Getting Serious about Inequality

“The tenacity of the Yankees… is a result of their theoretical backwardness and their Anglo-Saxon contempt for all theory. They are punished for this by a superstitious belief in every philosophical and economic absurdity, by religious sectarianism, and by idiotic economic experiments, out of which, however, certain bourgeois cliques profit.” Frederich Engels, letter to Sorge, London, January 6, 1892. Translation by Leonard E. Mins (1938)

One hundred and twenty-two years later, the Yankees remain bereft of theory while clinging to every outlandish scheme promising to curtail the appetite of an insatiable capitalist system. Churning on without interruption, capitalism generates greater and greater wealth for its masters while devouring everyone else in its wake. From regulatory reform to alternative life styles, from tax policies to cooperative endeavors, self-proclaimed opponents of this rapacious economic behemoth have announced newly contrived exits from its destructive path. While “…people [in the US] must become conscious of their own social interests by making blunder upon blunder…” as Engels put it in another letter to his US friend Frederich Sorge, the contented capitalists merrily continue profiting.

Engels’ brutal indictment of the North American allergy to theory and the affinity for unfocussed activism was tempered by an optimism based more upon hope than reality: “The movement itself will go through many and disagreeable phases, disagreeable particularly for those who live in the country and have to suffer them. But I am firmly convinced that things are now going ahead over there… notwithstanding the fact that the Americans will learn almost exclusively in practice for the time being, and not so much from theory.”

That conviction may well seem misplaced today as many of those who claim opposition to capitalism continue to decry theory and invest instead in utopian schemes and isolate burning issues from a general critique of capitalism and its social policies.

Nothing illustrates the Engels’ diagnosis more than the current public discussion of inequality and poverty. It is tempting to call the new-found interest a fad or fashion, since it seems to spring from nothing more than a sitting President’s alarm. But the present-day rage to address economic inequality is far more cynical. With interim national elections on the horizon and a competitive Presidential race on its heels, Democratic Party leaders served notice on the lame-duck President that it is time again to rouse the Party base, the labor unions, the progressive single-issue organizations, internet lefties, and the deep-pockets social liberals. Hence, despite the fact that inequality and poverty are neither newly discovered nor newly arrived, the alarm goes up: inequality is with us! Poverty is on the rise!

It is true, of course. Only a few outliers would deny that income and wealth growth for most people in the US have been stagnant or declining since some time in the 1970s (Even right-wing ideologue, Representative Paul Ryan, concedes that there are 47 million US citizens living in poverty). Health care has been in crisis, with millions left without any significant health options and untold numbers dying prematurely. The education system, like the physical infrastructure, is underfunded and crumbling. Employment continues to decline as discouraged workers exit the labor market. In short, poverty, disease, declining living standards, crime– all the attendant problems of social and political neglect– continue unabated, increasing dramatically over the last forty years.

At the same time, a privileged minority has enjoyed increasing income and wealth, a sharp rise in that group’s share of the economic pie. As the economy marched forward, the “fortunate few” marched forward as well, but at an ever accelerating pace.

Without Theory
“Data, not stultifying political or ideological rhetoric, must drive our agenda.” So says rising Democratic Party superstar, Senator Cory Booker, in a newsprint debate with Republican policy icon, Representative Paul Ryan. Sponsored by The Wall Street Journal (A Half Century of the War on Poverty, 1-25/26-14) to commemorate the fiftieth anniversary of the Lyndon Johnson-era “War on Poverty,” the two contestants demonstrate the futility of addressing poverty without a broad and deep understanding of its sources and its history– the “how” and “why” of social theory. Representing the “respectable” Left in the US two-party political pantomime, Booker rehearses a host of liberal think tank palliatives based on education, job training, apprenticeships, de-criminalized drug use, and a bare-bones safety-net designed to shrink the number of those unlucky enough to fall below official government floors.

Solutions, for Booker, come through the tools of business and commerce: investments, cost-benefit analysis, returns on investment, cost savings etc. Rather than improving peoples’ lives, the task of reducing poverty resembles an MBA project of this new generation of Democratic Party politician. He draws on suspect, often out-of-date correlations once found between education levels and future economic outcomes to sell education as a magic elixir. These long unexamined verities are now shaken by the absence of good paying jobs, the declining worth of higher degrees, and the enormous growth of student debt. Booker’s feeble defense of the leaky safety-net that remains as a tarnished legacy of the New Deal and Johnson’s anti-poverty legislation centers on food stamps and Medicaid, a formula to barely sustain life, but to not escape poverty. Add a dash of Moynihan-like sermon against single-motherhood and you have the anti-poverty program of the new generation of Democratic Party leaders– truly a patchwork of “economic absurdity” worthy of Engels’ contempt.
As for the Republicans, they argue for nothing, only against Democratic Party plans. Theirs is a simple contention: Forty-seven million US citizens remain in poverty. While the “War on Poverty” may have shifted the victims of poverty demographically, the poor are still with us and in great, stubborn numbers. For Representative Ryan, charity and moral suasion– the remedies of two centuries ago– are the only alternative to liberal interventionism and its failure.
Now liberals will recoil from these harsh conclusions. They can and will point to significant pockets of improvement, temporary declines in the poverty rate, or promising social experiments. But what they can neither explain nor address is the persistent reproduction of poverty by our economic system. For nearly forty years, measures of income and wealth inequality have grown, signally an inevitable increase in poverty. Even those ill-disposed to theory can surely see a relationship between growing inequality and increasing poverty.

