We’ve heard a lot of talk from politicians over the past year about the rich having too much power within the U.S. economy. Both Donald Trump and Sen. Bernie Sanders (I-Vt.) have suggested that the system is “rigged” in favor of the wealthy and well-connected. Hillary Clinton promises that under her administration, “Wall Street, corporations and the super rich are going to start paying their fair share of taxes.”
Inequality has become the unexpectedly hot topic this election cycle. But for every time you hear politicians promising that they’ll be able to change the system, overturn the power structure and revive the middle class, here’s some advice: Don’t believe them. Wealth inequality is too ingrained in our economy to be fixed by any simple policy reform.
Last week we asked policy experts to examine tax policies that the next president could endorse to address the issue of inequality. Our contributors shared very little in common at the onset: Jared Bernstein of the Center on Budget and Policy Priorities said the need to address inequality was “beyond question”; Scott Winship of the Manhattan Institute argued that the whole issue was a “distraction.” But both made it clear that instituting more progressive taxes would solve our economic problems.
This is in line with recent research. The Brookings Institution published a study last year that found that raising the tax rate to 50 percent for the wealthiest Americans would have only a “trivial effect” on inequality. And even if you were to redistribute that new tax revenue directly to the poorest Americans, we’d still have greater inequality than we had in the 1970s.
Bernstein made a good point in his article that there are good policy alternatives that could reduce inequality beyond redistributive taxes — for example, strengthening unions so that workers can better negotiate wages and employee benefits. It’s probably true that stronger unions could possibly help reduce inequality in the United States, as the heavily unionized and much more egalitarian Scandinavian countries demonstrate.
But here’s the kicker: Even those countries have seen sizable growth in inequality over the past few decades. In fact, almost all countries in the developed world have witnessed rising inequality, regardless of their large welfare states or union-friendly government.
There is probably no single reason that inequality has continued to increase, but we do know that the “great divergence” began in the 1970s — the same time that our economy started bending to the tides of globalization. Asian nations emerged as major economic powerhouses, bringing with them hundreds of millions of cheap, low-skilled workers. Developed nations saw the industrial cores ripped out of their economies, replaced by a high-tech sector requiring very different skills than workers could provide. These factors, in addition to a corporate culture that accepts massive executive salaries, all built on each other to create the picture we see today: lagging wage growth for the middle class.
The reality that politicians rarely want to admit is that most of these compounding factors operate largely outside the realm of political control. The narrative of a few CEOs becoming incredibly rich just by getting cozy with the government is intellectually dishonest. Even if the next president and Congress found a way to work together and reform the system as they promise, it’s doubtful that there’s much they could do to turn the tide of the global economy, let alone in an eight-year window.
None of this is to say that inequality doesn’t pose legitimate concerns about our political and economic system. We should always be wary when it seems that any one group has too much power over our government (although at the moment, the evidence for this being the case is less than convincing). We must also continually examine how inequality impacts our economy.
Still, no one can honestly claim to have all the answers and policy solutions — as is the case with just about any economic issue. Yet this contradicts an odd convention of our current political climate: We rarely hear politicians admit what they don’t know. For some reason, such an acknowledgment would be considered bad optics: We can’t have uncertainty! Our leaders must have a plan for everything!
This is a silly expectation. As often as is possible, good government should be operated as a cautious science — and science requires us to concede what we don’t know. Addressing wealth disparities should be no exception.