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Many people are concerned about income and wealth inequality. I am not concerned about economic inequality as such; I care about absolute poverty (how many people live in misery because of wretched physical conditions), and I care about a broad distribution of opportunity (everyone’s having a “fair shot” at economic success), but I don’t see it as a problem if someone earns vastly more money than someone else, just as I don’t see it as a problem that poorer people tend to have more leisure time than richer people. Only those consumed with envy could see economic (or leisure!) inequality simpliciter as a problem, right?

But I actually don’t think people on the left care about economic inequality or leisure inequality or inequality of looks or appealing personalities or anything else of value, in themselves, either. They care about economic inequality because they think it has negative consequences, particularly for political inequality, and because they think it is a symptom of some deeper problem. I disagree on the first count and agree on the second. Let me explain.

Does Inequality Have Bad Consequences?

The fear of the left is that in an unequal U.S., the rich will “buy” politicians to do what they want. As a result, we will get more pollution and more redistribution that flows from the middle class to the rich. The so-called “oligarchy study” (the term “oligarchy” never actually appears in the paper) went viral recently, showing that the preferences of wealthy Americans (and organized interest groups) matter for policy change in the U.S., while, controlling for the preferences of wealthy Americans, the preferences of other Americans make little difference. But wealthy Americans and average Americans actually have similar views on most issues, and where they diverge, the wealthy often have clearly superior views: less likely to loathe immigrants and gays, to fear free trade, to oppose marijuana legalization, and to be narrowly ideological. In addition, the wealthy tend to be more skeptical of taxation and welfare programs than the non-wealthy — your views on whether that difference is problematic may vary according to your views of the welfare state.

Still, let’s assume that the influence of the wealthy on U.S. politics is baleful; does that mean that growing economic inequality would reinforce that baleful influence? It remains unproven whether more inequality will mean that the rich pay more in campaign contributions and get more out in policy terms. The most likely explanation for why the rich are influential is simply that they have similar levels of education and status to politicians and move in the same social circles and care about the same sorts of things. Studies looking at how campaign contributions “buy access” to legislators generally come up with very weak results. To take just one policy example, federal air pollution regulations have always ratcheted up, and air quality in the U.S. is vastly improved relative to 50 years ago, in part due to regulation and in part to technological changes. Rising inequality certainly doesn’t seem to explain these trends.

A bigger problem with the U.S. political economy (more…)

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Graduation is upon us. Many of my students are graduating with higher student loan debt than they would have imagined and limited job prospects. A few weeks back when I discussed future plans with several graduating seniors, there was a sense of dismay and a sense that the odds were against them given the poor economy and, more importantly, the trends in inequality.

The good news (which I guess could also be bad news, depending on the depth of your commitment to equality) is that the degrees they are earning may well contribute to inequality. A new paper by MIT’s David H. Autor turns attention to inequality among “the other 99 percent.” We have heard quite a bit about the growing concentration of wealth in the top 1 percent. As Autor notes:

Between 1979 and 2012, the share of all household income accruing to the top percentile of U.S. households rose from 10.0% to 22.5% To get a sense of how much money that is, consider the conceptual experiment of redistributing the gains of the top 1% between 1979 and 2012 to the bottom 99% of households. How much would this redistribution raise household incomes of the bottom 99%? The answer is $7107 per household—a substantial gain, equal to 14% of the income of the median U.S. household in 2012.

But what if we look at the “other 99 percent?” Here we have a story of the wage premium associated with higher education. And these gains simply dwarf the above-mentioned figures.

consider the earnings gap between a college-educated two-earner husband-wife family and a high school–educated two-earner husband-wife family, which rose by $27,951 between 1979 and 2012 (from $30,298 to $58,249). This increase in the earnings gap between the typical college-educated and high school–educated household earnings levels is four times as large as the redistribution that has notionally occurred from the bottom 99% to the top 1% of households. What this simple calculation suggests is that the growth of skill differentials among the “other 99 percent” is arguably even more consequential than the rise of the 1% for the welfare of most citizens.

Obviously there is a difference between cognitive ability and credentialing. My students who have majored in the “department of fashionable studies” will likely not make as great a contribution to inequality as might have been the case with a different major.

