Income Inequality

Major Contentions

  • If income inequality is a moral problem, we ought not think that income equality is the solution because it is unachievable.
  • It is possible to deny that income inequality is a problem by a variety of arguments: because it is an inevitable result of the invisible hand, because each person exhibits differing talents and efforts, making income inequality a fair result, or because government deforms the proper operation of the economy, in which case the failure is a result of government intrusions.
  • But all of these positions are untenable because they are attempting to reject what no one can achieve: an economic equality of degree, which ought not be taken as the moral goal of reformers, so dismissing its possibility is to misdirect the argument.
  • Any appeal to fairness will fail too because fairness can deny equality in favor of merit, but if equality is not the goal and merit is, we have to ask who defines and evaluates what counts as merit.
  • In a pure capitalist system, merit would be synonymous with what the market thinks, and value would be calculable, but nothing like a free market exists in an atmosphere of crony capitalism, corporate political influence, and massive wealth disparity, so no estimation of merit ought to prevail over considerations of economic justice.
  • If merit is fraught with self-interest, economic justice, like all justice, is calculable by universalizing human needs as human rights: persons are due the satisfaction of their economic needs sufficient to live fully human lives, which is quite different from the satisfaction of all of their economic desires.
  • Defenders of economic privilege wish to obscure the possibility of a straightforward allocation of economic goods sufficient to meet a baseline of economic security earned by human dignity rather than putative merit because it is in their self-interest to delay in order to perpetuate their advantages.
  • They accomplish this delay by four tactics: defend, deny, deflect, or defuse.
  • They can defend the fairness of the system by arguing that some contribute much more, and these risk-taking job creators thereby deserve their outsized rewards..
  • They can deny that economic inequality is an insurmountable obstacle to self-advancement, even as inherited privilege continues to stratify advanced economies.
  • They can deflect by blaming economic failures on labor unions, government, or other institutions that “distort the economy,” with the implicit charge that freeing corporations from “burdensome regulation” and the like would flood us all with a tide lifting all economic boats.
  • They can defuse by arguing that every economy decides its winners and losers, so those at the bottom deserve to stay there.
  • These arguments are fluid, generic, and impossible to quantify, but reformers need not use economic arguments — which vary by paradigm and so are easily disputed anyway — but only need to show their internal hypocrisies to defeat them.
  • Capitalism views itself as responsive to talent and effort rather than to inherited advantage and insider lubrication; its success depends on competitors’ judgment that everyone has a decent chance for success if they play by the rules, but as wealth disparity, gender and racial bias, and inherited disparities become more obvious, so does the realization that equal opportunity is a pipe dream.
  • This realization moves political activists to seek to establish mechanisms to increase equal opportunity access to education, training, and capital, but that will not of itself solve the problem of economic injustice because some socially desirable jobs are not profitable yet still increase justice in economies, so disparities will still result.
  • Again, defenders of laissez faire will argue this view denies the wisdom of the market and is socialist, but again, reformers can respond that laissez faire capitalism was never the goal but rather the means to universal economic security, again lifting the argument beyond the capacity of economic “science” into the realm of moral reasoning.
  • The slippery-slope-to-communism defense is sure to follow, but a convincing response is that the U.S. enjoyed very high standards of living during the second half of the twentieth century despite having a punitive tax code and multiple governmental intrusions into economic life.
  • A second rebuttal of the slippery slope argument is to draw the “kind and degree” distinction between a circumstantial equality of degree of outcomes and an equality of kind in which all citizens are guaranteed a living wage.
  • The kind and degree distinction is valuable in establishing many baselines of human rights, but it is eminently useful in quantifiable allocations and ought to entirely replace impossible arguments on fairness or equalities of degree that are neither desirable nor possible.

