Will Democrats’ Populist Obsession with Inequality Be Their Downfall?

 

tightrope_inequality_populism_democrats_economics_2020_500x293President Obama says America’s greatest challenge is the income gap. A 74-year-old “democratic socialist” is the Democratic Party’s hottest star. And the party’s almost certain presidential nominee hedges on whether she’s a capitalist.

The party’s leaders are hardly without popular support for these stances. In a New York Times poll last summer, 83 percent of Democrats surveyed said government should deal ASAP with the income gap, with large majorities favoring higher taxes on the rich and Wall Street.

The Democratic Party clearly has an inequality obsession. But have liberals gone too far? “Yes,” Republicans would surely say, while probably adding a zinger about “class warfare” or some such.

And if the debate ended along those partisan lines, there wouldn’t be much to this story. But here’s the thing: It’s not just Republicans dinging the Dems for their inequality obsession. Several Democrats are getting in on the action, too.

The left’s feverish focus on the 1 percent vs. the 99 percent strikes some Democratic-leaning wonks as well intentioned but misplaced in a slow-growth economy. They see it as too much attention paid to wealth redistribution rather than wealth creation. Too much kvetching about unfairness and a “rigged” economy rather than dealing with the macro forces of globalization and technological change that are both creative and disruptive.

Robert Atkinson, president of the Information Technology and Innovation Foundation and long-time “New Democrat” policy guy, argues that the party’s “middle-out” economics “actually will do very little to move the needle on the most important drivers of economic prosperity: productivity, innovation, and competitiveness.” Similarly, Jim Kessler, head of the Third Way think tank and former policy director for Sen. Chuck Schumer (D-NY), says Democrats should “rigorously question the electoral value of today’s populist agenda.”

Of course, it’s hard to hold an intervention when everyone else thinks you’re the one who needs help. And while Atkinson and Kessler — we’ll call them Innovation Democrats — aren’t alone, their influence is waning. It’s Inequality Democrats, folks like Bernie Sanders and Elizabeth Warren, who seem to have the momentum. It’s hard to be a pro-market, 1990s-style Clinton Democrat when even Hillary Clinton doesn’t seem to be one anymore.

Still, Atkinson and Kessler are trying to nudge the party back to the center the only way wonks know how: through data-driven evidence. In a recent analysis, Kessler notes that the rich and the middle class grab about the same share of total national income as they did back in 2000. Income inequality hardly seems like a crisis, from that view.

And even when high-end inequality is rising sharply, it doesn’t mean the middle class can’t get ahead. Kessler points out that even though incomes for the top fifth of Americans doubled from 1980 through 2010, all income brackets saw gains of around 40 to 50 percent. “While income inequality may offend our sense of justice, its actual impact on the middle class may be small,” Kessler concludes in a recent analysis.

Now, it’s not that today’s Democrats ignore economic growth. Instead they’ve glommed onto a flawed theory of how to achieve it. Atkinson, in his own report, notes that a recent study on “inclusive prosperity” from the Clinton-friendly Center for American Progress was “virtually silent” on innovation. Instead, “middle-out” economics focuses on consumer spending through redistribution as the key driver of growth. The Inequality Democrats would raise taxes on the rich, give the dough to the non-rich, and hope they spend it. The Innovation Democrats would increase America’s growth potential by increasing private and public investment in smarter workers and better machines.

Innovation Democrats care about inequality. But they also know the difference between sound economic theory and a political marketing scheme. You can’t redistribute wealth without first creating it. Raising the minimum wage or instituting paid leave may be good ideas, but they aren’t necessarily growth-y ones. Rich countries get richer over the long term by becoming more productive. And that requires doing the things Inequality Democrats don’t seem much interested in, such as free trade, deregulation, and corporate tax reform. Political parties ignoring that economic reality may indeed get an intervention, if not by internal truth tellers then eventually by voters.

