Disparity of wealth will bankrupt U.S.

HANOVER, N.H. (U-WIRE) — “It need hardly be said that the subtlest practitioners of doublethink are those who invented doublethink and know that it is a vast system of mental cheating. In our society, those who have the best knowledge of what is happening are also those who are furthest from seeing the world as it is. In general, the greater the understanding, the greater the delusion: the more intelligent, the less sane,” George Orwell, “1984.”
Human nature takes comfort in justifying the unjustifiable. When the snake in the Garden of Eden lured Adam and Eve to the knowledge of good and evil, God gave back the ability to rationalize. How else would we stay sane?
After a 1995 New York Times article described the United States as the most “economically stratified of industrial nations,” George Will, a widely followed columnist, responded in the Washington Post that “increasingly unequal social rewards can conduce to a more truly egalitarian society, one that offers upward mobility to all who accept its rewarding disciplines.” Pay still more to those at the top of the socio-economic ladder, and those at the bottom will scamper up after them. You can bet that George Will never had a look at the ladder from the bottom.
The average CEO of a Fortune 500 company already earns more than 30 times the median income of an American worker. His (and I mean his) multiple of wealth is even greater. Will implies that the best way to lift the poor is to increase that multiple still more. The average inner-city child, going to the average inner-city public school, has a vanishingly slight chance of getting the kind of education he needs to get into the mail room of a Fortune 500 company, let alone an executive suite, regardless of how much he may covet a mega-salary or how hard he is willing to work.
The truth is, the life of elites in America is so foreign to most working Americans that adding an additional million or two to executive compensation has no real meaning except as a cause for resentment. Anyone arguing that such huge disparities motivate the poor is out of touch with the real lives of most Americans.
Economists like Paul Samuelson argue that increasing disparity is fine as long as general economic growth leads to higher absolute standards of living for the poor. Some of these economists emphasize the view that executives will work harder, innovate more, and compete more aggressively, if they are rewarded for doing so. To a point, this is no doubt true, but when do the returns diminish? Would Michael Eisner work less if he were paid a mere $10 million instead of $100 million? Other economists argue that greater concentrations of private wealth lead to greater private investment which leads to more growth. Again, how much concentration is optimal for savings and private investment? Japan has far smaller disparities in wealth and income, but far greater rates of savings and investment.
Recent evidence does not support the “rising tide lifts all boats” theory. During the past 25 years, when disparities in income and wealth have increased in the United States, the resulting growth has helped only the upper half of our income distribution. While the incomes of the most wealthy 20 percent of Americans have far outpaced inflation, the real incomes of the bottom 45 percent of American families have declined. In a recent New Yorker cartoon, one wealthy man remarked honestly to another, “It only trickles down if there’s a damn leak.”
Even if we suppose that the past 25 years have been an anomaly, and that economic growth generally raises the economic standard of all citizens, such growth may be crippled by dramatic inequality between social classes. Common sense would suggest that if incomes and wealth stray too far from a common concept of merit, then cynicism will lead to corruption and crime — clear impediments to growth. Recent studies indicate that countries with more equitable distributions of wealth grow more quickly than those with excessive disparity. Even if some economic disparity is good for growth, there is little evidence suggesting that more is better.
It is more likely that economic growth creates conditions for increasing disparities of wealth rather than the other way around. As we look for solutions to our social problems, let’s be sure that our opinions are not just rationalizations that stem from the daunting realities of our time.

— Scott Brown’s column originally appeared in Wednesday’s edition of the Dartmouth College Dartmouth.