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Conservative Concern: Runaway Inequality Will Destroy Economy
Posted By Washingtons Blog On September 25, 2011 @ 1:30 am In Philosophy,Think Tank,Wages & Income | Comments Disabled
Leading economists agree that rampant inequality leads to unstable economies and depressions , and makes the middle and lower classes poorer .
While the stereotype is that liberals care about inequality and conservatives don’t, that is actually a myth.
According to the voice of Canada’s business establishment: “High inequality can diminish economic growth if it means that the country is not fully using the skills and capabilities of all its citizens or if it undermines social cohesion, leading to increased social tensions. .
A mounting body of research shows that, left unchecked, a growing income gap affects the rich, the poor and everyone in between.
No matter your political leanings, most people understand that endless concentration of income, wealth and power is bad for the economy. After all, businesses rely on rising purchasing power of the many, not the few, to deliver growth and profits.
No one knows the tipping point, but lock enough people out of the promise of gains and at some point, instead of stability and growth, you get social unrest.
History has shown us, time and again: When too much is controlled by too few, something has to give. Continuously rising inequality is unsustainable.
Everyone has a stake in fixing this. And the fix has no political colour.
(The Post is correct about the potential for social unrest .)
Moreover, IMF economists have demonstrated that inequality increases a nation’s debt . Because conservatives are passionate about reducing debt, reducing inequality is a conservative value.
And as I noted in February :
Renowned behavioral economist Dan Ariely (Duke University) and Michael I. Norton (Harvard Business School) recently demonstrated  that everyone – including conservatives – thinks there should be more equality.
Their study found:
Respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution. Most important from a policy perspective, we observed a surprising level of consensus: all demographic groups—even those not usually associated with wealth redistribution such as Republicans and the wealthy—desired a more equal distribution of wealth than the status quo.
Ariely comments :
Taken as a whole, the results suggest to us that there is much more agreement than disagreement about wealth inequality. Across differences in wealth, income, education, political affiliation and fiscal conservatism, the vast majority of people (89%) preferred distributions of wealth significantly more equal than the current wealth spread in the United States. In fact, only 12 people out of 849 favored the US distribution. The media portrays huge policy divisions about redistribution and inequality – no doubt differences in ideology exist, but we think there may be more of a consensus on what’s fair than people realize.
How could the media portrayal regarding this issue be so wrong?
Well, for one thing, as a study the Pew Research Center found , the corporate media tends to take Wall Street’s view on economics. Indeed, the media is largely set up to spout propaganda which supports the view  of the powers-that-be. The financial sector has been by far the biggest beneficiary of government policies over the past 10 years or so. So the media tends to defer to Wall Street’s own arguments against equality.
Everyone agrees that a system which uses the power of the state to reward the fraud and gambling of the largest banks and biggest corporations through socialism for the rich and capitalism for everyone else is not free market capitalism, and is downright anti-American.
As I noted  last November:
Conservatives tend to view big government with suspicion, and think that government should be held accountable and reined in.
Liberals tend to view big corporations with suspicion, and think that they should be held accountable and reined in.
Specifically, a Rassmussen poll  conducted in February found:
70% [of all voters] believe that the government and big business typically work together in ways that hurt consumers and investors.
(and see this ).
Remember that the government helped and encouraged the giant banks  to get even bigger, and then has hidden their insolvency and shielded them from the free market,  and helped them grow even during the severe downturn.
In return, the big banks and giant corporations have literally bought and paid  for the politicians.
Conservatives might call it “socialism” and liberals might call it “fascism” – they are the same thing economically .
But all Americans – conservatives and liberals alike – can agree that it is not capitalism, and it is not American.
As I pointed out  in December:
Conservatives hate big unfettered government and liberals hate big unchecked corporations, so both hate legislation which encourages the federal government to reward big corporations at the expense of small businesses.
As an example, both liberals and conservatives  are angry that the feds are propping up the giant banks – while letting small banks fail by the hundreds – even though that is horrible for the economy and Main Street .
The Dodd-Frank financial legislation … enshrines big government propping up the big banks … more ore less permanently .
Many liberals and conservatives look at the government’s approach to the financial crisis as socialism for the rich and free market capitalism for the little guy. No wonder both liberals and conservatives hate it.
And it’s not just the big banks. Americans are angry that the federal government under both Bush and Obama have handed giant defense contractors like Blackwater and Halliburton no-bid contracts. They are mad that – instead of cracking down on BP – the government has acted like BP’s p.r. spokesman-in-chief and sugar daddy .
They are peeved that companies like Monsanto are able to sell genetically modified foods without any disclosure, and that small farmers are getting sued when Monsanto crops drift onto their fields.
They are mad that Obama promised “change” – i.e. standing up to Wall Street and the other powers-that-be – but is just delivering more of the same .
They are furious that there is no separation between government and a handful of favored giant corporations. In other words, Americans are angry that we’ve gone from capitalism to oligarchy .
So if both liberals and conservatives hate something, it doesn’t necessarily mean it’s a compromise. It may mean that they feel disenfranchised  from a government that is of the powerful and for the powerful .
In other words, while many conservatives are against raising taxes on the wealthy, they are overwhelmingly for stopping the use of the power of the state to increase inequality. See this , this  and this .
This is an area of agreement between people of good faith on the left and on the right. As Robert Shiller said  in 2009:
And it’s not like we want to level income. I’m not saying spread the wealth around, which got Obama in trouble. But I think, I would hope that this would be a time for a national consideration about policies that would focus on restraining any possible further increases in inequality.
If we stop bailing out the fraudsters and financial gamblers, the big banks would focus more on traditional lending and less on speculative plays  which only make the rich richer and the poor poorer, and which guarantee future economic crises (which hurt the poor more than the rich).
