whole truth, to say that in modern America, class—inherited class—usually trumps talent.
Isn’t that true everywhere? Not to the same extent. International comparisons of “intergenerational mobility,” the extent to which people can achieve higher status than their parents, are tricky because countries don’t collect perfectly comparable data. Nonetheless it’s clear that Horatio Alger has moved to someplace in Europe: Mobility is highest in the Scandinavian countries, and most results suggest that mobility is lower in the United States than it is in France, Canada, and maybe even Britain. Not only don’t Americans have equal opportunity, opportunity is less equal here than elsewhere in the West.
| Table 10. Percentage of 1988 Eighth Graders Finishing College | ||
|---|---|---|
| Score in Bottom Quartile | Score in Top Quartile | |
| Parents in Bottom Quartile | 3 | 29 |
| Parents in Top Quartile | 30 | 74 |
Source: National Center for Education Statistics,
It’s not hard to understand why. Our unique lack of universal health care, all by itself, puts Americans who are unlucky in their parents at a disadvantage: Because American children from low-income families are often uninsured, they’re more likely to have health problems that derail their life chances. Poor nutrition, thanks to low income and a lack of social support, can have the same effect. Life disruptions that affect a child’s parents can also make upward mobility hard—and the weakness of the U.S. social safety net makes such disruptions more likely and worse if they happen. Then there’s the highly uneven quality of U.S. basic education, and so on. What it all comes down to is that although the principle of “equality of opportunity, not equality of results” sounds fine, it’s a largely fictitious distinction. A society with highly unequal results is, more or less inevitably, a society with highly unequal opportunity, too. If you truly believe that all Americans are entitled to an equal chance at the starting line, that’s an argument for doing something to reduce inequality.
America’s high inequality, then, imposes serious costs on our society that go beyond the way it holds down the purchasing power of most families. And there’s another way in which inequality damages us: It corrupts our politics. “If there are men in this country big enough to own the government of the United States,” said Woodrow Wilson in 1913, in words that would be almost inconceivable from a modern president, “they are going to own it.”[7] Well, now there are, and they do. Not completely, of course, but hardly a week goes by without the disclosure of a case in which the influence of money has grotesquely distorted U.S. government policy.
As this book went to press, there was a spectacular example: The way even some Democrats rallied to the support of hedge fund managers, who receive an unconscionable tax break. Through a quirk in the way the tax laws have been interpreted, these managers—some of whom make more than a billion dollars a year—get to have most of their earnings taxed at the capital gains rate, which is only 15 percent, even as other high earners pay a 35 percent rate. The hedge fund tax loophole costs the government more than $6 billion a year in lost revenue, roughly the cost of providing health care to three million children.[8] Almost $2 billion of the total goes to just twenty-five individuals. Even conservative economists believe that the tax break is unjustified, and should be eliminated.[9]
Yet the tax break has powerful political support—and not just from Republicans. In July 2007 Sen. Charles Schumer of New York, the head of the Democratic Senatorial Campaign Committee, let it be known that he would favor eliminating the hedge fund loophole only if other, deeply entrenched tax breaks were eliminated at the same time. As everyone understood, this was a “poison pill,” a way of blocking reform without explicitly saying no. And although Schumer denied it, everyone also suspected that his position was driven by the large sums hedge funds contribute to Democratic political campaigns.[10]
The hedge fund loophole is a classic example of how the concentration of income in a few hands corrupts politics. Beyond that is the bigger story of how income inequality has reinforced the rise of movement conservatism, a fundamentally undemocratic force. As I argued in chapter 7, rising inequality has to an important extent been caused by the rightward shift of our politics, but the causation also runs the other way. The new wealth of the rich has increased their influence, sustaining the institutions of movement conservatism and pulling the Republican Party even further into the movement’s orbit. The ugliness of our politics is in large part a reflection of the inequality of our income distribution.
More broadly still, high levels of inequality strain the bonds that hold us together as a society. There has been a long-term downward trend in the extent to which Americans trust either the government or one another. In the sixties, most Americans agreed with the proposition that “most people can be trusted”; today most disagree.[11] In the sixties, most Americans believed that the government is run “for the benefit of all”; today, most believe that it’s run for “a few big interests.”[12] And there’s convincing evidence that growing inequality is behind our growing cynicism, which is making the United States seem increasingly like a Latin American country. As the political scientists Eric Uslaner and Mitchell Brown point out (and support with extensive data), “In a world of haves and have-nots, those at either end of the economic spectrum have little reason to believe that ‘most people can be trusted’…social trust rests on a foundation of economic equality.”[13]
In discussing ways to reduce inequality, it’s helpful to make a distinction between two concepts of inequality, and two kinds of inequality-reducing policies.
The first concept of inequality is inequality in market income. The United States is, of course, a market economy. Most people get most of their income by selling their labor to employers; people also get income from the market return to assets such as stocks, bonds, and real estate. So one measure of inequality is the inequality of the income people get from selling things. The distribution of market income is highly unequal and getting more so. In fact, market income is now as unequally distributed as it was in the 1920s.
But that’s not the end of the story. The government collects part of market income in the form of taxes, and transfers part of that revenue back to the public either in direct payments, like the Social Security checks that are the main source of income for most older Americans, or by paying for goods and services like health care. So another measure of inequality is the inequality of disposable income—income after you take taxes and government transfers into account. In modern America, as in all advanced countries, inequality in disposable income is less than inequality in market income, because we have a welfare state—though a small one by international standards. Taxes and transfers, which somewhat crimp the living standards of the rich while helping out the less fortunate, are the reason America in 2007 doesn’t
Now, one way to reduce inequality in America is to do more of this: to expand and improve our aftermarket policies, which take the inequality of market income as given but act to reduce its impact. To see how this might work, let me describe an example of a country that does vastly more to reduce inequality than we do: France.
If you’re going through a rough patch in your life—or if your whole life has been rough—it’s definitely better to be French than American. In France, if you lose your job and have to take an inferior one, you don’t have to worry
