Is Inequality a Problem?
Will Wilkinson has a fascinating new paper out at Cato attacking the notion that income inequality is a big problem for America. In it, he seems to me to make three key points: (1) we should care about lifetime consumption, and even beyond this welfare, rather than point-in-time cash income, (2) what matters most about some income distribution is not how relatively equal or unequal it is, but whether it was produced justly or unjustly, and (3) there is not much analytical evidence for the proposition that economic inequality will lead to political dysfunction.
You should read it. Almost every single paragraph is so full of interesting points that I wanted to agree with some of them, disagree with others, but mostly ask further questions. So, while this could therefore be a very long post, I’ll limit myself here to what I see as some very high-level questions for Will.
It seems to me that inequality could be a cause for concern in three independent senses:
1. It is bad in-and-of-itself
2. It is a cause of future political dysfunction
3. It is a symptom of a problem
My questions key to these items.
1. Let’s assume that the social mechanisms that produce some highly-skewed income distribution do not violate any norms of justice. Can a sufficient degree of inequality be itself a violation of a norm against very high inequality? If our minds are evolved instruments, and have evolved to regard such an outcome as inherently wrong, then is it valid in Will’s philosophy of justice to declare a norm against it?
2. Given my views on social science, I think that it would be all but impossible to build a convincing analytical case for any non-obvious phenomenon that can not be subjected to controlled experimentation because it extends across all of society over a long period. So I agree that an analytical proof that sufficient inequality will lead to a political dystopia does not exist and will not be forthcoming. But that is different than saying I do not believe it to be a problem. Is it Will’s judgment that, in our current social and political context, current levels of economic inequality are not dangerous?
3. To put my cards on the table, I think that inequality, as it interacts with other facts about contemporary American society, is a problem. But, I think that, even more fundamentally, it is an indicator of a much more severe problem. As globalization continues inexorably (in practical terms, this has very little to do with McDonald’s in France, and almost everything to do with the economic rise of Asia), U.S. income inequality is a demonstration that many – probably most – Americans don’t have the capabilities required to maintain anything like their current standard of living in competition with a global labor force. Does Will think this is accurate, and if so, is it a problem?
/sigh
The base problem is genetic and memetic inequality, Dr. Manzi.
Everything else is patches.
— matoko_chan · Jul 15, 02:15 PM · #
Do you think the Gini coefficient of America is going up as a consequence of the world’s Gini coefficient going down, or as a consequence of the world’s Gini coefficient going up?
It could be a problem either way, but it’s a very different problem depending on which answer you think is correct.
— Noah Millman · Jul 15, 02:29 PM · #
“So I agree that an analytical proof that sufficient inequality will lead to a political dystopia does not exist and will not be forthcoming. “
It seems to me there is plenty you could do to research this point. Couldn’t you look at the income disparities in other nations in the present time and in history and draw some conclusions. What could we learn from the huge income disparities in latin america on this point? Or current day scandinavia, where incomes are pretty equally distributed.
— cw · Jul 15, 02:36 PM · #
Every so often I ponder your #3 myself. It scares me, and I eventually avert my eyes and try not to think about it.
— Rob in CT · Jul 15, 02:42 PM · #
Noah:
Great question, as always. In the conceptual, not numerical, sense it’s because the “world gini coefficient” at the level of the nation-states is going down (i.e., various non-western countries are deploying quasi-capitalistic methods of social organization to catch up with the West).
cw:
If you read the link on the word “views”, you’ll see my take on why such analyses don’t provide compelling evidence of causality, no matter how strong the correlations.
Rob:
In my view, it is the fundamental geopolitcial fact of our era, however frightening. I have a very, very long article coming out trying to present the problem as I see it, and laying out what I think should be our course of action to deal with it.
matoko:
Well, “patches” can be pretty important.
— Jim Manzi · Jul 15, 03:01 PM · #
I don’t understand the part about most Americans not being able to maintain their current standard of living. Does the forthcoming paper predict that standards of living will undergo an absolute decline, such that Americans in (say) the bottom half of the income distribution will live in smaller dwelling units, have lower life expectancies, less access to telecommunications of all kinds, less food, etc. than they do today? Or is it that Americans in the bottom half of the income distribution will lose ground relatively both to Americans in the top 10% and to the median Chinese? Which might be a problem, but a slightly different problem.