A good moral system must be like a good hiker’s compass. If too finely calibrated, it will swing wildly every time one loses her way. If too dampened, it will point sluggishly in one direction no matter how her life paths fork and twist. Any moral system worth its salt should be flexible enough to apply to the range of human choice yet stern enough to direct action in the flux of experience. It must accept our often-pathetic psychological forays into self-delusion, wish fulfillment, and misperception and yet still force us to rise to our best selves. And it should be simple enough to use.

A good test of our moral compass has been laid before us recently by commentators and politicians. The issue of income inequality allows us to clarify and test some common terms that almost immediately lead us into the tall weeds of moral dilemma. As is so often the case, the way we choose to define our terms will determine our position on the issue. The temptation to slant the definitions to reduce the moral ambiguities involved or to exaggerate the moral heft of our starting position is particularly strong in an issue like this because we know going in that no moral system will produce a univocal solution to the problem. And that is what makes it such a good litmus test.

The key term to be defined is inequality. It is a simple and brute judgment that such inequality exists in our culture as it has in all previous ones. This is not a bad thing. No egalitarian economic system has been successful or could be because individuals are so clearly unequal in their talents and improvements (see “The Riddle of Equality”). It is easy to recall specific historical efforts that invariably produced a reactionary return to inequality, concluding that only the most onerous expenditure of state power could produce real equality of degree, and that effort always proves so crippling to liberty as to provoke the inevitable backlash. So let us stipulate that if we regard income inequality as a moral problem, we should not regard income equality as a solution.

So if equality is not a solution, what is it? Let us swing in the opposite direction and ask the obvious question. What makes income inequality a problem? If it is a problem, what is the nature of the problem?And if income equality, which seems the obvious counterargument, does not repair it, what would?

In a true free enterprise system, neither equality of outcome nor of opportunity would exist. The lack of the former would certainly doom the latter. Opportunity in large part derives from maximal development of talent, but the conditions of that development are never distributed evenly in any society. Why? Ignore for a moment inequalities of nature and focus on how developing them affects the next generation. Even just outcomes must advantage some descendants over others in a generational view. One only need compare the products of public versus private education at all levels in the U.S. or the potential for success that children of poverty face in competition with their wealthier peers. It is certainly possible to argue either that such inequality is inevitable and therefore beyond moral judgment or that it is a kind of trans-generational justice: the children properly benefit from the worthiness of their parents (see “Justice Is Almost Everything“). The problem is that both arguments violate one of the central premises of the free enterprise system that produces the inequality: that individuals are entitled to equal opportunity and deserve nothing more or less than the full rewards of their labors. And that conclusion calls both privilege and privation into doubt. No receiver of privilege seems to regard it as more than her due, for we are all proficient in viewing ourselves in the best light, nor is she likely to regard the poor outcomes suffered by children of poverty and victims of bias as less than theirs. When confronted with this truth and the implied hypocrisy that accompanies it, defenders of free enterprise fall back on the argument that such inequalities are inevitable and therefore beyond the power of economies or governments to address. And here they make a stronger case. For nothing is more obviously true than natural inequality, and even the most tender-hearted liberals must face the futility of attempting to achieve an egalitarian condition.