Glaringly absent from Booker’s program is any significant plan to redistribute income and wealth. We can attribute that absence to the near complete ownership of elected officials of both parties by the corporations and the wealthy. But on the periphery of mainstream politics, voices can be heard advocating measures both to grow the economy beyond mass impoverishment and/or to redistribute wealth through taxation.
The Krugmans, Reichs, and Stiglitzs and the like enjoy a measure of independence afforded by their academic tenure and widely celebrated intellectual stature, allowing them to somewhat sidestep fealty to corporate masters. As esteemed economists, they understand that the continued growth of inequality will ultimately bring harsh economic or social consequences. But their nostrums, like those of the political establishment, only treat the symptoms of a persistent malady that continually generates inequality, unemployment, and crises. A study of economic history demonstrates that bursts of economic growth and progressive taxation have indeed tempered, even slightly reversed inequality and the growth of poverty, but over time both return to their former trajectory.

A Dose of Theory
A new study by a French economist, Thomas Piketty, brings forward the view that the long-term tendency of capitalism is to produce and reproduce inequality. Though his book, Capital in the Twenty-first Century, is not scheduled for release in the English language until March, it has already generated serious discussion across the spectrum of the US commentariat. New York Times columnist, Thomas B. Edsell, asserts that the book “suggests that traditional liberal government policies on spending, taxation and regulation will fail to diminish inequality.” (Capitalism vs. Democracy, 1-28-2014)
How can that be? The liberal and social democratic consensus cries out for government spending, progressive taxation, and corporate regulation as the answer to growing inequality. A gaggle of Nobel laureates embrace these tools, attesting that they are effective means to combat inequality. What does Piketty see that they do not?

Piketty is not afraid to study the history of inequality, a necessary condition for any proper socioeconomic theory. What he finds, according to Edsell, is that:
…the six-decade period of growing equality in western nations – starting roughly with the onset of World War I and extending into the early 1970s – was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality.
According to Piketty, those halcyon six decades were the result of two world wars and the Great Depression.
In other words, growing inequality is the normal for capitalism and its shrinkage the aberration. Apologists would have us believe otherwise, that capitalism does not carry a gene for inequality. Unlike his Yankee counterparts, Piketty is willing to study the economy as a system– capitalism– and explore its historical trajectory. Both methodological dispositions give rise to a theory of inequality, an incomplete theory, but a theory no less.
Now Piketty and his frequent collaborator Emmanuel Saez are widely acknowledged to be among the leading experts documenting inequality world wide as well as in the US. Undoubtedly this gives a high plausibility to his core claim to identify a strong correlation between capitalism’s typical course and the growth of inequality.
Of course students of Marxist theory or followers of this blog should not be surprised by Piketty’s findings. For over a hundred and fifty years Marxists have maintained that inequality and impoverishment are necessary products of the capitalist system. That is, the logic of capitalism necessitates growing inequality. By locating profit at the heart of the capitalist organism, Marxists understand that wealth will invariably flow to the tiny minority of the owners of capital and away from the producers. It is this process of profit generation that overwhelms all barriers, all “reforms,” to channel society’s resources to the capitalist class.

Piketty’s argument is a welcome antidote to the paucity of explanatory theory presented by the liberal and social democratic punditry. The controversy stirred by Piketty’s argument well before its English-language availability is a sure sign that he offers something beyond the conventional.
However, his interpretation of the long-term trajectory of capitalism, especially its departure from the norm, may be incomplete. He reportedly sees the time between 1914 and 1973– a time when he claims that the growth of inequality was uncharacteristically retarded– as a period when the after-tax rate of return on capital lagged behind economic growth. One could quibble that this is perhaps too simple and mechanical, the era was certainly one in which many factors worked to change the “normal” course of capitalism and often buffered the growth of inequality, together constituting a tendency.
But it would be a simplification to locate these factors entirely in economic or political events while overlooking policy. For example, throughout most of the twentieth century capitalism paid an anti-Soviet levy or rent to the working class as an inoculation against the threat of socialist or Communist ideology. That factor played no small part in moderating inequality, creating the mirage of working class equality, and ensuring labor peace.
Closer examination of Piketty’s interesting thesis must await publication of the book.