— y81 · Jul 15, 03:40 PM · #
I’m hurt, Jim. Mako — who can’t even observe common conventions about grammar, spelling, capitalization, and in many instances, basic courtesy — gets a response. But when I ask you direct questions? Silence.
Except that one time about fishing with dynamite.
— Tony Comstock · Jul 15, 03:41 PM · #
We also itch when success and desert are independent. Look at the top box office earners from last weekend.
It’s a moral affront to some people that Transformers makes bank, while, say, a movie like Old Joy didn’t. Years of seeing injustice after chafing injustice have led these people to question the Hollywood system itself. Some would like to renovate it. Some just want to tear it down and start over.
The rest of us understand, and are fine with it.
— Kristoffer V. Sargent · Jul 15, 03:41 PM · #
Another cause of inequality is unequal risk-taking. Strictly concerning behavior, and measuring probable movement from reference point (the subjective zero), some people live life from -3 to 3, some live life from -5 to 1, some live life from -1 to 7. I’m lower class and average but I do the right thing. I’m middle class and brilliant but I drink too much. I’m an upper-middle with work-ethic and I diversify my portfolio. Etc.
— Kristoffer V. Sargent · Jul 15, 04:03 PM · #
y81:
Yes, that’s the problem I’m highlighting.
Tony:
Ask away, buddy. Preferably, all questions will involve explosives.
Kristoffer:
Never heard of Old Joy, but I am waiting expectantly for GI Joe.
— Jim Manzi · Jul 15, 04:06 PM · #
Kristoffer:
re: risk-taking. Taking unquantifiable risk was Knight’s theory of the role of the entreprenuer, and why there would always be excess returns available to them.
— Jim Manzi · Jul 15, 04:26 PM · #
GI Joe is directed by Sommers. I wouldn’t expect too much.
— Kristoffer V. Sargent · Jul 15, 04:26 PM · #
“It’s a moral affront to some people that Transformers makes bank, while, say, a movie like Old Joy didn’t. Years of seeing injustice after chafing injustice have led these people to question the Hollywood system itself. Some would like to renovate it. Some just want to tear it down and start over.”
Good gawd yes.
A couple of years ago I was hanging out at The D-word, hoping that might be a way out of my self-made col de sac. You should here the way they would go on about the injustice of people’s movie-going habits, combined with endless kwetches about how other countries fund the arts.
Anyway, I read about a gas station in rural Minnesota (or similar) where not only could you pump your own gas, you could also make your own change. This let the gas station stay open 24 hours/day, 7 days a week.
I was also surprise the first time I went to rural Sub-Saharan Africa. Everyone had New York-style bad ass locks on their little huts, even though they had next to nothing inside to steal, and everyone had more or less the same next to nothing.
I’m a Rockefeller compared to many of the people I’ve made movies about, and my own experience in talking to people here and their is that what most people aren’t especially troubled by the idea that somewhere on the other side of the world someone has things better than they do. Enough to eat, peace/stability/justice, and a sense that things might be better for their children.
— Tony Comstock · Jul 15, 04:34 PM · #
It’s been my impression for several years that we Americans have priced ourselves out of the world market. Unless or until our costs of doing business (making things, building things, etc) falls to meet the world competition, we’ll continue to lose competitive edge vis-a-vis the rest of the world (meaning, Asia), and we’ll continue to export what wealth we have left in order to buy the stuff we want and need.
If we Americans are to again become truly competitive in world markets, we will have to reduce our costs, 60% or more of which come in the form of wages and benefits. This necessarily must yield a substantial reduction in our standard of living as a society. It will be very painful, and, typically, people in lower socio-economic strata will take the proportionally larger hit.
I think the recent housing equity “bubble” was a last-gasp effort to wring wealth that really doesn’t exist out of our economy. It was, either by genius intent or by blind greed, a financial engineering experiment that went seriously awry.