So they too retreat to a fall-back position, arguing that our economy, while necessarily unequal, should at least be structured to produce more fairness. This is the position that takes aim at the growing disparity between the 1% and the 99%, between CEO’s and their employees, and so on. But the argument to fairness must fail regardless of the motives of those who wield it. The term is not up to the task, for “fairness” always implies a comparison between two things or persons. And neither side seems to appreciate that the comparative relationship they defend can take either of two forms, but not both. Perhaps “fairness” denotes an absolute equality, an equality of degree in which each gets the same amount of something relative to all the others. But the axiom underwriting the fairness of that position of radical egalitarianism assumes that some quality of each justifies this equal distribution. To Marx, that was the person’s status as a member of the proletariat. To Aquinas, it was the person’s possession of a soul. To say the least, both of these arguments face challenges today. The moral principle of “ought implies can” and the entire history of such efforts refutes the possibility of an absolute equality of economic rewards, so egalitarians find themselves arguing for a phantom. Defenders of capitalism have an entirely different sense of fairness that disputes a radical equality. To them it means “distributed according to comparative merit, one to another”? They face a different problem in implementing their definition of fairness. Merit is precisely the quality the appeal to fairness is asked to decide upon. Lacking that quality, fairness cannot judge what is fair, yet appeals to fairness invariably assume the matter to be settled before comparisons are drawn. In truth, fairness is an entirely empty term when applied to qualities rather than quantities unless the comparative factors of merit are specified in advance. I hear absurd claims by executives that they actually work 204 times harder than their median workers, that argument used to justify the current CEO/worker pay disparity. These guys have obviously never put on a roof or poured a highway, so what does “work harder” denote as a point of comparison? They would be on firmer ground if they insist that they have 204 times the responsibility of their employees, that their pay is warranted by their crucial decisions and the stakes involved, though that argument too would fail in regard to police officers, nurses, and firemen. But put that aside for a moment and examine on what grounds one determines “fair pay.” Both definitions of fairness fail. The egalitarian definition is a pipe dream, an absurd and impossible goal. The libertarian capitalist vision is a canard, a feint, a lie. When presented with proof of that judgment, defenders of economic injustice shrug off fairness as a standard so easily one might expect that they knew its falsity all along. That shrug is the gesture of the winner in a rigged game who cares not one whit for fairness of either opportunity or outcome. The ace hidden up the sleeve is brute reality of what the market decides.

But a market that employs such blatant hypocrisy, that indulges in a crony capitalism in which corporate boards and executives lavish each other with raises, options, and bonuses; that perverts the national economic interest in the name of a few superrich donors to campaigns, business schools, think tanks, and news media; and that pitches the American dream while simultaneously sabotaging persons’ shot at it cannot call itself a free market, though to be sure it attempts to be an invisible hand to the millions of citizens it exploits. Thankfully, we do not live in a pure capitalism wherein inequality of outcomes would have long ago erased any opportunity for economic justice. The rigged system was assembled in league with government, and it can be disassembled by that same government in time. The appeal to economic justice, to distributive and contributive justice for all citizens — and to retributive justice in prosecutions of white collar crime — and to true justice in economic opportunity will never be impossible so long as lawmakers fear the ire of their voters (see “Economic Justice”).

Nothing could be clearer than the patent injustice of the kinds of outcomes we see around us, outcomes that guarantee inequalities of opportunity for large swaths of the population. Let us be clear about the problem: even if the outcomes are the products of fair competition in themselves, they can be traced to economic deformations that sabotage a true equality of opportunity that its most ardent defenders must claim as the greatest gift of capitalism. We see the evidence at every level of the economy as disparities become clearer and the government interventions that should repair the playing field are strangled by special interests. The prize must always be a true justice in access to opportunity for every citizen, but as the extent of hypocrisy in the system grows ever more obvious, defenders of privilege grow increasingly frantic to obscure its causes and effects, which stimulates egalitarians to every more strident defenses of an absolute equality of degree. Though utopian, their argument at least stimulates a critical examination.This leaves the champions of current capitalism with four options: defend, deny, deflect, or defuse.

