Ross Douthat is a columnist at the New York Times and was formerly a senior editor at the Atlantic. He is the author of multiple books, including Grand New Party and Privilege: Harvard and the Education of the Ruling Class.
TKO: Is economic inequality a problem? If so, why?
RD: Only insofar as it’s a symptom of other, deeper problems. By this I mean that it’s a problem when the rich get richer if it’s clearly happening at the expense of everyone else – if the poor are being immiserated, or if the middle class is stuck in place. But if everyone’s incomes are rising and social mobility is impressive, then if the rich are getting richer at a faster pace, the problem of inequality seems considerably less urgent.
For example: The income gap between the richest 1 percent of Americans and the rest of the country rose faster in the late 1990s than it did in the late 1980s. But nobody in their right mind would prefer the economy of the late 1980s to the economy of the late 1990s: The former featured a slide into recession; the latter featured robust wage growth across the board and historically low unemployment rates. If income inequality were the crucial issue, we’d look back on 1998 as a dreadful year, and 1991 as a great one. But wages and widely-shared growth are actually the most important issues, so we remember 1998 as a lost golden age, its rising inequality notwithstanding.
And that points to our current challenge: The key economic problem in the last decade of American life was that Clinton-era wage growth petered out for the middle and working classes, not that the 1 percent saw their income rise still more. The two issues may be intertwined in some ways, but it’s still important to be clear about the goal we’re seeking: The highest possible rate of middle class wage growth and the most opportunity overall, not just the lowest possible rate of income growth for the richest 1 percent.
TKO: To what extent can/should the government be involved in reducing economic inequality?
RD: It’s pretty clear that the government can reduce inequality, at least under certain circumstances: A number of Western European countries have similar pre-tax inequality rates to ours, but lower after-tax inequality, which suggests that taxes and transfers are narrowing the gap between the wealthy and everyone else.
And for whether it should – I would say yes, but again, not as an end unto itself. There are costs to the weight of Europe’s taxes and scale of Europe’s transfer programs, which is part why the United States is wealthier than most of the social democracies, and part of why (along with lousy monetary policy) many of Europe’s weaker economies are in a slow-growth/high-deficit trap at the moment.
So you want to be conscious of the trade-offs, and to redistribute in ways that target the actual goals you’re after – which are security, opportunity and upward mobility, and not just some ideal Gini coefficient.
TKO: What is the relationship, if any, between economic inequality and intergenerational mobility?
RD: That’s a highly-contested issue. The economist Alan Krueger, then with the Obama White House, got a lot of attention in 2012 with what he called “the Great Gatsby curve,” which showed a strong correlation between high economic inequality and weak intergenerational mobility across the developed world. But that correlation has been criticized by a number of scholars (I recommend seeking out the critique from the Manhattan Institute’s Scott Winship, in particular). And when a group of American economists did an exhaustive study of mobility in the United States in recent years, they found two things that don’t fit the inequality-equals immobility narrative: First, while intergenerational mobility isn’t nearly as strong as Americans like to think, it doesn’t seem to have grown weaker as economic inequality has increased. And second, across different regions of the United States, there’s at best a very weak correlation between mobility and equality (lots of highly unequal areas – New York City, for instance – are good places to get ahead), and other factors – like family stability, school quality, and social capital – seem to play a much larger role in social mobility.
Which takes us back, again, to the idea that government policy should be focused on the building blocks of opportunity, rather than on inequality per se.
TKO: What is the relationship, if any, between the size of government and economic inequality?
RD: Well, as I said above, there’s clearly a way in which a larger government can reduce after-tax inequality, as we see in Western Europe – tax the rich heavily, ramp up public spending, and your income distribution will usually end up more compressed.
But, again, just because you can do this doesn’t mean you always should: You still have to think about what you’re getting for the money. For instance: Spending on education in the United States has risen steadily without delivering better school performance, and we spend more on health care than most developed countries without getting obviously better results. So is it worth it to just keep raising spending on thos fronts, despite the lack of results, just because doing so technically makes America more equal – if all you’re really doing is taking money from super-rich investment bankers and redistributing it to upper-middle class bureaucrats and hospital administrators and doctors? I’m not so sure.
Especially since the larger the government, the more opportunities for cronyism, regulatory capture, interest-group featherbedding, and the like – all of which, again, may sometimes benefit the richest 10 percent at the expense of the richest 1 percent, but which hardly get us closer to a society of equal opportunity, and in some respects take us in the opposite direction.
Just because larger governments tend to compress the income distribution, in other words, you can’t assume that any given government expansion will have that effect – and if it does, it still may not deliver the kind of society we actually should want.
TKO: In the March 17th edition of “Your Questions, My Answers,” you gave a very compelling answer when asked why you chose to live in Washington D.C. You wrote about feeling “extremely mixed” about the Capitol and that “since I tend to think the socioeconomic forces that have made the capital a natural destination for the young and talented are some of the same forces driving the polarization of American society, furthering the hollowing-out of the American middle class, and encouraging the deep parochialism of the American elite – well, it would seem at least intellectually-appropriate for us to consider eventually living someplace else.” Do you think that the same criticism could be launched against elite American universities?
RD: Oh, absolutely – but as a graduate of an elite university, I’m as much a part of that problematic system as I am a part of the problematic culture of Washington D.C.! I don’t think there’s any question that American society would be better off if talent (broadly defined) were less concentrated – in specific schools, and then in specific cities – than it’s become over the last two generation. In this sense, the post-1960s meritocracy hasn’t really created true equality of opportunity so much a new, somewhat-more-flexible caste system – one that effectively skims the best and brightest out of a lot of local communities and leaves them worse off, in terms of leadership and social capital and the like, than they would have been fifty years ago. But it’s a hard pattern to break, because you can’t exactly force people to leave the Acela Corridor for the Midwest, and the incentives driving elite self-segregation are strong enough that even self-hating elites like myself find themselves deeply enmeshed in the system, with no immediate prospects of escape.