— tom snyder · Jul 15, 05:12 PM · #
At the end of a tremendous number of man-hours, Mr. Manzi has hit upon the most obvious question – If a guy in an Ohio town needs to be paid USD 40,000 a year to do work that is only worth the equivalent of say 6,000 USD per year elsewhere in the world (say Vietnam), then
1. Is it just to expect the guy in the Ohio town to take that pay cut (it obviously isn’t)
2. Is it just to expect him to compete with the guy in Vietnam? (if you think Globalization in a good thing, then your answer must be yes)
3. Does the problem faced by the man in Ohio fade in comparison to the benefits to corporate bottom lines? (this is admittedly complicated, because Governments can use the improved corporate bottom lines by levying taxes to help the man in Ohio rebuild his life, possibly learn something else, or at least get a good welfare check to make sure he isn’t left to starve – and this may actually be a good thing, but if Governments don’t – small government etc., then its a bad thing)
Every now and again, reading these blogs, im forced into the realization that things which are (or ought to be) patently obvious to everybody, are often easily blinded by interests. “Intellectual Honesty” which is a codeword used on intelligent blogs like this one (or Mr. Sullivan’s Daily Dish for example), often amounts merely into this well of the obvious.
— D · Jul 15, 05:51 PM · #
We are reaching that point in the development of a complex, technologically driven world of unfettered competition wherein the possession of only an average IQ means you fail.
So how do you run a civil society under those conditions?
— Don McArthur · Jul 15, 06:04 PM · #
In the conceptual, not numerical, sense it’s because the “world gini coefficient” at the level of the nation-states is going down (i.e., various non-western countries are deploying quasi-capitalistic methods of social organization to catch up with the West).
Jim: if I understand you correctly, I don’t think this is the right way to look at it. We don’t want to know if the various states of the world are growing more or less unequal to each other, nor whether the average Gini coefficient of the various states of the world is going up or down. We want to know if the world’s people, considered as a single population, are growing more or less unequal, and whether the subset representing the United States is itself growing more or less unequal.
Countries like China are growing more unequal internally, but the contribution to global inequality is egalitarian, because a big chunk of the Chinese population is rising into the middle class.
But sub-Saharan Africa is stagnating, economically – indeed, falling backward in some cases – and its proportion of the global population is exploding. That’s a big driver of global inequality – I’d guess the biggest, but I haven’t seen the numbers to prove it.
If the former effect dominates clearly over the latter, then we have increasing U.S. inequality trading off against (and possibly caused by) global reductions in inequality. That suggests a problem that is relatively tractable (to me anyway), though no less wrenching to laid-off auto workers.
If the latter effect clearly dominates over the former, we can be much less assured about the tractability of the problem.
— Noah Millman · Jul 15, 06:11 PM · #
I’m going to read the paper, but even before I do, I note the following:
1) The title of the paper is “Thinking Clearly about Economic Inequality”. Reading the exec summary, however, I see that Wilkinson right away starts talking about INCOME inequality, which is not the same a economic inequality. It is going to be much easier for him to argue that income inequality (which occurs at a point in time) is not a problem than it would be to take on the problem of economic inequality – which is more akin to what Jim describes as “lifetime consumption.”
2) I also see from the exec summary that Wilkinson suggests that “injustice or wrongdoing” might be problematic. I will be interested to see how narrow or broad a definition of injustice Wilkinson uses. My guess is I am going to see an argument that says Wall Street CEO’s and pro baseball players “earn” their income, so where is the injustice in our income inequality? But of course the CEO’s and ballplayer’s skills are only valuable in the context of a societal structure that requires both the consent and particpation of citizens across the entire spectrum of the distribution of wealth. If A-Rod were born into a society that resembles that of Bangladesh, his relative position in the distribution would be quite different than it is in our society. What, if anything, does A-Rod owe to the autoworkers who accept their declining wages peacefully rather than storm the gates of his house? Or to the child of a soldier who gave his life to ensure that A-Rod would not have to live under Nazi rule?
3) Finally, I see in the exec summary that Wilkinson argues that income inequality will not lead to the “destruction of democracy and rule by the rich.” Well, ok, that’s a pretty low hurdle. But might it lead to other fairly nasty political and societal outcomes? Might it lead, for example, to a massive financial crisis when people at the low end of the distribution decide not to pay the debts that people at the high end urged them to take on in order to keep up with the Joneses’ consumption? Might it lead to the dominance of one political party in what is supposed to be a two-party system?