They can defend the fairness of the current system by insisting that any appraisal of the unfairness of the system is an error, that it distributes economic rewards fairly as presently structured, that disparities in income and wealth are reflections of relative merit implied by the definition of “fairness.” In a working system, they say, talent and work ethic will produce the kinds of disparities we see around us. This was the defiant battle cry of Wall Street executives who increased their wealth after the crash of 2008. They consider themselves agile risk takers who take profit where they find it just as capitalism dictates. In this defense, the thesis is that we still have an economy open to the American dream, that anyone can still make it big, that economic mobility is still possible, etc. In order for this argument to hold, they must also deny that economic inequality is an insurmountable obstacle to self-advancement for those at the bottom, and they can always find some tech genius or mogul who pulled himself up by his own bootstraps. They forget to note that genius meeting opportunity is even less fairly distributed than wealth, so their celebration of capitalism’s responsiveness to its rarity is rather like the lottery touting itself as a fair route to riches. Next, they can deflect criticism by pointing to other unfair practices in the workplace, especially deformations produced by government. This deflection may work on its own to explain why some are not succeeding in our economy: witness the cyclic focus on the deficit and government spending. Or it may combine with a spirited defense of libertarianism: the government safety net not only feeds the deficit but robs lower income workers of the incentive to enter the market. If they find no willing takers for these approaches, the final resort will be to attempt to defuse their critics by acknowledging the inequalities in the present system but insisting that these are the inevitable by-products of the system we operate by, so issues of fairness cannot arise. One might as well complain that baldness is unfair, they say.

Some truth adheres to all of these arguments, and their interrelation and broadness makes them difficult to isolate or refute. But all is not lost to the reformist cause, for the great bugbear of our age is less moral evil — something we find difficult to define — than hypocrisy, and the argument for fairness need look no further to prove its point. Capitalism does not set up a system in which handicaps to opportunity may be overcome by those with extraordinary talents or persistence. It does not seek to award the fruits of enterprise according to some gender or racial bias. It does not idealize an economic race in which some competitors must begin far behind or far ahead of others by virtue of an accident of birth. Its premise is equality of opportunity: an equal shot at the American dream and this promise, unlike the egalitarian dream of equal outcomes, is an idealization of an equality of degree of opportunity that is possible according to their own vision. To accept anything less is to participate in a system that is less than free enterprise promises, and, in actuality, one that is less than free. The irreducible prerequisite for capitalism is the equal starting line, and in pursuit of that goal held sacred by its defenders, a great deal of the stain of inequality can be bleached out of the system.

But by no means all. The issue then becomes a question of how much is enough. Ever skilled in the logical fallacy of post hoc ergo propter hoc, defenders of free markets will charge that interference in the economy necessary to even out the starting line will distort what should be a free market, never mind that these efforts are themselves attempts to repair a far greater distortion. And they will level a more accurate charge: that these efforts edge us toward the slippery slope of total equality of outcomes, and we all know where that leads.

All of this can be avoided by a small but essential change of emphasis. Or rather two changes. First, in the face of the distortive effects on equality of opportunity that unfettered free enterprise produces, why accept the premise that the free market system itself should ever be the ideal? Now defenders of unfettered capitalism will argue that we really have no other choice because interference with the system will always distort the invisible hand of supply and demand, that those who would interfere desire nothing less than the egalitarianism that ends in communism, and so the inequalities of opportunity produced by capitalism are simply the cost of doing business. Of course, they aren’t the ones paying that cost. But their argument is retrograde and has been disproven by the history of the last century. From the Sixteenth Amendment of 1909 to the estate tax of 1916, we have a venerable history of tinkering with the markets to increase equality of opportunity. For nearly a century, it has been a bit silly to call the United States a free market economy. Is it merely a coincidence that this same century has seen our mixed markets system become the world’s dynamo? The second change requires us to go beyond terms like “fairness” and “income inequality.” We should unabashedly claim the moral high ground in this issue by framing it as one of economic justice.

I am not being platitudinous or elevated here. I am arguing that using “equality” as a basis for addressing this issue only takes the argument so far before running down the slippery slope to communism.

Here’s why. It is all very well to demand economic equality of opportunity, provided you embrace the premises of unfettered capitalism. The problem in not embracing it is that there seems no other place to stop demanding “economic equality” until one bumps up against the failed experiment first proposed by Karl Marx. And indeed, defenders of the flawed system we now employ exploit that slippery slope in establishing their own uncompromising, libertarian demands. If you want to enter that arena, you may argue for equality of opportunity, but even that is a blunt instrument because free market zealots can respond that inequality is simply the cost of doing business and what better system can you offer?

