Wealth and income inequality have recently gone down in the U.S. and other parts of the West, and the decline has been going on for the better part of the last decade. Yet it is not clear, to me at least, whether this is something to celebrate.
The recent decrease should come as no surprise. Markets are well below their late 2021 levels, and the wealthy hold a disproportionate share of the stock market. Executive compensation also tends to move with the markets, which affect the wealth of founders such as Mark Zuckerberg, who according to one measure has lost about three-quarters of his net wealth at its peak. And then there are all those former crypto billionaires, and not just Sam Bankman-Fried.
At the lower end of the income scale, the picture is more complex. Nonetheless the labor market has yet to crash, the current unemployment rate is 3.7%, and there are signs of an inflationary soft landing.
I am not here to shed tears for the very wealthy or to argue that the bottom half doesn't need more help. My question is this: Do we feel good about this state of affairs?
Of course poorer people would be better off if they had more money, and we should enact policies to help bring that about. But critics of inequality make a different and much stronger set of claims, saying that inequality is responsible for health problems, despair, bad governance and social unrest. Those arguments — focusing on inequality rather than the absolute level of poverty — are an essential part of the current critique of capitalism.
Lower income inequality is not without downsides. Charitable giving is likely to fall. Fewer ambitious corporate projects will be undertaken. Major technology companies, which have seen some of the biggest declines in value, are laying off workers.
To be clear, these are manageable problems. But they are problems nonetheless.
And it's not as if people on the lower end of the income scale feel happier or more healthy because the wealthiest are now poorer. For most Americans, life goes on; their main economic concern is that high inflation will eat into potential wage gains.
Nor is it the case that the proletariat have taken hold of the reins of power and a new populist utopia is nigh. The very wealthy might make fewer political donations, but the influence of money on politics was overrated in the first place.
For at least two decades, the attention given to rising income and wealth inequality was huge, among both policymakers and academics. Over the last decade, the attention given to falling income and wealth inequality has been tiny. Our views of this issue, shaped by the media, may be seriously out of date.