With that said, I am now anxious to discover how flimsy or sturdy is the straw man that Wilkinson manages to knock down.
— andrew · Jul 15, 06:22 PM · #
That’s a good point, Andrew.
A lowered standard of living will, of necessity, impact luxury products and services first and foremost. The nonessential goes first. Sporting events, air travel, tourism and the like will all face major disruptions. Are you going to pay for tickets to the ballgame or food for the next week?
Given that many rural parts of the U.S. are now virtually entirely dependent on tourism dollars to survive, I can foresee a rapid depopulation of the hinterlands, as communities which survived on rock climbing, river rafting and skiing become economically unsustainable.
— Travis Mason-Bushman · Jul 15, 06:35 PM · #
andrew,
You could have read the paper in the time it took to type that.
— Matt Frost · Jul 15, 06:37 PM · #
Matt, the paper is 28 pages long, and you don’t know how slow I read or how fast I type. Forgive me for wanting to make a contribution to the discussion before becoming as fully informed as I’d like to be.
— andrew · Jul 15, 06:47 PM · #
“A lowered standard of living will, of necessity, impact luxury products and services first and foremost.”
Per Mr. Manzi’s comment above, he is NOT talking about a decline in absolute standards of living, but only relative standards. So the ability of someone at (say) the 25th percentile of income to afford (say) a 54-inch flatscreen TV, or a week’s vacation at Disney World, will not diminish. It’s just that (i) there won’t be those glossy Life magazine style spreads of “an average American worker’s house” compared with “an average Chinese peasant’s house” (the two will look the same) and (ii) the rich in America will have unimaginable luxuries (like caviar every day, or whatever—I betray my own lack of imagination here).
— y81 · Jul 15, 06:56 PM · #
y81, that assumes magic infinite resources that don’t exist.
The U.S. represents 25% of total world oil consumption. The resources physically are not there to support that level of consumption globally. We consume 12 times as much oil per capita as China does, and 25 times as much as India does.
If China and India bring their standards of living anywhere near American standards of living, energy costs (particularly for transportation) will increase so much that our standard of living will decline.
— Travis Mason-Bushman · Jul 15, 07:19 PM · #
Reading these analyses of rising inequalities, its hard not to see free market globalization as essentially a zero-sum game for all but multinational corporations. The risks inherent in this drive for increased economic efficiencies will be born solely by nation-state governments and the citizenry to whom they are (hopefully) accountable, while corporations and shareholders reap the benefits from the ability to operate supranationally. If this is indeed the case, then in order to honestly negotiate in their citizen’s best interests, governments will need to change the way that they relate to corporations, and deal with them more along the lines of foreign relations.
For example, corporate personhood in the United States seems to be an anachronistic arrangement in an increasingly globalized marketplace, as it allows supposed corporate-citizens to disproportionately influence government decision-making from within, while at the same time maintaining an openly globalist point of view. We don’t allow foreign governments to influence our elections, yet we allow extensive campaign contributions and lobbying from multinational corporations with equally “foreign” interests.
It seems that until we acknowledge the seemingly apparent conflicts of interest between national governments and globalized corporations, there will be an inexolerable decline in the relatively high standards of living in nation-states, like the U.S., with free market economies and weak social safety nets.
— Abe Froman · Jul 15, 07:47 PM · #
Jim,
Yet another outstanding post. what was the tag line to metropolitan? “finally…. a film about the downwardly mobile.” really looking forward to your full thoughts.
Your third point is something I’ve been thinking about a great deal particularly in the context of Blinder’s work on technology/offshorable jobs. Two things strike me, people don’t get angry when they expect things to go poorly and they do, they get angry when things are supposed to get better and they don’t and things get better for others. would be interested to see what you think the political fallout will be.
The other thing I’ve been thinking about is that readjustment takes place in a media environment in which the cleavages who are loosing their comparative advantage and lifestyle are very very aware of the lifestyle that the winners are leading and the oppertunities that lifestyle will provide. anyway just thoughts.
— steve b · Jul 15, 08:06 PM · #
Ok, I’ve read the paper, and I have to say that it is so weakly argued, and so lacking in real substance, that Jim’s launch of this discussion is the best we can hope to gain from it.
