One doesn't need to use (untestable) theories to see the effects of inequality. Just look at the world. Those societies which support an oligarchy are less efficient.

Take most of traditional South and Central America, parts of Africa and the entire Middle East oil kingdoms as examples. Look at South Africa before and now.

Even if it could be demonstrated that having a really wealthy class was "a good thing" there is a moral argument against it. Most people would sacrifice some projected absolute growth in favor of reducing poverty now.

The growth argument is just a way to offer hope to the underclasses without having to face the problems that arise when wealth redistribution is mentioned.

The US is wealthy enough right now that everyone could be living above the poverty level without any additional "growth" if the excess earnings of the few were more fairly distributed.

It works in Scandanavia, for example.

OK, it's class warfare to say that Bill Gates has too much money. The UK managed to reduce the power of the land owning class over several generations by use of inheritance taxes. The society ended up better for it.

The real scandal is that the wealthy have too much money  and power and distort the priorities of the society for their own (short term) benefit. An unequal society is less efficient (as I mentioned above) and will fall behind in international competition. Fussing with trade won't fix this. 

Finally, lots of the problems in the US can be traced to excessive militarism/policing. This is a drain on the economy and diverts investment away from infrastructure and social improvement programs. Our competitors don't carry this weight. We spend more on militarism than the rest of the world combined. To ignore this as a factor in industrial policy planning makes the rest of the discussion almost meaningless.

 

I think the progressive liberal reaction to global trade should be to just let it happen, while working to ensure that our nation's citizens are given as much assistance as possible in adjusting to the changes taking place, and making sure that Big Business isn't given special considerations and privileged benefits.

The worker assistance thing in particular strikes me as a variation on social security - a sort of insurance against the periodic winds of economically violent change.  We know they've happened before, we know they'll happen again, and we know they always benefit moneyed interests and leave the workers in poverty.

Time to scrap welfare and create an Employment Security program open to all citizens, with a focus on education and reeducation, helping the downsized and the unemployed get and keep new jobs.  Put a measure on it so people aren't continually failing and reentering the program, but keep it as open as possible so it's there when people need it.

With something like that, along with measures to keep businesses from getting undue, unfair, lopsided benefits out of global trade, we can stop fighting trade and rest assured that, almost whatever happens, American workers will keep working and America will stay economically strong and vital.

I agree with where you're going: the immediate post WWII decades were the most prosperous in our history and yet saw wealth inequalities reduced.  There appears to have been no negative impact from all those social safety net programs, on the contrary the rapid expansion of the middle class generated enormous and profitable opportunities for capitalist gain.  Surely that evidence undercuts any argument that, somehow, we need to boost incentives for the wealthy so that we can get out of our current rut: our current problems result from increasing worldwide competition, not from the lack of incentive. 
I have always held that capitalism and democracy are natural antagonists, rather than being mutually supportive.  Capitalism seeks to concentrate wealth while democracy seeks to share it.  So any period in history where the two are reasonably balanced will tend to produce a more sustainable economic environment [sustainable as in having longevity, not as in ecologically sound!].  Recognizing this is why we try both to limit capitalism and to reign in popularism.  The problem now is that the balance has been broken and we are living through a period of too great an emphasis on capital.  Trade discussions have somehow become tangled up in the larger debate over where we strike the balance between democracy and capitalism.  
Where I would disagree with you is in your notion that tinkering with trade is a side show.  Practically all the economic debate on this board revolves around globalization or trade.  We need a progressive attitude towards trade that doesn't throw out the benefits [lower prices, greater choice] in order to protect those of us who suffer in the short term from the competition.  As I noted above I think the dominant economic issue we have is how to integrate into the world economy.  The problem becomes larger when we try to integrate without inducing democracy sapping inequalities.
As for militarism: you are dead on.  We don't have a defense budget, we have an offense budget.  How do we balance the need for defense with forcing the Pentagon to become efficient in its use of our money?  That's an awful lot of schools they're tossing away in waste down there.

Jason writes: 

I suspect we all agree that, at a fundamental level, efficiency and equity are not just compatible but complementary.

We certainly do not all agree.  You need to examine your "fundamentals", Jason.

Is capitalism efficient? Sure.

Is efficiency always a good thing? NO.

When is it not a good thing?  When it exacerbates a bias, i.e., when it works against equality.  The result, when this happens in an otherwise stable system, may not be just instability, but failure of the system, which may move monotonically towards an extreme state (a failure state).

Consider productivity improvements due to technology.  They benefit owners.  In the asymptote, they eliminate labor.  That labor is also the owner's market, in the longer term.  So by eliminating labor (so much for equity, by the way), owners shoot themselves not in the foot, but in the heart.  I know Henry Ford knew this, and I'm not an economist.

