Peter Radford — Inequality is political

I see this as our greatest long term issue, but more in terms of politics than economics. Why? Because the extent of inequality in society is something we choose through our political action or inaction. There will always be some degree of inequality. I see that a a fact of life. Asymmetries abound. Inconsistencies, mistakes, and plain dumb luck all conspire to make the distribution of society’s spoils a very lumpy and uneven affair. This we cannot change. But we can, I believe, expand or contract the difference between top and bottom if we so choose. There is no “natural” level of inequality, it is entirely a function of policy.

With that said, I see our current level as both morally unacceptable and socially disruptive....

As for the social impact, I see two vectors through which damage is done.
One is the slow erosion of demand....

Even if this is not true the second vector of damage is, I believe, supported by a more secure argument. It is politically disruptive, over time, for the majority of the spoils from growth to go to a concentrated few. History is replete with societies whose stability was undone by inequality. More often than not this instability was offset by force – authoritarian or autocratic oppression preserved the unequal society. So I ought restrict myself to making the argument that long term and large movements away from relative equality are destabilizing for democratic societies.

And this is where I see we are today.

Real-World Economics Review Blog
Inequality is political
Peter Radford

Peter Radford agrees that capitalism and democracy are incompatible and without wealth redistribution will lead to social dysfunction.

A wise capitalist is, therefore, one who surrenders substantial wealth in order to preserve democracy, and not one who seeks to undermine it by excessive accumulation. Similarly, a wise democrat is one who tolerates some element of inequality as the price paid for the extra wealth generating power of capitalism.

The two systems clash. The two systems enable each other, but only in moderated form. We can understand the combination as having a feedback loop that prevents either system from careening off into a pure form.

Today’s high[er] level of inequality suggests, to me, that the feedback loop is not working well. We have too little redistribution and too much accumulation. If this continues we risk destroying both systems because neither capitalism nor democracy in a pure form can survive the social instability they engender. With democracy being the more likely loser of the two....