Inequality is about the economy, stupid!

It's been strange watching the media reaction to Mitt Romney's taxes systematically miss the point: that a highly regressive tax structure that favours the hyper-rich is not simply a question of ethics or inequality, but also one of economics. The media's focus on Romney's fabulous wealth and whether or not it's "fair" that he has so much money and pays a much smaller percentage of income tax than Warren Buffet's secretary has resulted in predictable accusations of the politics of jealousy, "class warfare," and so on. It works to the advantage of people in Romney's tax bracket when the focus stays on his fabulous wealth -- simply proof that he is living the American dream -- and not on the implications for the economy of the regressive taxation system from which he benefits. From an economic perspective, the question is not so much whether Romney deserves to make so much money for his work overseeing leveraged buyouts during the heyday of the gung-ho Mergers and Acquisitions Era (although I suspect it would be hard to argue for any meaningful relationship between what he's taken out of the economy and what he has contributed to it), but the impact that rising economic inequality has on the economy as a whole. The fact that the economy does better -- is more stable and creates greater general prosperity -- during times of tempered economic inequality should come as no surprise. Producers need consumers, and when the vast majority of consumers are economically squeezed, consumption falls, the multiplier effect kicks in, and most folks (except perhaps for the M&A) folks are worse off. A society that dismantles its middle class is one that undermines its own economy. So the core issue about Mitt's taxes do not have to do with how much more money he's got than the rest of us, but about how the gaping inequality that goes with the regressive taxation system from which he benefits contributes to economic instability and threatens economic recovery.