Here’s an illustrative paragraph from the paper:
There is overwhelming
reason to believe that in the United States the
deck really is stacked against some people. As a
consequence, many millions of people are doing
much less well than they might be. Legions of
inner-city kids consigned to abysmal public
schools are systematically denied a fair chance to
develop the capacities need to participate fully in
our institutions, or to enjoy their potentially
ample rewards. The United States imprisons a
larger share of its citizens than any country on
Earth, literally disenfranchising hundreds of
thousands of men and women (though they are
mostly men) and leaving hundreds of thousands
more dispirited and damaged. Undocumented
immigrant workers increasingly constitute a permanent
economic underclass explicitly denied
many of the basic legal protections of citizens,
which invites both government and private
abuse. And at the level of culture, patterns of private
discrimination continue to constitute for
millions a web of real, seemingly inescapable barriers
to opportunity and achievement and help
to generate self-reproducing patterns of diminished
expectations and wasted potential. We
should focus all our attention and energy on the
task of rectifying these vicious injustices. Maybe
fixing all this would decrease the variance in
national incomes. But the idea that fixing all this
somehow requires “fixing” the pattern of
incomes is an excellent way to avoid the real
problem and fix nothing.
So, a question for Mr. Wilkinson: I hear lots of people talking about a need to fix all the problems you just raised. Who is it, exactly, who is arguing for “fixing” the pattern of incomes just for the sake of reducing income dispersion? Congrats! You really gave that straw man a whuppin’. I look forward to the paper you will write once you begin to “focus all (your) attention and energy on…rectifying these vicious injustices.”
— andrew · Jul 15, 08:55 PM · #
Lots of great comments, and I can’t hope to respond to all of them individually, but I’ll try to be as explicit as I can about why I think inequality is a problem.
1. It, to some degree that is hard to pin down analytically, undercuts social support for a market economy. There is an inherent tension between democracy and capitalism that always has to be managed. It is a many, many sided traded-off( e.g., how do you acculturate the population into what values?, etc), but ceteris paribus, at some point, certain kinds of glaring inequalities make more people less willing to defend an extended market order.
2. Far more important, inequality is a symptom, as I tried to describe in the post, of declining American relative economic productivity vs. other countries. Competition in the context of a market is positive sum, but world economic growth is in some ways a zero sum game if you believe (as I do) that some competitors will resort to force when and if they achieve sufficient economic capacity, translate this into military power and use this to seize, or more realistically credibly threaten to seize, other people and their output.
There is no “international market” not underwritten by military power. It’s not at all clear that the guys running China etc., want anything like one to exist. There are no rules of the game that won’t be broken if some group sees it as advantageous to do so. It would be dangerous, in other words, for the US to lose too much aggregate share of world economic output.
I’m working on a very long article in whihc I try to go inot this at length.
— Jim Manzi · Jul 15, 09:08 PM · #
What competitor would credibly use force in this day and age, Jim? To what end?
No nation is going to risk nuclear annihilation, and essentially every major global economic power either has their own nuclear weapons or is strongly allied with another nation that does. I guess China could theoretically invade Mongolia or something and not get nuked, but what would be the point?
— Travis Mason-Bushman · Jul 15, 09:32 PM · #
Andrew, I heartily enjoy your skepticism.
— Scott Irish · Jul 16, 06:09 AM · #
On Point 2 in Mr. Manzi’s comment (#27)
- “translate this into military power and use this to seize, or more realistically credibly threaten to seize, other people and their output”
Travis Mason-Bushman (#28) asks a question in response which is immediately obvious.
Which country? The United States – has used its power to prevent natural resources in Latin America from falling into the hands of Latin American Governments. Has used military force in the middle-east (twice) to serve America’s need for Crude Oil.
I notice that Mr. Manzi limits himself to ‘productivity’. Military Force is more typically used to seize natural resources, than to seize human resources.
— D · Jul 16, 03:58 PM · #
D: Unfortunately, that makes all too much sense.
