Dr. Helen

The Upside of Inequality

Do you ever wonder why the left is always harping on income inequality, as if this is just something that occurs because a bunch of fat cats take money from the poor and middle class and keep it for themselves? Inequality arguments make for good soundbites for politicians and the media to get people riled up and jealous, but in a new book by Edward Conard, the author argues “that our current obsession with income inequality is misguided and will only slow growth further.”

The book is entitled The Upside of Inequality: How Good Intentions Undermine the Middle Class and it is an excellent analysis of why putting the blame for income inequality on high earners is not the solution and how other factors play a part in the lack of economic growth:

Using fact-based logic, Conard tracks the implications of an economy now constrained by both its capacity for risk-taking and by a shortage of properly trained talent—rather than by labor or capital, as was the case historically. He uses this fresh perspective to challenge the conclusions of liberal economists like Larry Summers and Joseph Stiglitz and the myths of “crony capitalism” more broadly.

Instead, he argues that the growing wealth of most successful Americans is not to blame for the stagnating incomes of the middle and working classes. If anything, the success of the 1 percent has put upward pressure on employment and wages.

Conard argues that high payoffs for success motivate talent to get the training and take the risks that gradually loosen the constraints to growth. Well-meaning attempts to decrease inequality through redistribution dull these incentives, gradually hurting not just the 1 percent but everyone else as well.

Conard outlines a plan for growing middle- and working-class wages in an economy with a near infinite supply of labor that is shifting from capital-intensive manufacturing to knowledge-intensive, innovation-driven fields. He urges us to stop blaming the success of the 1 percent for slow wage growth and embrace the upside of inequality: faster growth and greater prosperity for everyone.

The problem with our society now is that risk-taking and being successful are discouraged in many ways. Many students (mostly women) in college today want to be social justice warriors which leads to stagnation, and college students are encouraged to work at non-profits where feeling good about themselves trumps economics. Getting talented workers who can grow the economy is getting harder and harder. Add to this the problem that no one shows up on time for most jobs and it’s no wonder so many people don’t do well in the workforce.