I ended this post from yesterday worried that the “what-me-worry” crowd re the impact of inequality on opportunity and political power are wearing dangerous blinders. Today I stumble on this little transcript from Daron Acemoglu tersely amplifying these concerns (from the Center on American Progress series on these issues).
Acemoglu is the co-author of “Why Nations Fail,” which fully develops these ideas. It’s on my nightstand, up next after Ed Luce’s “Time To Start Thinking,” an excellent and cautionary read re US political economics (I plan to post a review when I’m done; it actually partners well with Acemoglu et al, I think).
Daron Acemoglu on How Inequality Weakens Nations
Q: Why do nations fail?
A: Nations prosper when they have economic institutions that create incentives for investment and innovation, and that create a level playing field so that the talents of its population can be broadly deployed. But these sorts of institutions, which we call “inclusive” institutions, are the exception throughout history. Instead, most societies are under “extractive” economic institutions where they have been designed by a small group, the “elite,” to extract resources from the rest of society. Those extractive institutions suck the energy out of the system. They don’t create incentives. They don’t create a level playing field. And they don’t generally lead to sustained economic growth.
Q: What makes you concerned about the future of the United States?
A: The United States, to be sure, is still an inclusive society. Not only do we have institutions that are generally open. But also those institutions have created great innovation over the last century, particularly the last few decades.
But there are worrying signs about the United States. They start with the economic picture. If you look at U.S. wages, they have been largely stagnant. The medium income doesn’t earn much more than it did 40 years ago. And at the same time, the top 1 percent has become very rich. For example, they take home almost a quarter of the entire national income of the United States.
But more worrying than the economic inequality is the implications of the economic inequality for political inequality. Because when economic inequality leads to political inequality, then the economic institutions start sliding even worse. The people who monopolize political power will start to change the rules in their favor and at the expense of the society at large.
Q: What makes you optimistic about the future of the United States?
A: This is not the first time where economic inequality has shot up and where economic inequality has been associated with incipient political inequality. We had exactly the same picture during the gilded age and its aftermath. If anything, the robber barons of that day were more unscrupulous and more ruthless than our political elites and the very wealthy today. But despite that, the United States managed to withstand that challenge, and it did so on the strength of its institutions by mobilizing the average American, first during the populist movement, then during the progressive movement. And then, presidents such as Teddy Roosevelt, Taft, and Woodrow Wilson, who subscribed to the views of the progressive movement, started passing legislation and changes in institutions that strengthened the inclusivity of the United States and stopped the tide of inequality.
Acemoglu shares my concerns about economic inequality leading to political inequality (and his “inclusive” vs “extractive” is a cousin of YOYOs and WITTs). Recall that the folks I was debating on this point argued that it’s really rather benign—there’s no evidence that heightened income concentration is distorting the political process.
So who’s right? (As cited yesterday, I found Hacker/Pierson’s Winner Take All Politics to be pretty dispositive on this point.)
One way I’ve convinced myself that the “benigners” are wrong is to ask what types of policy ideas would surface under a model where political inequality was pumped up by economic inequality—and see if such ideas are being introduced if not legislated. Here’s a list of what I came up with:
- Regressive tax changes, trickle down, favor capital incomes over labor earnings
- Deregulate financial markets
- Privatize social insurance
- Eroding labor standards (minimum wage, labor protections)
- Diminished unionization; opposition to collective bargaining
- Pro outsourcing
- Monetary policy favoring low inflation over full employment
- Diminished gov’t commitment to education
- Eroding safety net
- Anti-Keynesianism; pro austerity
- Let-it-rip campaign finance
- Smaller gov’t outlays as share of GDP
Virtually every one of these ideas is in play either in the national or state-level debate or as part of law. The House budget authored by Rep Paul Ryan alone checks many of the boxes above, including austerity, trickle down tax cuts, much less gov’t, eroding safety net (Medicaid, food stamps), severely constraining Medicare’s growth, less commitment to education (cuts Pell grants, Head Start, job training, grants to states). Wisconsin and other states are whacking away at unions. The Supreme Court is in the mix with its Citizens United decision allowing money to play an even larger role in our politics, and we’ll see where they land on health care.
That said, Daron ends on an uplifting note which resonated with me. Political mobilization in favor of politicians willing to rebuild inclusive institutions?…sign me up!