Bottom line: the paper is interesting throughout, engaging some important issues such as intergenerational mobility and the policy implications.

For additional coverage of the paper, see Jim Tankersley, Wonkblog. An interview with Autor can be found here.

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In my last post, I said “total net social spending” included net public spending and mandatory private social spending. In fact, it includes voluntary private social expenditures as well. The U.S. has by far the highest voluntary social expenditures in the OECD, so if you subtract those out, the U.S. net public and mandatory private social spending figure is no longer second in the OECD (and thus almost certainly the world, as poorer countries have smaller welfare states), only just about average.

But what does voluntary private social spending include? One big component is employer-provided health insurance. It seems to me that should be included in the size of the U.S. welfare state, even if it is not directly provided by the government, because the government subsidizes it (through the tax code), and because that spending is a substitute for government spending in other countries. If we exclude it for the U.S., we are not comparing like with like, since several other countries provide health insurance mainly or exclusively through the state. Put another way, if the U.S. provides so much social welfare privately, the need for the government to provide it is less. The U.S. welfare state is average-sized in spite of the fact that the private welfare system is enormous.

Now, does that mean the U.S. spends vastly more on the poor than most other OECD countries? Not necessarily. The majority of social spending in the U.S. does not go to the poor – but neither does it anywhere else. The elderly soak up a huge portion of social spending in almost all advanced industrial societies. Indeed, one way to measure how redistributive the U.S. welfare state is is to subtract the “post tax and transfer” Gini ratio from the “pre tax and transfer” Gini ratio. Of course, this is a static measure that does not take into account possibilities for mobility from one income level to another, and the extent to which “poverty traps” can contribute to lost mobility. Still, it’s a suggestive measure.

Using data from World Development Indicators Standardized World Income Inequality Database, I find that the tax and transfer system in the U.S. shaves only 0.08 points off the Gini ratio, a standard measure of income inequality (“1″ means most unequal, “0” perfectly equal). In most other countries, the number is much higher. In Sweden, it is 0.20. In Italy and Germany, is 0.21. Only Switzerland showed (slightly) less progressive redistribution.

So while the U.S. has one of the very largest welfare states in the rich world, it also has one of the least progressive welfare states in the rich world. By the standards of anti-inequality preferences, that’s a terrible record of inefficiency.

Updated with correct source for my data.

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It appears that President Obama’s address on inequality was the beginning of a larger move to the left and an embrace of economic populism. As Edward-Issac Dovere  (Politico) explains:

[Obama is] connecting to progressive populism with an aggressive, spending-oriented, activist government approach to the economy personified by Elizabeth Warren and Bill de Blasio. Obama’s already backed raising the minimum wage, the start of what White House officials say will be a 2014 domestic agenda — including his State of the Union address and budget — that centers around income inequality and what the government is doing to increase economic mobility.

And

Obama needs his base invested to help him recover from his low poll numbers and give his party a platform as Democrats try to make the House competitive and hold onto to their majority in the Senate. And those in the coalition that won Obama two elections — young people, African-Americans, Latinos, single women and immigrants — are precisely the ones hit hardest by the doldrum economy.

Will this strategy succeed? The answer would seem to hinge on three things.

  1. Success in shifting the focus from the sluggish economy (e.g., the “jobs deficit,” problems of long-term unemployment, dramatic reductions in the labor force participation rate) to inequality in income distributions and the claim that these inequalities (rather than economic policy or the intrinsic problems of recovering from a financial crisis) have impeded recovery.
  2. Success in convincing voters that the correct policy response to this situation is an expansion of social policy expenditures (e.g., increases in Social Security) and a higher minimum wage
  3. Success in convincing voters that they should, in essence, vote themselves a raise in the 2014 midterm elections since there are limits to what can be achieved through executive action.

I am skeptical that this strategy will succeed for a host of reasons (e.g., the contours of public opinion, the likelihood that ongoing problems with Obamacare implementation will dominate the news, the President’s lack of follow through on priorities announced in the State of the Union). But given the poor economic performance since the financial collapse there is likely a growing pool of desperate  voters open to these claims. They may  apply a sufficiently high discount rate to the future that the long-term fiscal consequences of expanded social policy expenditures will not matter much.

