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Rich America, Poor America

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Rich America, Poor America GOP candidates denounce complaints about inequality as 'class warfare.' Is there a credible conservative answer to the attack on the ‘1 per cent’?

There are “two nations; between whom there is no intercourse and no sympathy; who are as ignorant of each other’s habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets; who are formed by a different breeding, are fed by a different food, are ordered by different manners, and are not governed by the same laws…THE RICH AND THE POOR.”

The British novelist (and later prime minister) Benjamin Disraeli wrote those words about England in 1845. But they could equally well apply to the United States in 2012.

Since the advent of Occupy Wall Street, there has been a tendency to assume that only the left worries about inequality in America. The implication of OWS’s division of the country is that “we” are “the 99 percent,” and therefore conservatives must necessarily be apologists for “the 1 percent.”

Regrettably, the Republican candidates for their party’s presidential nomination have scarcely mentioned inequality in their recent debates. They prefer to accuse President Obama of waging “class warfare” whenever he brings it up. With Mitt Romney close to tying up the Republican nomination, this looks like being the battle line for this year’s election. Indeed, his Republican rivals have started doing Obama’s work for him, questioning the morality of the millions Romney made from private equity. As the focus turns to his ‘effective tax rate of 15 per cent, the question is: Does Romney have a credible answer to the charge that he personifies the division between rich and poor America?
As the case of Disraeli illustrates, true conservatives are not complacent about inequality. They understand only too well that a capitalist economy must soon lose legitimacy if the benefits of economic growth flow only to a tiny elite.

Consider these stark facts.

Adjusted for inflation, the income of the average American male has essentially flatlined since the 1970s, according to figures from the Census Bureau. The income of the bottom quarter of U.S. families has actually fallen. It’s been a different story for the rich. According to recent work by Berkeley economist Emmanuel Saez, the share of total income going to the top 1 percent of families has more than doubled since 1979, from below 10 percent to a peak of nearly 24 percent in 2007. (It has since fallen, but not by much.) The share going to the super-rich—the top 0.01 percent—has risen by a factor of seven.

Americans used to be proud of their country’s reputation as a meritocracy, where anyone could aspire to get to the top with the right combination of inspiration and perspiration. It’s no longer true. Social mobility has been sliding in the United States. A poor kid in America now has about the same chance of becoming a rich grown-up as in socially rigid England. It looks like Downton Abbey has come to downtown U.S.A.

Left-of-center economists like Paul Krugman and Jeffrey Sachs explain this phenomenon with the following story. Financial deregulation by Ronald Reagan ushered in an era of rampant greed in finance; meanwhile, Republicans ruthlessly hacked back New Deal and Great Society social programs to finance tax cuts for their Wall Street cronies.

To make their point, liberals point to European countries like Denmark, Sweden, and the Netherlands, where the rich have not been getting richer and social mobility remains high. Conclusion? America needs European-style policies like the ones listed by Krugman in a recent column: “more nutritional aid for low-income mothers-to-be and young children…[improved]?public schools…aid to low-income college students…[and] a universal health care system.” And how would that all be paid for? You guessed right: higher taxes on the rich.

Arguments like these are already beginning to feature in President Obama’s speeches. Expect more of the same if, as seems increasingly likely, he finds himself going head to head with Mitt Romney in this year’s presidential election. After all, Romney seems to personify that top 0.01 percent that made its pile out of deregulated finance (private equity, in his case) and lower income-tax rates.

So what, if anything, can conservatives say in response? Step forward Charles Murray of the American Enterprise Institute, whose new book, Coming Apart, offers by far the best available analysis of modern American inequality—and a much-needed antidote to the campaign for a European America.

Murray is no apologist for Wall Street. Looking at the explosion in the value of the total compensation received by the chief executives of large corporations, he pointedly asks if “the boards of directors of corporate America—and nonprofit America, and foundation America—[have] become cozy extended families, scratching each others’ backs, happily going along with a market that has become lucrative for all of them, taking advantage of their privileged positions—rigging the game, but within the law.” There is not much in those lines that the OWS protesters would disagree with.

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U.S. Bureau of Economic Analysis