I stumbled across an article in the New York Times a few days ago by Tyler Cowen of George Mason University and a regular contributor to the blog Marginal Revolution. Entitled “Income Inequality Is Not Rising Globally. It’s Falling.”, it takes a crack at attempting to indicate that while country-level income inequality is increasing the overall effects of globalization are leading to less aggregate income inequality globally, and that this is a good thing. I always enjoy reading Cowen’s stuff even when I don’t agree with him, and in this case I have a few contentions as a political scientist about his argument.
These contentions developed after seeing a comment from a friend on Facebook about the article. He noted that the key problem isn’t income inequality, but wealth inequality. The way that income and growth are structured in the modern world, if you start from a position of higher wealth and asset ownership, the more you benefit from the structure of the global economy. If you rely on a bi-weekly paycheck though you face nothing but downward pressure on your economic position, unless you work in the information, research, governance, or financial sectors (which happen to all play key roles in globalization). Cowen though says that while this country-level trend is unfortunate, we shouldn’t miss the point that globally income inequality has dropped. This is where I have my biggest contentions with the argument, since economics is about politics, and like Tip O’Neill said all politics is local.
To make his argument Cowen has to invert the relationship between people, politics and economic systems. In effect, he argues that we should be happy that while at the local (or national) level the economy might be a mess, it’s important that at a global system level income inequality is decreasing. For this to hold up, we have to assume that systems, in this case the global economic system, are what people are responsive to, things that people can’t or shouldn’t be motivated to change. While Cowen is more humane than many of his libertarian counterparts, believing that safety nets should still exist for the workers who lose in national wealth inequality, he still makes what I think is a problematically common mistake in economics. Implicit to Cowen’s argument is that economic systems exist in parallel or outside the impact of politics. Instead of discussing the tangible problem of increasing wealth and income inequality at the national level as something that can be changed through policy and intervention, he finds an abstract way to claim the system is working. This is a huge problem from a public policy perspective.
At a fundamental level Cowen’s argument subverts the notion of representative democracy. The models of economy have become the ends in themselves, things that politicians and policy makers have applied normative value to, and thus try to shape laws and policy for. This is where the democracy problem comes in. In the United States, we ostensibly elect officials to create policies that support the public interest. When those representatives make economic policy that is based on a set of models that actually lead to massive inequality and economic hardship, they are no longer representing their constituents and instead are representing the abstract notion of market economics. If my congressional representative’s response to a total failure of the economy in my district is to say “there may be no jobs and wages might be way too low, but at least on a global scale income equality is down” then they are not representing the needs of their constituents.
This is the inherent problem with Cowen’s argument, and it has knock on effects since policy makers listen to him and other’s from his school of thought. Essentially he is arguing that a system that has failed at the level where it matters (the citizen level) due to particular aspects of the socio-political nature of finance-driven markets shouldn’t be changed at the local level because it seems, depending on how you
cook define the numbers, to be working at an abstract global level. It dehumanizes economics, which is an inherently very human enterprise. In case we forget our history, such things as the Reign of Terror, Communist revolutions, and Jesus’s life and teachings were in response to fundamentally broken and/or exploitive economic systems. If tally the score in those three cases, it would be: System Maintenance 0 : 3 Revolutionary Uprising (and Violence).
Politicians and public intellectuals who focus on abstract and contorted ways to justify the maintenance of an economic system that tangibly fails the public would do well to heed the lessons of history. Abstract arguments about the way the global system is working won’t mean much when the pitchforks come out at the local level.