For those who are interested in reading more, see Alex Pareene, “Why Elizabeth Warren Baffles Pundits” (Salon), Frank James, “Is Economic Populism a Problem or a Solution for Democrats?” (NPR) and Third Way’s John Cowan and Jim Kessler’s op-ed (WSJ), “Economic Populism is Dead”

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Last week, President Obama gave a speech on economic mobility and argued that addressing economic inequality was “the defining challenge of our time.” He stated:

But we know that people’s frustrations run deeper than these most recent political battles.  Their frustration is rooted in their own daily battles — to make ends meet, to pay for college, buy a home, save for retirement.  It’s rooted in the nagging sense that no matter how hard they work, the deck is stacked against them.  And it’s rooted in the fear that their kids won’t be better off than they were.  They may not follow the constant back-and-forth in Washington or all the policy details, but they experience in a very personal way the relentless, decades-long trend that I want to spend some time talking about today.  And that is a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead.

President Obama asks (and answers) an important question: “if, in fact, the majority of Americans agree that our number-one priority is to restore opportunity and broad-based growth for all Americans, the question is why has Washington consistently failed to act?  And I think a big reason is the myths that have developed around the issue of inequality.” According to the President, the myths include: (1) “the myth that this is a problem restricted to a small share of predominantly minority poor,” (2) “the myth that growing the economy and reducing inequality are necessarily in conflict,” and (3) “the belief that the government cannot do anything about reducing inequality.” Even if these are correctly seen as myths (the address provides some qualifications) the problem may be found in the premise. (more…)

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I have great respect and (in many cases) affection for my friends at Bleeding Hearts Libertarians. But I am not a bleeding heart libertarian, and from the outset I have resisted its siren song, mostly over its endorsement of “social justice” as a moral and/or political ideal. Unlike Hayek, I do not think the concept is incoherent. But I think Hayek has a point, and my resistance to the concept I think tracks at least some of Hayek’s motivation. But that resistance is normative, rather than conceptual. Recent exchanges on BHL have helped me clarify my thinking about the point that concerns me.

Kevin Vallier posted this week on the topic, responding to challenges from David Friedman as to the cogency of the concept. The discussion that follows Kevin’s post is excellent, and I am highly sympathetic to many of those resisting Kevin’s analysis. However, I would mount an objection slightly different than those on offer there.

Start with a point of agreement. Kevin says,

I take it that the term “social justice” can be used to cover individual rights-violations. For instance, if John rapes Reba, he has committed a grave injustice, one that could be called a social injustice. However, this is not the conceptual home of the concept of social injustice.

He is surely right about this. Individual rights-violations are, by their nature, unjust. Since they are transactions between two individuals, they are also social, and we can, if we like, uselessly append “social” to our description of actions as unjust. If that is all “social injustice” means, there would be no quarrel here. As Kevin suggests, we need to look elsewhere for its “conceptual home.”

Kevin thinks that “conceptual home” is in the class of emergent properties. Here is his central claim:

Social injustice is an emergent property of certain kinds of social, moral and political practices. Let’s illustrate with the familiar example of institutional racism. I take it that an institution is racist insofar as it reliably outputs states of affairs where a racial group fails to receive its due based solely on the racial properties of its members. Thus, even if no one in the institution is racist, they participate in practices that result, say, in blacks having fewer opportunities than whites simply because they are black. In other words, the institutional rules operate such that unequal outcomes are caused primarily by racial differences, even if no one person is acting in a racist fashion. Institutional racism is a paradigmatic case of social injustice. It is an emergent property of a social institution that commits an injustice without any individual acting in an unjust fashion.

Emergent properties are an important class of properties, but Kevin’s proposal is unusual in deploying the concept in this way. Why? He is proposing that a normative property — social injustice — is emergent from non-normative properties (perhaps the distribution of “opportunities,” however those are measured). And this is curious. The typical deployment of the notion of emergent properties would, I think, involve the emergence of non-normative (let’s call them “natural”) properties from other natural properties. Many of the spontaneous orders we see in both natural and social science are of this sort. The structure of crystals is an emergent property in the sense that crystals have that structure because of other physical properties they have. Language-use is a property that humans have in virtue of various neurological and other biological properties we have. And so on. Nothing to see here. Emergence of normative properties from other normative properties is also, I’d think, unproblematic. That would be, for example, the liberal analysis of slavery. We see the large scale pattern of injustice as caused by an assortment of unjust individual attitudes, beliefs, and courses of conduct. Again, nothing to see here.

