Review: The Great Divergence by Timothy Noah (2012 book)

Almost nobody thinks income and wealth should be distributed with perfect equality. Most of us want to see talent, creativity, and hard work rewarded, both because we think that’s fairer and because we recognize the practical benefits of giving people an incentive.

On the other hand, most of us aren’t in favor of extremely unequal distribution either, again based both on abstract notions of what’s fair and on practical considerations of what works best for the economy. Henry Ford recognized that the more people could afford to buy his cars, the richer that made him. A growing and prosperous middle class was the engine of the American economy after World War II. Someone with a hundred times my income might buy more televisions and pairs of shoes than I do, but probably not a hundred times as many. Billionaire venture capitalist Nick Hanauer did a good job making that point in under six minutes in a TED talk he gave on March 1, 2012. See this previous post or this link on YouTube.

(Incidentally, for a while that short video was unavailable on the TED site, resulting in overblown charges of “censorship” from Hanauer and his supporters, which provoked a response from TED’s Chris Anderson that, while making some valid points — in fact, most short TED talks don’t get posted on line — had some problems as well. Hanauer’s talk has predictably attacked from the right, the only valid criticism I’ve seen is that the unemployment line on one of Hanauer’s graphs is correct only at its end points and just wrong in between. Fair enough; he shouldn’t have screwed that up. But the bad graph doesn’t invalidate Hauer’s whole point.)

Anyway, I suspect pretty nearly everybody would agree that it would be best to have something between perfect income equality and extreme inequality. But just where the ideal point would lie is very hard to say, as Timothy Noah acknowledges in this book.

But it’s at least clear to those who have looked at the data (excepting a few ideologues on the right, and not very many of them) is that inequality shrank for many decades in the middle of the 20th century with results that for the most part were pretty positive for the country, but unfortunately since about 1979 inequality has been growing, and by 2007 in the United States inequality was by a number of different measures at levels not seen since 1929 just before the Great Depression.

Furthermore, while most developed countries have also seen growing income inequality in recent decades, several have not, and the effect is apparently stronger in the U.S. than anywhere else.

Also worth noting is that while the poor have been hurt by rising inequality, it’s the middle class that have been most seriously affected. That is, it’s not just that the rich are getting richer and the poor are getting poorer; it’s that the poor are getting poorer, the middle class are taking an even bigger hit, and the super-rich are soaking up a drastically greater share of the national income.

The exact reasons for all this are disputed, and Noah suggests (probably correctly, I think) that it’s a confluence of multiple causes. Alas, while he subtitles the book America’s Growing Inequality Crisis and What We Can Do about It, he actually doesn’t have much to offer in the way of simple or achievable solutions.

One of the more important of them is to do something about the soaring cost of higher education. Even after adjusting for inflation, it’s vastly more expensive to go to college today than it was back in my time. Noah quotes administrators who cheerfully admit that they charge more because they can get away with it. They can in part because other universities are raising their rates as well, and students and their families are over a barrel because they realize that today there’s an even bigger gap than there used to be between income for college graduates and high school graduates, and those with advanced degrees are benefiting even more.

Noah also suggests restoring the income tax brackets that used to exist for those with super-high income, a notion even thoughtful conservatives have lately come to recognize is needed. The purpose would not be to redistribute the money downward as handouts but rather to keep the government functioning and providing a set of basic services for everybody, including support for higher education.

While I’ve barely touched on the gist of what Noah has to say, this is an admirably concise book — a mere 200 pages not counting the end notes and index — and I recommend it. It’s an important subject, and you’re not likely to find another book that covers it as readably.

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