Alas, my response is likely to be longer than the summary. Point by point.
Some inequality of income and wealth is inevitable
at what point do these inequalities become so great as to pose a serious threat to our economy, our ideal of equal opportunity and our democracy ...We are near or have already reached that tipping point
More on these three threats below.
we are heading back to levels of inequality not seen since the Gilded Age of the late 19th century
So I read the introduction to the article sentence by sentence, looking for bad news. I don't see it. I see "real wage growth of 60% between 1860 and 1890, despite the ever-increasing labor force."
It's not all wine and roses:
"However, the Gilded Age was also an era of abject poverty and inequality as millions of immigrants—many from impoverished European nations—poured into the United States, and wealth became highly concentrated."
But this is just saying that poor people moved from impoverished Europe to America, as "American wages were much higher than those in Europe." People's actions suggest that they were better off in America than they would have been in Europe. People also came from the far East: "Immigration from Europe, China, and the eastern states led to the rapid growth of the West, based on farming, ranching and mining." Pointing out suffering in America without considering the suffering in the places immigrants came from tells only half the story.
There were two big financial panics, in 1873 and 1893. I am no historian, but I don't see factors that can be clearly attributed to increasing inequality. The causes listed are inflation, speculative investing, trade deficit, war in Europe, fires in Chicago and Boston, and crop failure in Argentina. It's not obvious that these would have been less severe had there been greater equality.
Reduced desperation encouraged labor reformers to advocate for an 8-hour workday and elimination of child labor. "Local governments built schools and hospitals, while private schools and hospitals were founded by local philanthropists." Religious organizations prospered.
Sounds like an awful lot of improvement in a short time, with some speed bumps and growing pains along the way.
The data on widening inequality are remarkably and disturbingly clear.
No objection on the clarity. On to the three threats.
Because the rich spend a smaller proportion of their incomes than the middle class and the poor, it stands to reason that as a larger and larger share of the nation’s total income goes to the top, consumer demand is dampened.
1. What do the rich do with the portion of their income that they don't spend? They invest it. That investment enables other people to spend.
2. But suppose the rich actually hide what they don't spend under a mattress. If the rich have incomes higher than before, they are still spending more. If the poor have higher incomes than before, they are also still spending more (even if their incomes are a smaller percent of total income). I have seen claims that real median income has been "stagnant" in recent years. Even if that's true, it implies constant spending by the median household, not dampening.
"If the middle class is forced to borrow in order to maintain its standard of living..." Even stagnant real income enables a maintenance of living standards without increased debt. Inflation is hard to measure, and may not well reflect the increasing cost and popularity of higher education, nor the decreasing cost of consumer goods. Anyway, "when debt bubbles burst" it's going to be a mess, but I don't see that Reich shows that inequality makes it any worse.
Consider that the two peak years of inequality over the past century—when the top 1 percent garnered more than 23 percent of total income—were 1928 and 2007. Each of these periods was preceded by substantial increases in borrowing, which ended notoriously in the Great Crash of 1929 and the near-meltdown of 2008.
Guilt by association. We have been here before, and you can find any correlation you want if you look at enough data.
Reich draws special attention to two years when the top 1% earned more than 23% of the total. I have argued that this is less inequality than we should expect in a Pareto distribution, the pattern that describes many natural phenomena, like hard drive error rates and the size of sand grains. If 20% earn 80%, and 20% of the 20% (4%) earn 80% of the 80% (64%), then 0.8% should earn 51.2%.
Income in the U.S. is much less lopsided, and the top 1% earn far less than 50%.
Do the years 1928 and 2007 really stand out, or did Reich select them because really bad things happened shortly after? If this one-factor explanation is right, the early 1970s should have been pretty good times. They weren't.
Widening inequality also challenges the nation’s core ideal of equal opportunity, because it hampers upward mobility.
I found that income mobility is far more common than I expected. But there's a more fundamental difference in my perspective.
But even under the unrealistic assumption that its velocity is no different today than it was thirty years ago—that someone born into a poor or lower-middle-class family today can move upward at the same rate as three decades ago—widening inequality still hampers upward mobility. That’s simply because the ladder is far longer now. The distance between its bottom and top rungs, and between every rung along the way, is far greater. Anyone ascending it at the same speed as before will necessarily make less progress upward.
I can hardly go on after reading this paragraph. It's really a struggle.
Reich is upset that human beings have more potential to improve today than ever before. The ceiling is higher. It takes longer to reach each rung in the ladder now, because each rung is higher than ever. Even if people improve at the same speed as before he complains that there are newer and greater levels to attain.
yellowoftops tells us that this is an old idea, but I have trouble accepting that people believe it.
Can someone tweet to Reich and demand a response to a clear question? "True or False: If a poor person improves year by year, but a rich person improves faster, it would be better if they didn't improve at all."
I am bailing out here, but I would probably agree with Reich about the political implications of inequality.
If my neighbor earns twice as much as me, she should be able to afford two cars when I can afford one. But if she can get the city to repave her driveway using my tax dollars, it's a problem. I see it as a problem with government, not with inequality.
"Democracy is the illusion that my wife and I, combined, have twice the political influence of David Rockefeller." - Butler Shaffer