What’s the solution to income inequality?

In December, Lisa and I visited the palace of Versailles, the residence of French royalty from Louis XIV to Louis XVI, or 1682 – 1789. It was awesome – and terrifying. The opulence on display was truly breathtaking. Marie Antoinette, it turns out, had an entire village built in the garden out back so she could cosplay as a commoner. (No, I’m not joking.)

But the entire site exists as a monument to hubris.

You see, at the same time we started listening to Charles Dickens’s A Tale of Two Cities. Written 80 years after the French Revolution, Dickens’s descriptions of the grinding poverty found elsewhere in France while the palace was occupied by Marie Antoinette are striking. They paint a picture of income inequality that should terrify anyone who might be considered an economic elite.

The French Revolution illustrates conditions that can be considered an upward boundary on income inequality. Once inequality hits this boundary, social contracts fail and the laws that govern society unravel (or dissolve entirely).

Effort to reduce income inequality (or at least mask it) aren’t only for the poor – they also serve to protect economic elites from the fate of Louis XVI. The rich kids of Instagram have the opposite effect.

So if income inequality has some sort of practical upper boundary, what about conditions below that threshold? Is there a solution to income inequality?

I think of income inequality as a description or measurement, a bit like temperature. Is it ever the wrong temperature? No, because temperature is descriptive; it doesn’t have a moral dimension. But can it be too hot or cold for survival? Absolutely.

The question in the title comes from a friend, who asked me about it on Facebook. I’m going to reframe it thus: “What sort of economic policies should we pursue?” I have a few reasons for this. First, a measurement or description can’t be ‘solved’, in the same way that you’d never try to solve a temperature reading. Second, the real world needs solutions that are directional instead of idealistic. We should be informed by ideals, but policy should be able to take the real world and move it in the direction of those ideals.

The wisest economic policy prescription I’ve read come from the book Why Nations Fail: The Origins of Power, Prosperity and Poverty by Daron Acemoglu and James Robinson. This book describes societies from colonial America to the Soviet Union to North and South Korea. It spends a lot of time talking about societal elites who create extractive, oppressive political systems that create the sorts of injustices that led to the French Revolution.

The antidote to this is to focus economic policies on inclusivity. When everyone is able to participate in an economy (start a business, own property, buy things and sell them at a profit), you have the conditions for a more just society. When some are excluded from full economic participation (for example, not being able to own property because of gender or tribal affiliation), injustice follows. Embedded in this is the idea that economic participation requires political participation. People who can’t vote will find themselves excluded from full economic participation pretty quickly.

This is both achievable and realistic. It avoids the pitfalls of forced income redistribution, which leads to a stifling of innovation and an overall lower standard of living. It also avoids the pitfalls of an elite-driven system of monopolistic capitalism, which keeps people trapped and unable to be economically mobile.

This, then, is the basis for any economic policy I consider: does this policy move us toward or away from economic inclusivity?

Help me out, dear readers. Add to this conversation. What books have you read that helped your thinking in this area? What am I missing?