Income Inequality

A good moral system must be like a good hiker’s compass. If too finely calibrated, it will swing wildly every time she loses her way. If too dampened, it will point sluggishly in one direction no matter how her 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 actually 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 moral 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 talents and their 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, 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. A moral system that offers impossible solutions to difficult problems should be unworthy of our attention, though the historical examples we might appeal to have produced little consensus on that point.

So if the solution to the problem of income inequality is not income equality, 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, is not the solution, what is?

In a true free enterprise system, neither equality of opportunity nor equality of outcome would exist. The failure of the former would be guaranteed by that of the latter. Opportunity derives from maximal development of talent, but the conditions of that development are never distributed evenly in any society. Why? Because prior outcomes advantage some over others, particularly in a generational view. One only need compare the products of public versus private elementary and secondary schooling 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. The problem is that the latter argument violates 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 this judgment applies equally to the children of poverty and privilege. 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 morality 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 is fraught with ambiguity. The problem is partially due to the meaning of the term, for “fairness” always implies a comparison between two things or persons. Doesn’t it mean “distributed according to relative merit”? I hear absurd claims by executives that they actually work 204 times harder than their median workers, which justifies the current CEO/worker pay disparity. These guys have obviously never put on a roof or poured a highway. 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 perhaps that argument 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.” Is it as simple as what the market decides? Is economic fairness synonymous with laissez faire? And if it isn’t, what determines fairness?

We can abjure crony capitalism and big money’s influence over our tax codes and laws as inimical to democracy on the same grounds as those stated above: that defenders of capitalism cannot defend equality of opportunity and this kind of rigging the system without hypocrisy. Nothing could be clearer than the patent unfairness 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, they destroy the putative individual equality of opportunity that is a pillar of capitalism. 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 the 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. 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 focus on the deficit and government spending. Or it may combine with a spirited defense of free enterprise: 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 liberal 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 others. Its premise is equality of opportunity: an equal shot at the American dream. 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, and we 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 “fairness” 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 fairness 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 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. The establishment of this minimum baseline and the conditions necessary for acquiring its components are the obligations of the state in regard to 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 that capitalists properly dismiss as a utopian dream (see “The Riddle of Equality”). So long as all within the polity have these basic human needs met, 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 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 (right) 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. They are not just in demanding that private schools degenerate their product to some similar level or sacrifice an adequate education for their own students. That would be fair, but not just because it would judge the merit of the better school only in relation to that of the poorer one. Why do we require and provide education through high school and not through college? 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?

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 according to merit, she will end in confusion or moral ambiguity. In terms of economic justice, the kind and degree distinction is fundamental (see “Economic Justice”).



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