From Beijing to London to Washington to other points on the map of this globalized economy, “inequality” has become a hot topic. China has its own methods of handling those the regime’s leaders feel have engaged in excessively conspicuous consumption. But show trials and re-education are tools not readily available to politicians in democratic countries. So when Hillary Clinton opines that something must be wrong when CEOs earn more that 300-times what their employees make, and all 19 of her potential Republican opponents attack President Obama for having presided over a sharp increase in inequality, we have an unusual all-party, multi-nation consensus that something must be done.
The inequality complained of has four related dimensions: wealth, income, opportunity and political power. Thomas Piketty took aim at the first of these in his Capital, an overnight publishing sensation in which he argued that wealth inequality was high and would inevitably increase. Even though unequally distributed wealth contributes to the other three inequalities, the issue of wealth inequality has not attracted politicians’ sustained attention. In part that inattention is due to statistical and logical flaws in the Picketty study, many of which he has graciously conceded. But my guess is that politicians are shying away from the discussion because they know the solution, but fear voters’ wrath if they implement it: raise inheritance taxes to prevent the dear departed from perpetuating wealth-inequality by willing their assets to the winners of the sperm lottery.
Inequalities of income, opportunity, and political power, on the other hand, are all the rage on the campaign trail. They are inter-related. The so-called top 1% of earners can use their incomes to create inequality of opportunity, for example, privileged access to the best schools and universities. That increases the opportunity-gap between rich and poor. The one-percenters’ incomes also give them political access, creating a crony capitalism that allows them to secure political favors that further enhance their incomes.
Politicians of all sorts to the rescue. Hillary Clinton wants to change a system that allows, “the top 25 hedge fund managers together [to] make more money than all the kindergarten teachers in America,” while Jeb Bush, second-generation inheritor of millions and her likely rival, bemoans the fact that “If you are born poor today you are likely to remain poor”. And Mitt Romney piles on with "Under President Obama the rich have gotten richer, income inequality has gotten worse and there are more people in poverty in American than ever before." He might have pointed out that from the day Obama was sworn in until today, the S&P Index of 500 stocks has risen 239%, while average weekly wages have managed a mere 11% gain -- good for the 1%, not so good for groups about which Obama has expressed the greatest concern.
In sum, there is broad agreement that the gains of recent years, the Obama years, have been concentrated on the already well-off. And most agree on some of the causes.
Globalization has brought more than one billion low-skilled workers into the international work force, competing with Americans for jobs and holding down wages. At the same time, it has increased the value of the assets over which talented managers can spread their skills, especially after a round of international mergers, making them more valuable to the owners of those assets. The resulting increased gap between CEOs and the shop floor is exacerbated by flaws in the corporate governance system, allowing managers considerable discretion in setting their own rewards. It should be noted that the market seems to be addressing the latter problem, as so-called activist investors challenge sitting managements that benefits from compensation plans unrelated to performance. But progress is slow.
It is also widely understood that monetary policy, here and elsewhere, is making the rich richer at the expense of lower earners. America’s Federal Reserve Board prints money to keep interest rates at zero, which drives income-seeking investment into assets such as shares and houses, driving prices up. That’s good news for people who own shares and houses, bad news for thrifty retirees living off savings, even if some pension funds benefit from increases in the value of the shares they hold.