Carol Graham has a recent opinion article "America's Broken Dream" which hones in on the status of economic opportunity in the US economy. She argues that:
If inequality is perceived to be the result of just reward for individual effort, it can be a constructive signal of future opportunities. But if it is perceived to be the result of an unfair system that rewards a privileged few, inequality can undermine individuals’ motivation to work hard and invest in the future.
She is not alone in this assessment. One of the core premises of Luigi Zingales, A Capitalism for the People (Basic Books, 2012) is that the US economy is becoming more of a connection based system than a contract based economic system. As a young man growing up in Italy, a classic connection based system, Zingales decided to move to the US to puruse opportunities that talent and hard work presented to him. But over the past 20 years, Zingales observes, the US economic system has moved more toward the Italian system of connection and privileges, and thus he fears that the opportunities that individuals can succeed economically through talent and hard work are dwindling.
Indeed, as Carol Graham points out, according the World Ranking of Economic Opportunity, the US now ranks lower than Italy. Problems with the analysis aside, I believe the substance of the claims should be a topic of constant discussion among economists and political economists of a market process and classical liberal perspective.
Politics is a reality of modernity, but unwarranted political influence in economic affairs is a product of institutional choice. We can, I would argue, find rules of the political-economic game that could effectively bind the grabbing hands and leave unfettered the invisible hands. Unfortunately, the invisible hand of the market has been cuffed by the grabbing hands of government and its rent-seeking partners to the detriment of long term economic growth in the US economy.
Carol Graham ends her article by calling for a public educational campaign on the damaging consequences of inequality as a low-risk strategy to restore the promise of the American Dream of economic opportunity for those of talent and hard-work. I would invite such a public discussion provided that the conversation would stress the dynamics of income distribution and the technical economics of wealth distribution as well as political economy considerations. Casey Mulligan's The Redistribution Recession (Oxford, 2012) must be read along side of Joe Stiglitz's The Price of Inequality (Norton, 2013). And, as part of our common knowledge the work of Gordon Tullock on The Economics and Politics of Wealth Redistribution should be included.
One other issue that is essential to keep in mind in these discussions -- and it is raised by the very Zingales thought experiment -- immigration and the case for open borders. The arguments presented by Bryan Caplan and Michael Clemens must be part of the conversation if we hope to generate common knowledge on wealth and equality.