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  1. John Penfold Member
    John Penfold
    @IWalton

    The populist clap trap about inequality always works and the only way to knock it back for brief periods is by crushing electoral defeats.   Now that they have an unattractive crook as their candidate that ought to be possible.  Then a new President must institute radical reforms which will be successful if the new President has the guts to ignore the painful adjustments the media will scream about.   Modest business as usual with a few changes around the edges of the tax and regulatory codes won’t change anything fundamental but will be attractive as it will avoid the adjustment costs.  This battle never ends but we can do some restructuring if a conservative wins that could set it back for a longer period than last time.     If we can’t beat Hillary, then it’s probably over until something really drastic happens.

    • #1
  2. V the K Member
    V the K
    @VtheK

    I may make some enemies here, but I think some of the beefs with “inequality” are legitimate. There is a distinct class of extremely wealthy people who receive favorable treatment from the political class. For example, our complex tax codes contains thousands of carve outs for the advantage of connected political patrons. Wealthy business interests break immigration laws with impunity by hiring cheap foreign labor to replace American workers because their bought-and-paid for politicians look the other way. Too-Connected-To-Fail Businesses get bailouts, while regulation strangles potential competition.

    Rather than making things more equal, Big Government makes the wealth gap even larger.

    The diagnosis is correct, but the Democrats are proposing to treat the patient with poison.

    • #2
  3. John Penfold Member
    John Penfold
    @IWalton

    V the K:Of course you are right.  Big inequality and sluggish upward mobility while exagerated are products of the administrative welfare state.  The only question is whether they do it on purpose or if it’s just unintended consequences.  In the seventies one might consider the results unintended consequences, but no more.    Conservatives don’t hit the theme as much as they should.  Although Carly does so superbly.  It should be their main thrust because unlike the class warfare rhetoric of the left, the truth is big government will always be controlled by big interests and only simple clear laws and markets level the playing field.    They like to say the administrative state is designed to fix the excesses of capitalism, but what they mean is it limits challenges to the status quo by new technology, expanding competition, and more people at the top.

    • #3
  4. OmegaPaladin Moderator
    OmegaPaladin
    @OmegaPaladin

    I’ve never understood the problem with income inequality.   Poverty is a problem, but it would be a problem even if no one made over $40,000 a year.  Crony capitalism is a problem, but it is a problem of social power, not just money.

    • #4
  5. RushBabe49 Thatcher
    RushBabe49
    @RushBabe49

    Restate the problem.  Not INCOME inequality, but EARNING inequality.  How can people earn more, to get out of their low status in society?  Get a good education.  Get a job, or make a job while in high school (mowing lawns, delivering newspapers) so they get a work ethic.  All the standard conservative methods, which of course are harder than simply taking that money from those who earn it every day.

    • #5
  6. Severely Ltd. Inactive
    Severely Ltd.
    @SeverelyLtd

    V the K:I may make some enemies here, but I think some of the beefs with “inequality” are legitimate. There is a distinct class of extremely wealthy people who receive favorable treatment from the political class. For example, our complex tax codes contains thousands of carve outs for the advantage of connected political patrons. Wealthy business interests break immigration laws with impunity by hiring cheap foreign labor to replace American workers because their bought-and-paid for politicians look the other way. Too-Connected-To-Fail Businesses get bailouts, while regulation strangles potential competition.

    Rather than making things more equal, Big Government makes the wealth gap even larger.

    The diagnosis is correct, but the Democrats are proposing to treat the patient with poison.

    The inequality and wealth gap in and of itself is not a problem. If some are becoming  wealthy due to bad tax policy or government favoritism, that’s a problem that should be addressed. But the gap itself? Meh. Don’t fall into the trap of using their terminology with its seemingly inherent moral condemnation.

    The poor we’ll have with us always, but isn’t it nice that now most have a couple of color TVs and a gaming system for the kids?

    • #6
  7. The Reticulator Member
    The Reticulator
    @TheReticulator

    Will Democrats’ Populist Obsession with Inequality Be Their Downfall? Hardly.

    Will Republicans’ inability to turn the issue against the Democrats be their downfall?  They certainly deserve it.

    Will Republicans ever learn to discuss the issue without accepting Democrat remedies and theories of causation as the only ones to discuss?   Not without a massive brain transplant.

