Ryan Streeter
Tyler Cowen's excellent essay in The American Interest on income inequality deserves a lot of attention and reflection.
The real inequality in America, Cowen shows, is between the top 1% and the rest of us. And the top 1% are largely in finance or sectors related to finance. Inequality between everyone else under the 99% threshold isn't that much of a story.
The story is not the inequality. The real story is the trend of bailing out these super-smart finance giants when they do super-dumb things and our overall inability to control what they do. And this is the real story because these super-giants exercise a certain ingenuity that is ahead of those who would try to rein them in. Stopping their rise to the top is nearly impossible.
Smart people have greater reach than ever before, and nothing really can go so wrong for them. As a broad-based portrait of the new world, that sounds pretty good, and usually it is. Just keep in mind that every now and then those smart people will be making—collectively—some pretty big mistakes.
This means that fighting against inequality, as the Democrats love to do, is basically fruitless (and let me remind the reader that a large number of people within the finance crowd lean left politically). The bigger problem is the slower growth we see among the lower and middle income groups. Cowen writes:
Wage growth for the median earner has slowed since 1973. But that slower wage growth has afflicted large numbers of Americans, and it is conceptually distinct from the higher relative share of top income earners. For instance, if you take the 1979–2005 period, the average incomes of the bottom fifth of households increased only 6 percent while the incomes of the middle quintile rose by 21 percent. That’s a widening of the spread of incomes, but it’s not so drastic compared to the explosive gains at the very top.
Cowen writes elsewhere of the depreciating return to knowledge, and this, it seems to me, is the really big challenge for us. Michael Mandel says this problem is the key underlying cause of our recent crisis rather than our debt (as Paul Krugman would say).
So the troubling conclusion from all of this is: knowledge and intelligence lead to greater wealth, and yet the returns to knowledge are diminishing for most of us. It seems that we face a knowledge capital dilemma in which we need to invest as a country in new technologies that will benefit the greatest number of people globally and create the most jobs domestically - and let the richest get richer so the rest of us can have growth-sector jobs for at least the next generation.
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