I’ve talked about this before – the level of inequality in the United States today is at its highest level since just before the Great Depression. Since the 1980s, the rich got richer and the extreme rich got extremely richer. This chart was developed by Paul Krugman from an influential paper by Picketty and Saez – it measures the share of the richest 10 percent in national income:
Why is this such a problem? I can think of at least three reasons.
First, as Catholics, we believe in principle of solidarity, which implies that the gains of income growth should be broadly shared among the population and not accrue to a single class. We believe in the preferential option for the poor, which means that the welfare of the poorest members of society must guide policy. The idea of the universal destination of goods is an old one indeed. For Aquinas, private property is a vital component of the common good, but it is fully subordinate to God’s law that emphasizes the common welfare. And especially from Leo XIII onwards, popes have recognized the role of state intervention to secure economic justice. Perhaps Pope John XXII possibly put it best when he said that “the economic prosperity of a nation is not so much its total assets in terms of wealth and property, as the equitable division and distribution of this wealth.”
Second, I believe it is no coincidence that the two great spikes in inequality each preceded a momentous economic collapse. Remember, during this crisis, 34 million people around the world lost their jobs, and 60 million were pushed into extreme poverty, all because of the excesses of a poorly-regulated financial sector. Back in the 1930s, Pius XI warned about the dominance of the financial sector, and its ability to capture governments – he condemned the “immense power and despotic economic dictatorship” of the “trustees and managing directors of invested funds” who “regulate the flow, so to speak, of the life-blood whereby the entire economic system lives”. Financial sector profits have risen substantially over the past quarter century or so, and this accounts for much of the rise in inequality. In an era of rising inequality, the pressure to “keep up with the Jones” becomes immense. And with a dominant financial sector, credit is readily available. Since wages are stagnant, the only way to boost “wealth” is by borrowing, and hopefully betting on asset price increases. Thus there is a vicious circle of an increasingly dominant financial sector and a dangerous credit cycle. Things like this almost always come crashing down.
Third, inequality also increases political instability. In many developing countries, inequality is a curse. The rich have their own society, and the poor are excluded and marginalized. They are the “other”. With little hope of a secure and stable livelihood, they may not be inclined to engage in unproductive activities or invest in education, and are sometimes tempted by the opportunties offered by corruption or violence. Those with simplistic solutions will stress the virtues of the market economy, but all too often, the market economy does not serve the interest of the poeple. Not only does this hinder development, but it has grave political consequences – conflict, instability, and even war.
The effects of inequality on politics goes beyond developing countries. In highly unequal societies, even the richer ones, political divisions are stark – a reflection of underlying injustices. Look at the United States. Is it really any coincidence that the much derided rise in partisan bitterness accompanied the rise in inequality from the late 1970s onwards? I do not think so. One could even argue that the tea-party movement is a response to this inequality, to stagnant real wages and living standards for the many while the few do spectacularly well and seem to be unfairly rewarded.
In sum, I think inequality is extremely important, and should be addressed in the policy sphere. How can this be done? There is no silver bullet, but the following should help:
(1) Increase the power of unions. Unionization rates declined from 30 percent in 1960 to 13 percent by 2000 – this should be reversed, and the bargaining power of unions must be strengthened.
(2) Increase the progressivity of the tax system, and stress basic social safety nets. Highly unequal pre-tax incomes can be made a bit more equal by the tax and spending system.
(3) Re-regulate the financial sector and impose a special financial sector tax.
(4) Above all, change the culture. Take a firm stand against the laissez-faire restoration in the 1980s that aided the rise in inequality. Try to bring about a return to social norms that emphasize fairness and solidarity. And at the end of the day, that is a very Catholic thing. So why are so few Catholics talking about it?
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