the authors often use a ratio of participation rates of the top group to the participation rates for the bottom group. Higher scores indicate more inequality. The specific trends are telling. For voting, the ratio declined from 1.84 in 1952 (high socio-economic status citizens were 84 percent more likely to vote) to 1.36 in 1964 before climbing to over 2.0 in 1984. But this measure has been declining ever since, and was at only 1.54 in 2008. Other trends are similar. The ratio for a broad composite measure of political activity has been generally declining since the early 1980s. So any simple story of how a demobilization of the middle and lower classes might have created inequality—or an equally simple story of how inequality rather caused such a demobilization—is not consistent with their evidence.
As it happens, the findings for one political activity constitute an important exception to these trends: financial donations to campaigns. The gap in campaign contribution behavior across socio-economic statuses is currently somewhat higher by historical standards, and the gap is magnified further if one looks at the top 10 percent of the scale. Yet even this trend does not pack the punch of the well-known displays of increasing economic inequality.
Taken together, the findings of Gilens and the authors of The Unheavenly Chorus do not suggest that the large increases in economic inequality have created more political inequality. Rather, it appears that the causality might run in the opposite direction. Persistent political inequalities permitted the increased concentration of income and wealth by impeding government responses to it. From the perspective of democratic theory, as well as the common-sense standards of the American ethos, this conclusion is, of course, much more disturbing.
he “What We Can Do About It” part of Noah’s subtitle has become something of a cliché in the literature on economic and political inequality. As such, all of the authors reviewed here feel compelled to offer advice for reform. Many proffer suggestions for how new and different economic policies could restrain the concentration of wealth and redistribute more of society’s resources to lower- and middle-income groups. But, of course, one needs a well-functioning and responsible democratic political system to create and implement these policies. In a plutocracy, all these suggestions are non-starters.
So it would seem, then, that political reforms must precede economic ones. But the contemporary political reform agenda is choked with second-order issues, such as reforms to primary systems and gerrymandering, that would have only modest effects at best. Even the biggest conceivable reform of our campaign finance system, the full public funding of elections, might not change much. After all, the money spent on campaigns is just a small fraction of what economic interests spend on direct lobbying and government relations. The playing field would still be very uneven.
Ultimately, change will require a sustained and explicit mobilization around the issues of plutocracy and crony capitalism. But such an effort in turn will require enormous economic resources. Where will they come from? Perhaps Freeland provides the answer. While much attention has been showered on Occupy Wall Street’s attempt to politicize the gap between the 99 percent and the 1 percent, Freeland argues that it may well be the conflicts between the top thousandth of a percent and the rest of the 1 percent that ultimately create the political momentum for change:
In a democratic age, the super-elite can survive if every millionaire is convinced that he has a billionaire’s baton in his knapsack. If that conviction ever breaks down, the battle of millionaires versus billionaires could move from Cairo and Kiev to London and New York.
Throughout American history, major reforms have often originated with the near-plutocrats rather than the masses: Think Teddy Roosevelt against the “trusts.” This time around may be no different.