    • #7
  8. Joseph Eagar Member
    Joseph Eagar
    @JosephEagar

    From the outside, Democratic inequality politics looks like a bunch of privileged nearly-rich people wining they don’t earn enough.  The Dems need the upper middle class to win elections, but in allowing themselves to be so captured they have destroyed their credibility on this issue.

    Historically, the path to universally-shared prosperity is wage-driven productivity growth.  You do not reduce inequality by taking consumption from rich people and giving it to poor and middle class people; you do it by redistributing the flow of (physical, human, social) capital.

    You create an environment where labor is expensive, and financial capital is abundant.  This forces employers to invest in their workforce, whether it be through training, investment in physical capital, process innovation, etc.  In other words:

    Restrict immigration and run fiscal surpluses!

    • #8
  9. Chris Campion Coolidge
    Chris Campion
    @ChrisCampion

    Regardless of “fixes” for this problem – which isn’t a problem, really, it’s a state of human nature, since everyone, if they’re willing to work, can move up income brackets – it’s the selling of it that works.  It works on young people who seem to have bought into this idea completely, in large part, maybe because of education in high school and college but they’re in.  (And maybe because the idiots they vote into office help promulgate policies that leave them schlepping chai lattes at StarBucks).

    Retirees/fixed income people love this idea because it seems like the fix is just taxing somebody who’s much better off than they are, even if those people are already paying the bulk of federal income taxes.

    It’s an easy sell.  The fix, which seemingly involves yet more programs or policy interventions in markets is not a fix.  There are already enough ways to pull yourself up from where you were to where you want to go, including a gazillions ways to get federal, state, or local help while doing so.  The path is already there for those who wish to choose it.

    But it’s easier not to have to face hard work, and your own diminished self-expectations.  The result of this is Bernie 2016.

    • #9
  10. Johnny Dubya Inactive
    Johnny Dubya
    @JohnnyDubya

    Conservatives should not use the term “income inequality” when discussing the income gap between rich and poor. It is a nonsensical term that suggests that all income should be…well, equal. The correct term is “income disparity”.

    • #10
  11. The Reticulator Member
    The Reticulator
    @TheReticulator

    Johnny Dubya:Conservatives should not use the term “income inequality” when discussing the income gap between rich and poor.It is a nonsensical term that suggests that all income should be…well, equal.The correct term is “income disparity”.

    Good point. I will try to remember that.

    • #11
  12. Don Tillman Member
    Don Tillman
    @DonTillman

    Johnny Dubya:Conservatives should not use the term “income inequality” when discussing the income gap between rich and poor.It is a nonsensical term that suggests that all income should be…well, equal.The correct term is “income disparity”.

    So true.  Income Equality would require that everyone would make minimum wage.

    • #12
  13. Don Tillman Member
    Don Tillman
    @DonTillman

    V the K:I may make some enemies here, but I think some of the beefs with “inequality” are legitimate. There is a distinct class of extremely wealthy people who receive favorable treatment from the political class.

    True, but the argument that the “income inequality” folks have is that people with lots of money can buy votes through advertisements and political contributions.  And that’s a reasonable point… until you consider that lefty politicians buy many, many more votes from the poor by promising them free stuff.

    So it boils down to buying votes with your own money vs. buying votes with other peoples’ money.

    • #13
  14. Marion Evans Inactive
    Marion Evans
    @MarionEvans

    The focus on inequality is a misdiagnosis of a very real problem: the rise of crony capitalism and with it of an entrenched elite. Both republicans and democrats should fight this problem. But in fact, both are part of the problem.

    • #14
  15. Severely Ltd. Inactive
    Severely Ltd.
    @SeverelyLtd

    Marion Evans:The focus on inequality is a misdiagnosis of a very real problem: the rise of crony capitalism and with it of an entrenched elite. Both republicans and democrats should fight this problem. But in fact, both are part of the problem.

    It’s true that cronyism and corporatism are adding to wealth inequality, but even if we eliminate that problem there will always be wide gaps between the rich and the poor because of the unequal distribution of brains, talent, drive, and luck. And there is nothing wrong with that. Nothing morally wrong or systemically wrong.