— Travis Mason-Bushman · Jul 16, 05:34 PM · #
I like what Tom Snyder and Jim Manzi have to say. In my mind, Americans’ views of “normal” consumption were warped by the fact that we were the only game in town, economically, after WWII. Every other country was either destroyed or not yet developed. That produced a level of relative wealth and power that allowed all kinds of consumption both public and private — TVs in every home, the Great Society, the Apollo Program, less discrimination, and the biggest military the world has ever seen.
By the 1970s, other countries were rebuilt or industrializing. But we keep thinking that every generation will have all the security and twice the luxury goods that their predecessors had. So we’ve used a combination of private financial gimmicks (Reagan era Wall Street deregulation, Clinton era dot com bubble, Bush era housing bubble) and massive government deficits (Reagan and Bush) to artificially inflate consumption.
The biggest challenge Obama faces is: can he get Americans to realize that it’s not 1950 anymore, and never will be? That is: could he or any politician push the kind of military cuts, entitlement cuts, lowered private consumption, etc that we need to match reality? Or does Obama just keep pumping up that bubble back up with public money while we party like it’s 1949? If so, how long til the Chinese and Saudis quit loaning us money and things really collapse (last fall was just a warm-up).
In other words, I am very pessimistic about the future.
— Whistler Blue · Jul 16, 06:48 PM · #
andrew / D:
You might be shocked at how much of that I agree with. I think history is mostly a Darwinian struggle for dominance, and nation-states are at least in part groups that band together to project power more effectively. The US is not somehow exempt from this. It seems to me that US strategic policy in the Middle east at least since FDR has been to maintain access to oil, at just about any cost. Occam’s Razor says that the real reason for any military action we take in that region is to protect our petroleum supply chain.
Whistler Blue:
I mostly agree (strongly) with what you’re saying. One big difference is that I don’t see the Regan economic startegy as a gimmick, but actually a creative and successful response to exactly the challenge that you describe. That is, had we not deregulated (broadly defined) the economy in the 1980s, our position would be far worse than it is today (IMHO).
— Jim Manzi · Jul 16, 09:28 PM · #
Jim, I’m pretty sure I asked before, but I forgot what you said. Have you read Choosing Justice: An Experimental Approach to Justice and its brethren? It seems to me like you are well-equipped, and well-placed, to appeal the lessons therein to a conservative consensus and platform, as you did with the science in your seminal global warming article in NR. I think there’s a lot there — a lot there — to help midwife the next conservative paradigm.
— Kristoffer V. Sargent · Jul 16, 10:02 PM · #
I don’t understand this claim that there is a “real” economy, different from the phenomenal economy, and that the “real” economy has been declining for some period of time (depending on the political predispositions of the speaker, the relevant period can begin anywhere from “Dover Beach” to Bush v. Gore), but that the decline in the “real” economy has been “masked” by “gimmicks.” There is no hidden reality, guys; phenomena are the only real things out there. Or, in Oscar Wilde’s words: “It is only superficial people who are not impressed by appearances.”
— y81 · Jul 17, 12:36 AM · #
How is it that you are always one of the first to post?
— supra shoes · Jul 17, 02:35 AM · #
Kristoffer:
I haven’t read it, but I just read the intro, and I will do so.
— Jim Manzi · Jul 17, 04:31 AM · #
One more thing that’s kind of related…do you know of anybody who’s looked at the ‘major medical coverage paradigm’ and whether it might be the solution to the {free & scarce —> universal demand —> rationing} dilemma?
— Kristoffer V. Sargent · Jul 17, 04:07 PM · #
I wrote an essay on Inequality, partly inspired by the above post. Available here:
Americans Getting Skewed
— Clint · Jul 21, 04:33 PM · #
Re: In my mind, Americans’ views of “normal” consumption were warped by the fact that we were the only game in town, economically, after WWII. Every other country was either destroyed or not yet developed.
This is often stated but it happens to be untrue. Sweden and Swutzerland were neutral in WWII (and had industry) and as such escaped all war damage. Canada also had no war damage, and Australia almost none. And Great Britain had suffered only small amounts of damage, mainly early in the war; it most certainly was not “destroyed”. Morever by the mid 1950s even (West) Germany and Japan were rebuilt with fully functioning industrial economies— and no effect on American prosperity.
— JonF · Jul 25, 12:52 AM · #