So change the terms of the debate. The key is to define terms consistently. If “justice” means “to give to each her due,” then begin the economic debate by asking, “What economic goods are due to everyone?” The answer must be the satisfaction of their economic needs, those goods and services that everyone needs to live a full human existence ( see “Needs Anchor Morality). The state, representing the combined interests of its citizens, should regulate markets only to the extent of establishing conditions that allow all citizens to procure the satisfaction of their economic needs. It is each citizen’s responsibility to complete that effort on her own, for no government or social intervention can force persons to focus their desires on their own needs, but a just state would be one in which every failure of that type could be unambiguously laid at the feet of the individual; in which no statistical correlation between race, gender, or region and economic success could be found; in which true equality of opportunity opens the possibilities of education, skills, and character.  The establishment of this minimum baseline and the conditions necessary for acquiring its components are the obligations of government, not of the economy, along with providing these components for those who are incapable of acquiring them on their own. This is a true equality of opportunity rather than the total equality of outcomes that capitalists properly dismiss as a utopian dream. So long as all within the polity have these basic human needs, differences in affluence are to be celebrated as fair acquisitions. The necessary terms to distinguish these differences are kind and degree.

So long as all members of a polity have an equality of kind that fulfills their economic requirements, inequalities of degree are to be celebrated. This is the natural equality Jefferson referenced in the Declaration of Independence: all are created equally human and equally entitled to the environment that facilitates the fulfillment of their needs. The same distinction holds in regard to political power. We all have equal rights (a right is merely the recognition of a human need that justice [what we are due] guarantees) to participate in our political system and be judged in court (see “Natural and Political Rights”). This is our political equality of kind which justice requires, yet officeholders clearly have more political power than ordinary citizens and so have the inequality of degree that justice also requires as a function of their office. When we seek out the kind and degree distinction, we see it everywhere. It is exemplified by the old joke: “What do you call the physician who graduated at the bottom of his med school class? Doctor.” Certainly, the public defender and the limousine lawyer may have different degrees of competency, but their licensure is identical. Degree and kind are everywhere.

It is probable that this defense of our right to what we need will be seen by capitalists as being on that old commie slippery slope, but the distinction of kind and degree should establish the proper friction. It is perfectly appropriate that schooling differ by wealth so long as all schools fulfill their intended purpose: to deliver the kind of education adequate to adult responsibilities. Fancy private schools are just, so long as public schools meet this need for adequate education. When public schools decline to the point where illiterate students are allowed to graduate, they no longer provide the equality of kind necessary to validate their existence, and the polity they serve is just in demanding that they be improved to adequacy. Neither side would be just in demanding that private and public schools perform to the same level whether higher or lower, nor that gross disparities in education are unavoidable results of property taxes or any other factor. Students need the education for skill and judgment schools provide as persons and citizens, which is why we have public schools to begin with.  Why do we require and provide education through high school and not through college? Why are polluting industries subject to burdensome regulation others avoid? What determines qualifications for the Supplemental Nutrition Assistance Program or the length of time the unemployed may draw assistance? What determines the top nominal tax rate? Why impose an estate tax? None of these governmental intrusions — of knowledge delivery, responsibility, or money — are fair. But all are just because they satisfy universal human needs. More fairness, defined in either sense as fairness of degree or deserts, would prove unjust.

If one ignores the distinction between kind and degree and attempts to negotiate these issues on grounds of absolute equality or fairness, which always concerns relative distributions, she will end in confusion or moral ambiguity, and this serves to stall a debate neither egalitarians or libertarians can win, though the latter are happy to engage in it so long as no disruptions to their privilege result from it. Egalitarians ought to change their definitions and abandon appeals to fairness, particularly those demanding an equality of degree. In terms of economic justice, the kind and degree distinction is fundamental.


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