Free-market capitalism, when assisted by labor-devaluing technology, is too efficient to support its own markets.

How could this sort of imbalance be corrected?  You certainly can't assume it away, with unfounded claims about fundamentals such as yours.

Asymptotically, an ownership society is one in which wealth is so evenly distributed that there is, in effect, no ownership at all.  I'm sure you know where I'm going: that state is communism.

I would like to see you consider an ongoing phenomenon, one about which there was news yesterday.  There has been a battle brewing over ownership of electronically manifestible media.  I heard a grandfather got sued for his grandson downloading 4 movies on his computer.

The fundamental problem here is not that  children should understand the notion of intellectual property in order to respect it - it's that the notion, when applied to this sort of media - is highly unnatural.  The average consumer doesn't know how to program a VCR - this is beyond them.  If producers force this unnatural model on consumers, they will eventually destroy their own markets.  I suspect those markets will be destroyed anyway, by the efficiency of non-financial exchange in the world of computer networks.  Any attempt to force financial restrictions on this space can, and I suspect will, be blown away like dust in the wind.

Don't get me wrong - producing intellectual property should be my business - I'm just being objective here, as painful as it is even to me.

I get criticized for being a fundamentalist of a different sort; but I don't deny any evidence, and I know what my religion is.  Has modern economics become the priesthood of capitalism?  Sure looks that way from where I sit.

Our economy depends, to a large and growing extent, on the labor of illegal immigrants. This is not a good state of affairs, but just saying "Let's send them all back where they came from," shows you understand neither the problem nor the possible solutions.

Why not? Illegal aliens have no right to be here, and sending them all back where they came from is a perfectly moral and reasonable solution, especially with real (as opposed to official) unemployment rates above 10%.

By the way, did you enjoy that salad at lunch? Who do you think picked the lettuce for you?

I don't eat vegetables. But you are correct that a lot of agriculture uses poorly paid Mexican coolies. That needs to stop. It is not only exploitative, but it also takes jobs away from Americans and it retards technological advance. Without cheap labor, maybe we'd have fully automated harvests by now.

I was just thinking about this.  I don't think it is feasible for Democrats to launch a major offensive on illegal immigrants, since if I am not mistaken, many Democrats are immigrants if even a generation off immigrant, legal or illegal, I think this is a hot button issue for those Democrats, as they perceive it to be racist and they may have friends and family they are trying to help immigrate, legally or illegally.

However, upon thinking about it, I was earlier today advocating a huge raise in the minimum wage - $3.  Which might provide a tremendous trickle-up boost to the economy.  While many jobs in question are not there anyways due to outsourcing, manufacturing jobs, while in terms of service jobs, perhaps it would not have such a big negative affect.  I'd still buy just as many tacos for $1.05 compared to 95 cents for instance, and I don't think the drop in my savings account would amount to much difference in my quality of life or my childrens'.

Yet I also advocated this morning that welfare benefits should not increase a penny.  As I think it's better to provide incentive for workers not loafers.  And when there is incentive to loaf, you get ever higher numbers of illegal aliens, all bending over forwards to have a child so that the child and the mother become instant citizens, and with resulting flood in population increases housing costs and other costs of limited resources, which includes jobs, and the net result is the same situation or worse as before welfare was boosted.

But I think if we had the government take illegal immigration seriously, we could then safely and effectively boost welfare benefits - only if we could control the population.

Thus I think America needs to set a population "budget" and stick to it.  I am for immigration.  But I think some who might otherwise immigrate here can't because of illegal immigration.  Which is not fair at all and not good for diversity at all.

I would like this to be a Democratic plank but like others areas in life, I highly doubt it would work - i highly doubt a primary candidate standing on such a plank would win the primary election.

Great post.  Plus the "retraining" mantra overlooks the fact that the person who you want to "retrain" very likely just lost not merely a job but his/her vision of the American Dream.  People are not interchangeable units of production.  What this country really needs is a party standing for quality of life issues that don't measure every aspect of life by how efficiently it produces widgits.  There is more to civilization than what they teach you in an MBA class and there's more to loss than a job -- see New Orleans for reference.

Of course they would need full income support, not just the pittance that today's unemployment pays (plus benefits), but if that were possible then I would say they would have no problem raising a family and training for a job.

But we know that is not going to happen, so globalists who use it to handwave away the problems of "free trade" are not being honest.

The underlying problem is that a majority of Americans believe that they are in a higher income bracket than they really are, and an absurdly large proportion of Americans believe that they will someday be millionaires. That means that American policy is geared towards the needs and interests of the rich, because Americans think they will be in that class someday. It's completely delusional, and unparallelled in any other advanced democracy. Basically, the American electorate suffers from severe hallucinations and needs to be slapped upside the head to clear them out.