    There is something wrong with destitution and real privation, and we are morally responsible to take care of the needy, but conflating this with income inequality is why Democrats can make hay with the issue.

    Johnny Dubya:Conservatives should not use the term “income inequality” when discussing the income gap between rich and poor.It is a nonsensical term that suggests that all income should be…well, equal.The correct term is “income disparity”.

    ‘Income disparity’ is a better (and more accurate) term, but ‘disparity’ still has a bit of a negative connotation. There must be a better formulation out there.

    • #15
  16. Don Tillman Member
    Don Tillman
    @DonTillman

    Severely Ltd.: ‘Income disparity’ is a better (and more accurate) term, but ‘disparity’ still has a bit of a negative connotation. There must be a better formulation out there.

    “Income Diversity”.  Problem solved.

    • #16
  17. The Reticulator Member
    The Reticulator
    @TheReticulator

    Don Tillman:

    Severely Ltd.: ‘Income disparity’ is a better (and more accurate) term, but ‘disparity’ still has a bit of a negative connotation. There must be a better formulation out there.

    “Income Diversity”. Problem solved.

    I prefer income disparity.  If you say income diversity it signals that you think there is no problem to be dealt with, and you’ll lose.  You can moralize and preach from your pulpit all day long that the peasants shouldn’t envy us who are better off, but you won’t influence anybody to think that way.

    I don’t think anybody would want to live in a society where all incomes are equal.  It would mean either the killing fields or else a hunter-gatherer type culture where there is very little hierarchy of inherited wealth and power.  But we shouldn’t be satisfied with the disparities that come through political connections and influence, i.e. corruption and crony capitalism.  We shouldn’t be satisfied with the disparities that are due to Bernanke/Yellen trickle-down policies that shovel wealth to those who are well off and don’t result in any trickle down. We shouldn’t be satisfied with the disparities that are due to more centralization, uniformity, and consolidation of regulatory authority than is good for a system of equal opportunity.

    • #17
  18. Don Tillman Member
    Don Tillman
    @DonTillman

    This is such low-hanging fruit…

    If the majority are concerned about “income inequality”, just note that it has become far, far worse under the Obama administration:

    New York Times: Let’s Talk About the Wealth Gap

    Investor’s Business Daily: Obama Calls Income Gap ‘Wrong’ After Widening It

    …and do the opposite.

    • #18
  19. The Reticulator Member
    The Reticulator
    @TheReticulator

    Don Tillman:This is such low-hanging fruit…

    If the majority are concerned about “income inequality”, just note that it has become far, far worse under the Obama administration:

    New York Times: Let’s Talk About the Wealth Gap

    Investor’s Business Daily: Obama Calls Income Gap ‘Wrong’ After Widening It

    …and do the opposite.

    Now you’re talking.

    • #19
  20. Severely Ltd. Inactive
    Severely Ltd.
    @SeverelyLtd

    Don Tillman:

    Severely Ltd.: ‘Income disparity’ is a better (and more accurate) term, but ‘disparity’ still has a bit of a negative connotation. There must be a better formulation out there.

    “Income Diversity”. Problem solved.

    This is so golden it’s blinding. Perfect!

    The Reticulator: I prefer income disparity. If you say income diversity it signals that you think there is no problem to be dealt with, and you’ll lose. You can moralize and preach from your pulpit all day long that the peasants shouldn’t envy us who are better off, but you won’t influence anybody to think that way.

    I think vilifying envy is exactly what we should be doing. It is the root of the problem, not the existence of the inequality.

    Again, once you remove all the unfair barriers you list, inequality will still exist and though it will be mitigated, it will probably still exist on a substantial scale. If you think the SJWs will be satisfied with half the rate of inequality that exists now, you are fooling yourself.

    Stressing government malfeasance without pointing out that the root problem is envy will imply that we agree that the problem is inequality itself and I emphatically disagree with that.

    I may not like inequality, but I recognize that even if everything else were absolutely perfect, equality would not exist.

    Added: Sorry, got wound up there and started preaching. I recognize we’re more in agreement than not, Reticulator.

    • #20

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