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Thursday, October 31, 2019

5 Spooky Facts about Power and Inequality You Probably Didn’t Know

Here are five facts about inequality you might not know.

What better way to get in the Halloween spirit than a spine-chilling binge of the viral Two Sentence Horror Stories on Netflix? If you still don’t get your fill, you can head over to Reddit for more “bite-sized scares.”

Two of the most outspoken critics of economic inequality look like they’ve been working up their own scary #TwoSentenceHorrorStories leading up to Halloween:

Power, money, influence—inequality is a frightening concern for many people. The way it is debated these days is even scarier than Demi Lovato’s infamous zombie outfit. Our former president called inequality “the defining challenge of our time,” while partisan politicians paint one side as a bunch of heartless monsters and the other side as brainless as the living dead.

To help us all have a more informed (and civilized) conversation about this important issue, here are five facts about inequality you might not know.

1. Historically, the Wealthy Got Rich by Exploiting the Poor, but … 

For most of human history, there was a single story of how the rich got rich. The ruling political class extracted great sums of wealth from everyone else. Kings and emperors topping the list of the 10 richest men of all time reported by the BBC earlier this year include Mansa Musa I, Genghis Khan, Emperor Akbar I, and William the Conqueror.

Only recently, through the expansion of market economies in the late 19th and 20th centuries, have entrepreneurs and business tycoons cracked the list of the world’s wealthiest.

We should be careful to differentiate between the economic means and the political means of obtaining wealth.

There is something quite different about the fortunes amassed by plunder and those generated by providing the world with Amazon, Microsoft, and Facebook.

Entrepreneurs can generate enormous wealth by making people in society better off. There’s nothing wrong with that. Unfortunately, like the old days, we also see the politically connected working with government agencies to rig profits.

When thinking about economic inequality in our modern world, we should be careful to differentiate between the economic means and the political means of obtaining wealth.

This differentiation also helps illuminate the real worries people have about inequality, which brings us to my next observation.

2. Concerns about Economic Inequality Are Usually Concerns about Power

I’ve been reading everything from Teen Vogue to the Economic Policy Institute to understand what people are saying about economic inequality. The challenges are nuanced, but the primary concerns young people have are crystal clear—it’s all about power.

Those attacking inequality emphasize the fear that wealth means the power to control. It’s as if the rich are a species of vampire who prey on the weak and feed on the blood of their victims. Once charmed, the victim will obey the vampire master’s command for eternity.

There is truth to the age-old story of plunder by the ruling class, and everyone agrees that power corrupts. So, even if we differentiate between the economic means and the political means of acquiring wealth, shouldn’t we be worried that the wealthy possess too much power?

In their study of markets and corruption, Georgetown University’s Jason Brennan and Peter Jaworski concluded:

[P]olitics corrupts markets. The more politicized an economy becomes, the more private actors try to rig regulations and the law to cheat consumers and competitors. Instead of trying to keep the nasty market away from pristine politics, we should be trying to keep nasty politics away from the market.

Reaching a similar conclusion, the 2018 Economic Freedom of the World report suggests an

…intrinsic link between economic freedom and other measures of human well-being—such as infant mortality, equality, happiness, and extreme poverty rates.

Additional studies of the 50 states discovered that limiting the size of government, the level of taxation, and the level of labor market regulation decreases inequality and increases incomes of the poorest 20 percent at the state level.

Your concern that some people have too much power is justified, but this is a problem with politics, not wealth. High levels of government control over the economy tend to breed corruption and structural inequality. Open markets of dynamic cooperation tend to decrease inequality and increase wealth for the most disadvantaged.

3. People Debating Inequality Are Biased, Too

Any good politician knows perception matters more than reality. Facts don’t win emotional arguments. You can actually drive a person further away by offering corrective information that challenges a wrong view or seems to dismiss their own personal experience.

When someone contradicts our views in a debate about a sensitive topic like inequality, our bodies respond in much the same was as being physically attacked. Like being chased by a chainsaw-wielding monster in a haunted house, our natural response is fight or flight.

In The Righteous Mind: Why Good People Are Divided by Politics and Religion, Jonathan Haidt offers insights from moral psychology we can use to navigate ideologically charged conversations and help build bridges of understanding.

Haidt’s lesson is one of humility. We are all much less rational than we think. Our emotional intuitions come first, and then we engage in “motivated reasoning” to justify what we want to believe.When it comes to the facts of inequality in their society, it is not just that people are wrong; people hold systematically biased beliefs. In evolutionary terms, reasoning was designed to help us win arguments, not pursue the truth.

Moreover, we should be aware that all human beings suffer from cognitive bias. That’s a fancy way of saying our brains deviate from rational judgment in identifiable patterns. When it comes to the facts of inequality in their society, it is not just that people are wrong; people hold systematically biased beliefs.

