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August 08, 2014 3:14 PM S&P Agrees: Inequality Not Natural or Healthy

By Ed Kilgore

Perhaps the best thing about Monica Potts’ latest (and maybe first; I’m not sure exactly when she left the Prospect) column for The Daily Beast is the headline: “The Big, Long, 30-Year Conservative Lie.” She’s alluding to the common view on the Right that inequality and poverty are natural, healthy developments in a free society, and that doing anything about it would be economically ruinous and morally suspect.

But as she notes, an unusual authority has weighed in against the “natural and healthy” lie: Standard and Poor’s:

Inequality is bad for the economy….
The latest to say so is the rating agency Standard and Poor’s, not exactly a bastion of lefty propaganda. An S&P report released August 5 says that rising inequality—gaps in both income and wealth—between the very rich and the rest of us is hurting economic growth. The agency downgraded its forecast for the economy in the coming years because of the record level of inequality and the lack of policy changes to correct for it. The report’s authors argue against the notion that caring about equality necessarily involves a trade-off with “efficiency”—that is, a well-functioning economy.
To be sure, they’re not making a case for a massive government intervention to help low-income Americans. They discuss the benefits of current policy proposals—like raising the federal minimum wage to $10.10 per hour—with the caveats that such changes could have potential negative consequences—like dampening job growth. (Most economists agree that such a small hike wouldn’t have that impact.)
At its core, though, the S&P report does argue that pulling people out of poverty and closing the gap between the 1 percent and the 99 percent will increase economic growth. The authors argue for some redistributive policies, like increased financial aid for post-secondary education. “The challenge now is to find a path toward more sustainable growth, an essential part of which, in our view, is pulling more Americans out of poverty and bolstering the purchasing power of the middle class,” the authors write. “A rising tide lifts all boats…but a lifeboat carrying a few, surrounded by many treading water, risks capsizing.”

That’s a nautical metaphor we should all commit to memory.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

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