How Rising Inequality Has Widened the Justice Gap

Rising inequality has harmed low-income families not only by depriving them of a fair share of society’s income growth, but also in a more specific way: It has stacked the legal system even more heavily against them.

According to a recent survey, more than 70 percent of low-income American households had been involved in eviction cases, labor law cases and other civil legal disputes during the preceding year, and in more than 80 percent of those cases, they lacked effective legal representation.

Indigent persons charged with crimes are entitled to state-sponsored lawyers, but here, too, funding shortages are widespread. The stakes in criminal proceedings are often enormous, but civil disputes often produce life-shattering outcomes as well.

As Martha Bergmark, executive director of Voices for Civil Justice, an advocacy group, put it in an article published by ThinkProgress: “You can lose your children, you can lose your home, you can lose your livelihood without having legal help to get you through complicated legal proceedings.” Solving this problem will require not only moral outrage, but also a clearer understanding of how market forces have contributed to it.

Free-market enthusiasts celebrate Adam Smith’s “invisible hand,” which describes how markets harness self-interest to serve the broader interests of society. Yet Smith himself understood that greed alone wouldn’t create a just community. He believed that markets could function adequately only in the context of an elaborate foundation of laws and ethical norms.

But even the most carefully devised regulations aren’t sufficient. They must also be enforced, which requires costly resources. Generally, we let families decide for themselves whether to incur the necessary expenses to engage in civil disputes.

Yet many families simply cannot afford to pay for competent legal representation.

That’s why Congress created the Legal Services Corp. in 1974, a nonprofit whose mission is to support civil legal aid for low-income citizens. But the Legal Services Corp. was never adequately funded. And in the ensuing decades, rising income inequality has contributed both to a reduction in the supply of legal assistance to low-income families and an increase in the need for it.

Rising inequality has reduced the supply of legal aid by kindling resistance to taxation. A sense of entitlement to income produced by the fruits of one’s own labor has always existed, but in today’s winner-take-all economy, those on top earn vastly more than before. And changes in campaign finance laws have enabled them to lobby successfully for lower tax rates, contributing to widening budget deficits.

Those shortfalls help explain why the Legal Services Corp., which received more than $860 million in 1981, received only $385 million in 2017 (both in 2017 dollars).

Rising inequality has increased the need for legal assistance by inflating the cost to low-income families of achieving other basic goals.

In almost every modern society, for example, an important goal of parents is to send their children to good schools. But a “good school” is an inescapably relative concept — it is one that compares favorably with other schools in the local environment. And the best schools are almost invariably located in costlier neighborhoods.

Higher spending on housing by top earners has shifted the frames of reference that shape spending by those just below them, and so on. Because of this expenditure cascade, the median new house in the United States is now 50 percent larger than in 1980, even though median income has grown little in the interim.

The share of poor families’ income spent on housing has thus risen sharply, and the inevitable struggle to keep pace has caused measurable increases in economic and social distress. In U.S. census data, for example, counties in which income inequality grew most rapidly also saw the biggest increases in bankruptcy filings, long commutes and divorce rates. Is this a matter of public concern? Most economists celebrate reliance on market rates of pay in the name of efficiency, but many go on to argue that they also promote a measure of fairness, rewarding those who work hard and invest in developing their skills. Well and good. Yet it is an overreach to claim that market-determined rates of pay are morally just.

Many top earners are not only talented and hardworking, but they are also lucky to have grown up in privileged circumstances. And it is one thing to say that someone who is 10 percent more skillful should be paid 10 percent more. But in today’s winner-take-all marketplace, those who are only 1 percent more talented often earn thousands of times more. These observations are difficult to square with anyone’s conception of a just society.

The good news is that we could relieve both revenue shortfalls and household budget distress — and provide more legal aid to the poor — without causing painful dislocations for the rich.

Many people who could easily afford the tax increases necessary to pay for more generous social services currently resist that step because they believe it would make it harder for them to buy the special extras they want. But that belief is mistaken, because the standards that define special are elastic. When everyone spends less, those standards adjust accordingly.

Much private spending is thus mutually offsetting, resembling across-the-board increases in weaponry in arms races that do not alter the balance of power. Because higher taxes don’t affect relative purchasing power, they have little effect on people’s ability to buy life’s luxuries.

The top 10 percent of households currently pay an average federal income tax rate of 21 percent. An increase of just 1 percentage point would raise revenue by more than $45 billion annually.

We could simultaneously support the Legal Services Corp. and other social services more generously and inhibit the expenditure cascades that have made it more difficult to afford these services. And most reassuring to those whose taxes rose, the very same households as before would still be in the top 10 percent.

It would be instructive to ask wealthy taxpayers who oppose this policy change to explain why.