For a Robust Theory of Inequality
We needn’t wait for Piketty, however, to find an adequate theory of inequality. Elements of Karl Marx’s theory of socioeconomic development offer the key to understanding the production and reproduction of inequality in our time as well as earlier times.

There are, of course, many possible causes for the concentration of wealth. Theft, good fortune, guile, dishonesty are only a few of the ways that humans have redistributed wealth since antiquity. Such causes occur often in history, but only haphazardly. The only systemic cause of inequality is the expropriation of the labor of one by another under the protection of social norms. Marx called this process exploitation. He was the first to identify its forms and its trajectory. He was the first to explain adequately the mechanisms of expropriation. Armed with Marx’s theory of exploitation, the inequalities of slavery, feudalism, and, of course, capitalism are revealed with all their specific features. Thus, the concentration of wealth produced by expropriation of the labor of slaves, serfs, and employed workers is connected to unique socially protected forms of exploitation.

Exploitation explains how inequality arises and continues. Without recognition of this mechanism embedded in capitalist economic activity, liberals and social democrats cannot explain the persistence of inequality. They will apply inadequate reformist measures to stem the tide of wealth and income concentration springing from capitalist exploitation, but the tide will not be forestalled by reforms.

It cannot be overemphasized that inequality springs from a process, a process definitive of capitalist economic relations. Outside of the Marxist orbit, commentators view inequality as a state-of-affairs, a state-of-affairs existing between various social groupings. While they authentically decry the misery generated by inequality, they are at a loss to find the proper quantitative relationship between different groups constitutive of society. Sure, some have more than others, but what is the socially just distribution of society’s goods? Granted that inequalities exist, what is the optimal way to assign shares of wealth? How much and for whom? Should everyone get an equal share? Should those on the bottom get a 10% larger share? 20%? These are the questions that perplex the non-Marxists.

The best answer from the best minds of Anglo-American social philosophy is a pretty nasty and unsatisfactory principle called Pareto efficiency. Rather than solving the inequality puzzle, Pareto efficiency justifies an unequal state-of-affairs provided that it does not diminish the well-being of others, including the least advantaged. Because of the theoretical intractability of settling on exactly what constitutes a just distribution of goods and services, modern bourgeois academic philosophers attempt to establish what would be the least objectionable, but unequal state-of-affairs. Nothing demonstrates the theoretical barrenness of Anglo-American social thought than this misguided, impossible task of determining distributive justice once and for all and for all times and places. There is no idealized state-of-affairs that could answer this question. The question itself is misguided.

Rather, in our time, the task of reducing inequality, of advancing distributive justice, is to eliminate exploitation. There can be no ideal, perfect solution to the inequality issue, but there is a way of eliminating the primary cause of indefensible inequality in a capitalist society: end labor exploitation.

Liberals and social democrats have no answer to the rightist challenge that workers today are immeasurably better off under capitalism than they were two hundred years ago. It is certainly true that most workers now live longer, are healthier, and have more free time than did their counterparts two centuries earlier. Marxist theory does not challenge that point. Instead, it asserts that the logic of the capitalist system tends to impoverish working people at all times. Whether capitalism succeeds in suppressing living standards is entirely a different matter. Other factors– labor fight back, labor shortages, the cheapening of the means of subsistence, etc.– may buffer, even overwhelm this tendency for a time, but the tendency never disappears.

The tendency towards impoverishment flows logically from the Marxist understanding that labor under capitalism is a commodity like any other commodity. Capitalists buy and sell the labor power of workers just as they do any other factor of production or distribution. And as with any other cost, they seek to pay the lowest possible price for it. Accordingly, the capitalist system, through the cost-cutting actions of individual capitalists (or corporations), is constantly pressuring the compensation of workers downward to levels of mere maintenance– that is, poverty. The only systemic constraint upon that pressure is the necessity of securing labor in the future.

Therefore, we find in Marxism a basis for understanding (and addressing) inequality and poverty. Thanks to a theory that identifies the two closely related afflictions with specific historically evolved mechanisms and that connects their production and reproduction to economic systems, we can avoid the muddiness and ineffectiveness of the liberal and social democratic approaches. Both mystify the causes, offer a balm instead of a cure, and fail to halt the continuing reproduction of inequality and poverty. Like quacks and faith healers, liberals and social democrats may make the patient more comfortable, but only excising the cancer of capitalism will finally end the suffering.

February 11, 2014