Many people, particularly on the left, argue that the modern economy is increasing inequality. But, as I have discussed before, important trends in innovation increase equality. One example of these equalizers is the sharing economy. The ideas of a law and economics theorist of the developing world show how this new economy generates a greater return on the assets that people of modest means are most likely to own.
Economist Hernando De Soto recognized that much of the capital in developing nations was locked up. For instance, squatters lacked property rights in their houses even after decades of living there and improving the land. But legal reforms providing capital can greatly enliven previously dead capital in those nations. When a squatter becomes a property owner, he can mortgage his property and use the proceeds to start a small business.
The advantages of these legal reforms go almost entirely to people of modest means. Not only did the rich generally always have formal title to their real property, even more importantly real property is a much smaller proportion of their total assets, which are mostly financial securities.
Similarly, the sharing economy enlivens important capital assets in the developed world. As Daniel Rothschild suggests, this unlocking creates prosperity. But it also boosts equality because the assets it enlivens are those which make up most of the wealth of people of modest means.
Ganesh Sitarman raises the issue of U.S. constitutionalism and economic inequality in a recent New York Times op-ed piece. The piece, in turn, summarizes the main theme of his book, The Crisis of the Middle-Class Constitution: Why Economic Inequality Threatens Our Republic. While focusing on economic inequality, Sitarman’s argument fits into a broader current of discussion: what social, economic, and/or political prerequisites, characterizing the people themselves as well as their institutions, does republican government require to work tolerably well.