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July 27, 2014 8:45 AM The four basic American reactions to record inequality

By David Atkins

Most people still feel that, despite recent small upticks in good economic news, things still aren’t going very well. It’s obvious why:

Economic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.
The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.
The Russell Sage study also examined net worth at the 95th percentile. (For households at that level, 94 percent of the population had less wealth and 4 percent had more.) It found that for this well-do-do slice of the population, household net worth increased 14 percent over the same 10 years. Other research, by economists like Edward Wolff at New York University, has shown even greater gains in wealth for the richest 1 percent of households.

Among those who are aware of this gigantic moral and systemic problem, there are four basic political philosophies.

Those on the progressive left understand that at some level the takings of the top 4% constitute a theft from the other 96% who have lost over a third of their net worth. Whether it’s direct manipulation of the tax system and supply-side economic policies, or a softer product of rent-seeking and easy profits without the need to employ people at decent wages due to globalization and mechanization, it’s still money that is being pocketed by the upper crust at the expense of everyone else. There is a broad recognition within the progressive left that the wheels are increasingly coming off the train that propelled the 20th century economic model.

Those in the neoliberal/center-left camp do believe that modern inequality is a problem, but that this too shall pass and we can trudge along as usual after a recovery. They expect that middle-class incomes will surely pick up again in due time and everything will be mostly back to normal after the “black swan” event on Wall Street as long as asset prices continue to rise. This is delusional thinking, but extremely commonplace—particularly among wealthier liberals.

The biggest reason for the bitter and sharp divides within the left is that progressives are exasperated with the center-left folks who are desperate to keep status quo going. They’re trying to put more juice in the asset-inflation machine, praying that if we just send enough kids to college in STEM fields and keep the Dow Jones and housing markets frothy enough, we can keep the jobs engine humming. It’s not going to happen.

Then you have the center-right. They take rational market theory as an article of faith, believing with religious fervor that if the labor and capital markets are allowed to act unimpeded, then both labor and capital will find a comfortable, fair and balanced price. No amount of evidence can convince them that both human life and dignity are priced incredibly cheap on the open market, or that that late 19th century was not, in fact, the model of a moral or economically functional society.

Both the center-left and the center-right share the belief that at some level the edges of the system should be polished and softened to cushion the most unfortunate. But neither is comfortable with larger alterations to the balance between corporate and government power.

Finally, there is the far right. These are the True Believers: the ones who not only buy into the center-right line, but also the raw Objectivism of Ayn Rand and Fox News that says that the only economic injustice in society is the one being perpetrated by the government itself, taking money from the “deserving” and giving it to the “undeserving.” In this view, the only inequality that matters to them is redistributive taxation to “others” in society. But the far right, being mostly made up of poorer and middle-class voters, does have the saving grace of at least grasping that something is fundamentally broken in the economy, and they’re willing to take drastic measures to fix it.

This is the problem: on the center left and center right are mostly well-to-do people who have no personal incentive to alter the status quo. Whether out of genuine belief or raw self-interest, they don’t think that much needs to change, and they believe that things will be back to normal soon. After all, things tend to be going pretty smoothly for them, and there don’t seem to be any pitchforks on the horizon—yet.

Then you have the great apathetic mass of Americans, growing larger every day, who have given up believing that any change in government policy will have any effect.

Finally, you have the politically engaged on either side who understand that the status quo really isn’t working. The far right ignorantly thinks it’s all government’s fault. The progressive left gets the scope the problem and the nature of the necessary solutions, but has almost no voice at the moment.

That’s a recipe for a slow-burning political and social powder keg. It won’t be pretty when it explodes.

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