So, instead of treating important issues as political battles, let’s turn a contentious debate into a conversation where well-meaning (and oftentimes mistaken) people who disagree about fundamental issues can learn from one another. To start a productive, honest conversation about economic inequality, here are four questions we should be asking.

But what if the inequality gap really is proof in support of our feelings of injustice?

4. Inequality Can Be a Sign of Injustice

Hear me out on this one. I know inequality is an emotion-filled topic closely related to issues of racism, discrimination, and generational oppression. There are definitely some shady things going on that need to be fixed. I just want to make sure we’re going after the real problem.

People worried about economic inequality typically focus on gaps in wealth, income, and opportunity. They attack unequal distribution as being the real crime, with added emphasis on the “extreme and growing” divide between the haves and the have-nots. The heart of the concern seems to be that some have more. Isn’t the gap itself unjust?

Let’s imagine I bring home more trick-or-treat candy than my little brother because I’m able to cover twice the number of houses. It might be admirable for me to share my bounty, but there is nothing inherently unfair about our candy gap.

Now imagine the neighborhood bully has more candy because he stole from my little brother and his friends. That would be unjust. The injustice is the candy theft, not the candy gap.

Forced transfers to those with power are on par with the neighborhood candy thief.

In the real world, injustice does create economic disparities. Political power has too often been used to unfairly restrict economic opportunities for targeted racial groups. Among the many examples of laws with racist origins, we find marijuana prohibition and the drug war, minimum wage laws, zoning laws, and government protection for labor unions. Even Jim Crow laws were a political attempt to reverse the economic trends that were abolishing segregation in the marketplace at the time.

Predatory institutions, such as slavery, are clearly unjust. So is a political system that facilitates billions of dollars in wealth transfers to the rich in the form of corporate subsidies, bailouts, and bloated government contracts. Forced transfers to those with power are on par with the neighborhood candy thief.

In his book Race & Economics, Walter Williams details how the natural incentives of an unhampered market promote tolerance, punish discrimination, and benefit the most disadvantaged members of society. Williams explains how political intervention in the labor market reduced opportunities and arrested progress for many black Americans.

Anywhere you see rigid inequality over time, the odds are good that there are laws and regulations in place giving some people unfair political advantages or shielding others from bearing the costs of discrimination. That is the real source of injustice.

5. Populist Policies Tend to Make Inequality Worse

The world has made enormous progress in our struggle to escape from under the oppressive thumb of power. We’ve seen vast reductions in hereditary privilege, state religion, and authoritarian monarchy. The radical idea of individual dignity and human rights even led to the abolition of the ancient, barbaric institution of slavery.

This is all relatively new to human history. Just because global poverty and inequality are falling doesn’t mean the trend will continue or that progress is happening quickly enough.

There is one concerning trend that should give us reason to pause. Those most fiercely attacking economic inequality are also proposing policies to consolidate the kind of power that is historically responsible for creating vast inequality in the first place.

Prominent intellectuals such as Joseph E. Stiglitz (Nobel Prize for Economics in 2001) are worried about the powerful influence the wealthy have on our political system. He believes our economy should be democratically accountable to “the people.” In “The American Economy Is Rigged,” Stiglitz’s agenda for fighting inequality includes:

  • Empowering the government to set the salaries private companies pay executives
  • Increasing government control of the financial industry
  • Ensuring affordable housing for all
  • Providing government-guaranteed access to health care
  • Increasing government funding for public education, including access to college for all
  • Increasing government power for setting the rules of “modern competition” in the marketplace
  • Granting stronger power for unions
  • Increasing government control over individual retirement programs
  • Reducing inheritance to prevent intergenerational advantages
  • Raising taxes

Like many people, Stiglitz is worried that the wealth of the super-rich gives them unfair access to control the distribution of social, economic, and political power.

Concerns about inequality are, rightfully, concerns about power. As such, we have good reason to be suspicious of calls for greater centralized power as the solution. Using the political means to address the symptom of economic inequality is like thinking that the One Ring forged by Sauron in the fires of Mount Doom can be held “democratically accountable.”

Coming Together

Thinking about issues like the imbalances of power in society can be overwhelming and frightening. Things become less scary if we come together in conversations that start by looking for common ground.

This Halloween, my IRL two-sentence horror story might be:

People in our communities were suffering. Instead of learning what actually makes people better off, we retreated to partisan battles on Facebook.

If horror stories aren’t your thing, check out FEE’s Made in Mékhé for the moving story of one entrepreneur fighting against poverty in her home country of Senegal by bringing the beauty of Africa to the world.

  • Jason Riddle was the Vice President of Programs and Strategic Operations at FEE. Prior to joining FEE, Jason spent over eight years as a management consultant working with a variety of public and private organizations to enhance their business performance through improved risk management, operational effectiveness, and control around internal and external reporting.