April 23, 2015

“Inequality has received a lot of renewed attention,” said Jan Svejnar in his introductory remarks to the April 17 discussion of “Inequality and Polarization.”

At the event sponsored by the Center on Global Economic Governance, which Svejnar directs, assembled political scientists and economists suggested that trending inequality and polarization have in fact been mutually reinforcing. They also examined the role of additional factors such as technology, finance, and the electoral process.

Howard Rosenthal, a professor of politics at NYU and a research fellow at GCEG, commenced the discussion by explaining how voters are increasingly stratified by income.

Polarization of campaign contributions is increasing rapidly and money is pouring into campaign finance “at unprecedented levels,” said Rosenthal, who also co-authored a 2008 book on the subject entitled Polarized America.

He said the mean position of both Democrats and Republicans have shifted, adding that Congressional votes increasingly reflect this polarization.

A self-proclaimed pessimist, Rosenthal said President Barack Obama’s claim that he could overcome polarization had been “a fantasy.” Rosenthal also made a dark prediction of continued inequality: “Our institutions kind of doom us to be where [we] are for a long time.”

Income inequality in the United States is among the highest in advanced economies, said Sharyn O’Halloran, George Blumenthal Professor of Political Economy at SIPA.

At the state level, opinion polarization is uncommon, said O’Halloran. The biggest differences, she said, tend to be on economic issues. The measure of this difference is also highly correlated with the number of African Americans in the population; the greater the percentage, the higher the difference in opinion.

While representatives may vote along party lines, when there is a difference in preferences between earners of high and low income, there is little room for compromise, O’Halloran said.

“When the rich and poor disagree, the rich will win more often,” she said.

The implication of this is that representation is unequal among income groups, O’Halloran said, noting that preferences of high-income groups are stronger predictors of voting than [those of] low-income groups.

The basic force that has been driving inequality is earnings, rather than inequality in capital income, said Wojciech Kopczuk, an associate professor at SIPA.

“When I think about inequality, I don’t necessarily think top quintile, then bottom quintile,” he said. “There’s much more that’s been happening.”

The very poor have not been necessarily been losing ground to the middle, Kopczuk explained. It’s those in the middle of the distribution who have been losing ground to people at the top of the distribution.

“I don’t think institutions are the explanation of what’s been happening with inequality,” Kopczuk said. “They may have some causal effect but they’re not the primary cause.”

Technological change has changed how the labor market works, Kopczuk said. He said additional factors such as demographics, gender, and education interact with changes in technology to shape changes in inequality in turn.

With regards to polarization, he noted, it is important to consider that we are not just talking about rich versus poor.

“We’re also talking about the changing nature of who the rich really are,” he said.

Kopczuk said there has been a dramatic change in the source of wealth: More of today’s wealthy have amassed their own assets, and fewer have inherited them.

For Joseph Stiglitz, a University Professor and Nobel laureate in economics, it is not technology that is driving the increase in inequality.

“It’s institutions,” said Stiglitz, who is also the co-founder and co-president of the Initiative for Policy Dialogue. “Institutions shape technology, they even shape what are called innovations.”

Exploitation by the rich is driving inequality, he emphasized. According to Stiglitz, technology and an increase in corporate governance rents have opened up the possibility for more exploitation and facilitated the consolidation of monopoly power.

The primary innovation, Stiglitz said, is “about how to exploit market power.”

But Stiglitz also suggested a path to reforming how the economy functions.

“One part of the agenda is to rewrite the rules of the game that made our economy work better and work fairly,” he said.

“The reality is that we have lower levels of equality of opportunity than almost any other advanced country,” said Stiglitz, adding that deficiencies in the education system are exacerbating inequality. Polarization has only limited more educational opportunity.

“Middle America is having a very hard time. Banks are trying to exploit people, it is harder to pay for education, it is harder to get other necessities,” said Stiglitz.

This inequality of opportunity in America is especially unfortunate because equal opportunity is at the heart of American identity, he said. But he ended on a hopeful note:

“One of the reasons for optimism is that we now recognize the magnitude of our economic and political inequality, and we recognize the link between economic and political inequality. And changing is not going to be easy, but at least we recognize it.”

— Tamara El Waylly MIA ’95