Indeed, if we break up the big banks, it will increase the ability of smaller banks to make loans to Main Street , which will level the playing field.
Moreover, both conservatives and liberals agree that we need to prosecute financial fraud. As I’ve previously noted , fraud disproportionally benefits the big players, makes boom-bust cycles more severe, and otherwise harms the economy – all of which increase inequality and warp the market.
And as I noted  last April, prosecutors could claw back ill-gotten gains from the criminals and use that money to help the economy:
The bottom line – as conservative blogger Michael Rivero writes  – is that too much inequality kills the market:
For an economic system to be a system, money must flow freely at all levels and in all corners. When those in charge of the system decide to so order the mechanisms of the financial sector to drive the money into a single huge pile, the system cease to be a system and a crash becomes inevitable. One might as well force all the blood in your body to stay in the brain. The end result is the same; death for the body.
He’s right .
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2011/09/conservative-concern-runaway-inequality-will-destroy-economy/
URLs in this post:
 rampant inequality leads to unstable economies and depressions: http://www.washingtonsblog.com/2011/07/the-economy-cannot-recover-as-long-as-inequality-continues-to-skyrocket-but-government-policy-is-increasing-inequality.html
 makes the middle and lower classes poorer: http://www.washingtonsblog.com/2011/09/when-rich-get-richer-it-doesnt-raise.html
 conservative: http://en.wikipedia.org/wiki/National_Post
 9th biggest: http://en.wikipedia.org/wiki/List_of_newspapers_in_Canada_by_circulation
 noted: http://www.nationalpost.com/news/problem+everyone/5433076/story.html
 potential for social unrest: http://www.washingtonsblog.com/2011/08/austerity-and-runaway-inequality-lead-to-violence-and-instability.html
 inequality increases a nation’s debt: http://www.washingtonsblog.com/2011/09/imf-inequality-increases-national-debt.html
 February: http://www.washingtonsblog.com/2011/02/its-a-myth-that-conservatives-accept-rampant-inequality.html
 demonstrated: http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20press.pdf
 comments: http://www.chrismartenson.com/blog/return-dan-ariely-survey-results-are/52500
 found: http://www.journalism.org/analysis_report/covering_great_recession
 supports the view: http://www.washingtonsblog.com/2009/10/herding-the-sheep.html
 noted: http://www.washingtonsblog.com/2010/11/we-can-fix-america-if-we-focus-on-what.html
 Rassmussen poll: http://www.rasmussenreports.com/public_content/politics/general_politics/february_2010/only_21_say_u_s_government_has_consent_of_the_governed
 this: http://www.washingtonsblog.com/2010/02/only-21-say-u-s-government-has-consent-of-the-governed-those-with-the-lowest-incomes-are-the-most-skeptical.html
 government helped and encouraged the giant banks: http://www.washingtonsblog.com/2009/10/debunking-the-too-big-to-fail-myth.html
 hidden their insolvency and shielded them from the free market, : http://www.washingtonsblog.com/2010/11/its-not-the-great-recession-its-the-great-bank-robbery.html
 literally bought and paid: http://www.washingtonsblog.com/2010/03/82-of-americans-clamp-down-on-wall.html
 pointed out: http://www.washingtonsblog.com/2010/12/both-liberals-and-conservatives-hate-corporate-socialism-where-the-federal-government-favors-giant-corporations-at-the-expense-of-the-little-guy.html
 horrible for the economy and Main Street: http://www.washingtonsblog.com/2010/12/the-economy-cannot-recover-until-the-big-banks-are-broken-up.html
 permanently: http://www.washingtonsblog.com/2010/11/welcome-to-the-age-of-permanent-bailouts-for-the-giant-banks.html
 sugar daddy: http://www.publicintegrity.org/articles/entry/2565/
 oligarchy: http://www.washingtonsblog.com/2009/09/zandi-the-oligopoly-has-tightened.html
 disenfranchised: http://www.washingtonsblog.com/2010/02/only-21-say-us-government-has-consent.html
 of the powerful and for the powerful: http://www.washingtonsblog.com/2009/10/capitalism-socialism-or-fascism.html
 this: http://www.washingtonsblog.com/2011/01/government-says-no-to-helping-states.html
 this: http://www.washingtonsblog.com/2010/04/banana-republic-with-no-bananas.html
 said: http://transcripts.cnn.com/TRANSCRIPTS/0911/01/fzgps.01.html
 focus more on traditional lending and less on speculative plays: http://www.examiner.com/economic-policy-in-national/nobel-prize-winning-economist-described-the-root-of-the-financial-crisis-1993
 increase the ability of smaller banks to make loans to Main Street: http://www.washingtonsblog.com/2011/01/%e2%80%9cthe-vast-majority-of-this-contraction-of-credit-availability-to-american-industry-has-been-by-the-larger-banks%e2%80%9d.html
 noted: http://www.washingtonsblog.com/2010/12/letting-fraud-continue-will-not-restart.html
 noted: http://www.washingtonsblog.com/2010/04/radical-concentration-of-wealth-is-destroying-both-capitalism-and-democracy.html
 disgorged: http://www.investopedia.com/terms/d/disgorgement.asp
 this: http://www.google.com/search?hl=en&client=firefox-a&hs=oDS&rls=org.mozilla%3Aen-US%3Aofficial&q=sec+disgorge+%22ill-gotten+gains%22&aq=f&aqi=&aql=&oq=&gs_rfai=
 this: http://www.google.com/search?q=cftc+disgorge+%22ill-gotten+gains%22&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
 writes: http://whatreallyhappened.com/node/101616
 He’s right: http://www.washingtonsblog.com/2011/02/john-kenneth-galbraith-and-marriner-eccles-explained-50-years-ago-that-inequality-causes-crashes.html
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