The Unsustainability of Inequality
Rising inequality is symptomatic of a wide range of economic and political problems that are standing in the way of achieving a just and sustainable society. But for all the concern about the income and wealth gap within countries in recent years, there has been surprisingly little acknowledgement of the forces actually driving the trend.
AUSTIN – “Sustainability” is a relatively new organizing principle in global policy. It is new partly because economists have long been largely hostile to the very idea. Postwar neoclassical growth theories deliberately ignored resource and environmental limits, disparaged and disdained ecologists, and promised what was effectively impossible: perpetual growth fueled by unlimited resources, the free disposal of wastes, and never-ending technological progress. Early warnings – notably the Club of Rome’s pathbreaking 1972 report, The Limits to Growth – were ridiculed. More recently, the science of limits has gained acceptance, but most economists remain preoccupied with growth.
But there is at least one dimension of unsustainability that not even economists can overlook: inequality. Income and wealth disparities, along with other forms of inequality, are relevant to sustainability for at least three reasons.
First, rising inequality reflects the economic rents captured in resource extraction and production, whether by the owners of those resources or by financiers acting as parasitic middlemen. Second, inequality fosters the extravagant excesses that some now call plutonomy – an economic system in which a small group, the ultra-wealthy, accounts for a large share of total consumption. Under such conditions, a rising tide lifts only yachts, and competitive consumption creates an escalating pattern of what Thorstein Veblen, perhaps the greatest American economist, called conspicuous waste. Lastly, rising inequality is a good indicator of financial instability, which increases the probability of an impending crash.