Cholesterol and inequality
Economic Inequality is the main political issue of 2012. Not only has the crisis propelled it to the top of the national conversation in many nations but the fact that there will be elections and leadership changes in countries that make up 50 percent of the world economy will also add to its centrality. In all of these nations, the protests against inequality and the promises to reduce it will heighten an already passionate political debate.
Inequality is nothing new. What is new is a recently acquired intolerance for it, which first emerged in the rich countries hardest hit by the crisis, and is now quickly spreading to the rest of the world. The great majorities — hard pressed by unemployment and austerity — have begun to take an interest in how their country's income and wealth is distributed. For a long time, the world lived a peaceful coexistence with inequality, though the passivity was often interrupted by revolutions seeking equality.
While in some countries authoritarian regimes do what they can to hide their deep economic inequities, in Africa or Latin America inequality is highly visible, constantly denounced by politicians and stoically endured by the people. In other countries it is celebrated. In the United States, for example, inventors, artists and sport stars who make astronomical sums are admired and seen as models to be emulated.
Now all of this is changing. Everywhere, the idea that fighting inequality is futile or unnecessary has become indefensible. While everyone admits that the unequal distribution of wealth will certainly be hard to change, it is no longer as easy as it used to be to change the subject or argue that there is nothing to do about it.
For example, the scrutiny of the life and deeds of the richest "one percent" has become obsessive. Headlines such as this from the Los Angeles Times — "The WalMart heirs have the same net worth as the bottom 30 percent of Americans" — are a good example of this trend. So is the fact that the more strident voices of the radical right are attacking Mitt Romney for being rich and paying low taxes. Or that in Russia, one of the chief complaints against Vladimir Putin is the shameful spectacle of the oligarchs swelling their unimaginable fortunes thanks to the Kremlin while most Russians suffer hardships.
Not everyone, of course, is down on the rich. Jamie Dimon, JP MorganChase's CEO, said in exasperation: "Acting like everyone who's been successful is bad and because you're rich you're bad, I just don't get it." Dimon's perplexity rests on the assumption that wealth is society's way of stimulating and rewarding innovation, talent and effort. His assumption is that those who are rich deserve it.
Not always. Great wealth can also proceed from corruption, discrimination, monopoly, abusive corporate behavior, or crass criminal acts, such as those of Bernard Madoff. The list of the world's wealthiest people includes many who owe their money more to the state than to the market.
Some students of inequality compare it to cholesterol: there is good and bad inequality, and the trick is to stimulate the good kind while keeping the bad at as low a level as possible.
And this is our present challenge: how to reduce inequality without stifling other objectives (investment, innovation, risk-taking, effort, productivity). We know that a more equal society has been the aim of countless revolutions that only ended in more inequality, poverty, backwardness, loss of liberty and even genocide.
But inequality also has toxic effects. Apart from the obvious moral considerations, evidence shows that high inequality is bad for the health of a nation, leads to political instability and violence, and hurts long-term competitiveness and growth.
This year we are going to see many proposals for reducing the income gaps that have widened in recent decades. Some will be old — and probably bad — ideas dusted off and presented as new. But some new and very good ones will certainly arise too. The challenge for the voters, and for those who have the power to change things will be to learn from history and lower the bad inequality while stoking the good one. Unfortunately, as we know, avoiding the mistakes of the past is often harder than it seems.