Congressional Democrats adjourned before the midterm election without extending the Bush-era tax cuts beyond this year. President Obama and a legion of liberal columnists had urged that they do so for families making less than $250,000 a year; only families making more would have seen their tax rates revert to pre-2001 levels. The commentariat scorned the Democrats' decision not to decide. "Profiles in Timidity" was the New York Times' editorial verdict.
Pairing tax cuts for 98% of the voters with increases for the richest 2% may sound like a can't-miss electoral proposition. The fact that so many politicians thought otherwise suggests, however, that the plan posed real risks. Their apprehensions looked well founded on election day when Washington state, which Obama carried with 57% of the vote in 2008, rejected a ballot measure to create an income tax applicable only to individuals making more than $200,000 a year and families making more than $400,000. This 1.2% of Washington's population evidently had a lot of less-affluent friends, because 65% of the voters opposed the tax.
Why do well-paid Americans like those who write editorials in the New York Times offices during the day worry more about economic inequality than the modestly compensated ones who empty their wastepaper baskets and vacuum their carpets after dark? Liberals were grappling with this problem long before the midterm election.
In his 1972 presidential campaign, Sen. George McGovern's proposal to impose a 100% tax on any inheritance over $500,000 (about $2.6 million today) got a hostile reception from voters, most of whom were unlikely to ever be affected by it. According to the less-than-respectful assessment from a McGovern advisor, the problem was that "it would wipe out the dream factor — every slob in the street thinks that if he hits the lottery big, he may be able to leave half a million to his family."
More recently, Slate's Timothy Noah lamented that "even mild economic populism" has been "a loser for Democrats." Noah devoted a 10-part series to "the most significant change in American society in your lifetime": The "Great Compression" of the post-World War II era, when the gulf separating the rich from the rest was unusually small, has given way since the 1970s to the "Great Divergence," as the gulf has done nothing but widen. Noah's "gut-level feeling" about this new economic reality is that "I do not wish to live in a banana republic" because societies "starkly divided into the privileged and the destitute" are "repellent."
Noah's thorough examination of the Great Divergence suffers by eliding the basic distinction between inequality and destitution. The truly destitute are poor in absolute terms, not because their finances, vis-a-vis the affluent, are so meager. If Obama somehow discovered the policy formula to double every family's disposable income during his administration, millions of people's economic anxieties would be greatly alleviated. However, the "problem" of economic inequality would not be mitigated even slightly. The ratios between a New York Times janitor's take-home pay, Noah's and Warren Buffett's would be the same at the end of Obama's presidency as they were at the beginning.
And, as long as those differentials remain, committed egalitarians will be unhappy, even if millions would be better off in the wake of this hypothetical Obama miracle. Noah is preoccupied by the thought that we are "social creatures and establish our expectations relative to others." Being able to buy stuff formerly out of your price range is all well and good, but the pleasure of unwrapping those new toys ultimately will be vitiated because lots of other people are buying more and better stuff than you are.
In a sprawling nation of more than 300 million, the others to whom each of us refer when establishing our expectations are going to be some others rather than all others. Part of the reason liberals deplore the Great Divergence is that their others include the "stinking rich," Noah's term for the top thousandth of the income distribution — people making more than $1 million a year.
The Great Divergence is a stone in the heart for the writer or intellectual who suffers from what David Brooks called "status-income disequilibrium" in his book, "Bobos in Paradise." One of the distinctive features of the Great Compression, as described in the book, was that "an investment banker went to Andover and Princeton, while a newspaper person went to Central High and Rutgers. But now the financiers and the writers both are likely to have gone to Andover and Princeton. The student who graduated from Harvard cum laude makes $85,000 a year as a think tank fellow, while the schlump she wouldn't even talk to in gym class makes $34 million as a bond trader or TV producer."