Income Inequality and Social Instability

There is a new book out called "Average is Over" written by Tyler Cowen. It explores a theme quite commonly heard nowadays, income inequality and potential social instability. (The social instability is always hinted at, written in a whisper, as if the tipping point is so close the mere mention of it will precipitate chaos.) Cowen generally agrees that there is a division of income in the U.S. that he believes will continue but he is much more confident in its outcome. His thesis is that the computer, Internet and increasing freedoms will make education and advancement much more democratic with a rise in quality and production. A “hyper-meritocracy” is developing. With computer advances, chess has become a common analogy now and he uses it too. Before online chess, an Armenian player would have had to move to Moscow to compete at the highest levels. Now, Armenia is a “perennial competitor” for international chess honors. The advance of machine intelligence will cause a surge in income inequality, but will also level the playing field for opportunity. In a recent interview with NPR Cowen predicted that “for a lot of people upward mobility will be a lot easier.” Competence, not social status, will decide.

As to the instability that doomsayers predict will result, Cowen calls these theories of the revolutionary consequences of income inequality “some of the least thought-out and least well-supported arguments with wide currency.” His argument is that there are stronger bonds in society than economic similarities. In a 2011 article for The American Interest, Cowen wrote, “By broad historical standards, what I share with Bill Gates is far more significant than what I don’t share with him.” (This is reminiscent of de Tocqueville who always thought there was an esprit in the nation based on liberty.)

More, wealth has risen dramatically. The Dallas Federal Reserve Bank published a report showing that the increase in income disparity is overwhelmed by the rise in the standard of living. In 1919 it took the average American eighty minutes of work in order to buy a dozen eggs. Today it takes him five minutes. That diffuse wealth is a very soothing--and perhaps sedating--element in society.

So income inequality might rise but so will opportunity. The real question is this: How does a society like ours judge social equality? Is income equality the best way? Or does the equality of opportunity and the collateral increase in wealth offer so much more?

Another question: If there is a complacency that develops in the "have-nots," what about the risk it will develop in the "haves," in the producers the "have-nots" need?