An article in yesterday’s New York Times reports that the current economic recession has hit the rich especially hard:
The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon…. The relative struggles of the rich may elicit little sympathy from less well-off families who are dealing with the effects of the worst recession in a generation. But the change does raise several broader economic questions. Among them is whether harder times for the rich will ultimately benefit the middle class and the poor, given that the huge recent increase in top incomes coincided with slow income growth for almost every other group.
Using the crude metric of income inequality that many progressives look to as an indicator of economic justice, the downturn should be viewed as a good thing (for an example of this way of thinking, here is an article by a University of Vermont professor who I actually worked with a bit a couple of summers ago while I was interning for Sen. Bernie Sanders). It has hurt the rich more than it has hurt the poor, so the income of the top decile of earners has dropped relative to the income of the bottom decile of earners.
But I doubt that most people who play up the importance of income inequality actually view the economic crisis as a good thing. I think that, for the most part, the real priority of most progressives is a Rawlsian concern for the condition of the least well off. However, because they view the economy as zero-sum, they think that a desire to maximize the wellbeing of the poorest members of society and a desire to reduce income inequality amount to the same thing. But the current crisis shows that this is misguided; it’s pretty farfetched to think that income lost by the rich as a result of the crisis will instead go to the poor. It’s probably just gone. So the crisis economy is a negative sum game: the rich lose wealth, and it goes to nobody. But if a negative sum economic downturn has a negative effect on the rich without any positive effect on the poor, it makes sense that a period of economic growth would have positive effects on the rich without any negative effects on the poor, making it positive sum.
It’s important to show people that there is a distincion between concern for the least well off and concern for overall economic inequality. Clarifying how people think about economic justice would help put an end to brain-dead, economically destructive, raid-the-rich populism that reduces income inequality but doesn’t help (and probably hurts) the poor. It would also cultivate greater support for economic growth, which in the long run is the one thing that really does actually help the least well off, even though it also increases overall inequality.