But the proposal that normative properties might emerge somehow from natural properties oughtn’t to be dismissed simply because it is unusual. If you work much with normative concepts, you become accustomed to the idea that things work differently when you are contending with reasons, norms, and the like rather than causes. If the world is a causal order, and it has normative properties, then somehow we have to end up with normative properties emerging from natural ones. The form of emergence that moral and other philosophers typically deploy is supervenience. Normative properties like goodness, rightness, and so on supervene on natural properties, in the sense (some sense; different theories give different accounts of this relation) that the normative properties occur somehow because the natural properties occur. If you are a hedonist, for example, you think that badness supervenes on pain, goodness on pleasure. Something (an act, a state of affairs) has the property of badness precisely because it also has the property of being painful.

And this gets us to what is interesting. Remember that, if the concept of social justice is going to be at all interesting, it cannot simply be redescribing the sort of injustice that occurs when individuals violate the rights of others. What does the social injustice supervene on? The crucial point is: whatever the answer to that question, it is not a property of individuals.

Is that a problem? I’m not sure. I am inclined to think that the essence of individualism at the heart of liberalism is a kind of moral individualism — the idea, roughly, that all sources of value, obligations, and so on are individuals. Does Kevin believe that? Here’s what he says:

I can’t speak for my co-bloggers, but from my vantage point libertarians all too often ignore social injustices because of their sometimes flat footed (dare I say “cartoon”?) moral individualism. I’m a moral individualist in the sense that I think injustices can only be done to individuals, families or to voluntary associations. In a real sense, I don’t think injustices can be committed against “Americans” or “blacks” understood as groups defined independently of their members. So traditional libertarians are right that emphasize that the idea of social justice can sometimes be deployed in inappropriately collectivist ways.

But social injustices can be committed independently of human design. That’s a significant claim that departs from many threads of libertarian thought popular today. And my view on the matter is one of the reasons I joined the blog.

How does the moral individualism Kevin endorses differ from “cartoon” moral individualism? I’m not sure.  Is it an aberration that in a previous paragraph he spoke of “a racial group failing to receive its due”? I think it is not an aberration, but a natural slide invited and made possible by adversion to social justice.

I believe (and I think Kevin believes) that groups are per se not due anything. There are certainly moral and political positions (positions worth engaging) that disagree. But these are certainly not within either the classical liberal or libertarian tradition, and they require a rejection of the moral individualism that I think is worth endorsing, and to which Kevin is paying lip service. And the issue here isn’t the defensibility of such a claim, but whether or not those committed to libertarian ideals and principles should embrace or reject the use of the concept of social justice.

Is this then just an unfortunate slip? The problem is, without the thought that the normative property (the social injustice) supervenes on facts about groups, rather than individuals, there is no injustice here to be found. And that’s just where the BHL’ers would like to be able to find injustice. It’s tempting to revert to the idea that the individuals in the groups in question suffer, say, from a deprivation of opportunities. But either those deprivations are by individuals, to individuals, in a way that violates the rights of the injured parties, or those are not. If they are, then we have plain old injustice, without a need to appeal to “social justice.” And if they aren’t, then it’s hard to see where the moral complaint is, nor what individuals are “committing” the social injustice. Here the view Kevin is proposing is trying to have it both ways. Skeptics about social justice think that is endemic to the concept.

It’s worth noting that in Rawls’ hands the problem has to be located in a different place. I can’t see that Rawls ever locates the injustice of social injustice in properties of groups. (Though groups figure into the specification of the remedy, in the form of the Difference Principle, I take this to be a feature of the solution to the problem, not part of the formulation of the normatively problematic state of affairs — the social injustice — itself.) In that sense, Rawls’ moral individualism is intact. To get to social injustice, as I understand him Rawls has to build the social properties at issue into the obligations of justice we have as individuals. That is, part of what it is for us to treat each other justly, as individuals, is on his view to establish and sustain social institutions with the properties called for by principles of justice. That way of conceiving of social justice has its own problems, not for this post (which is already too long as it is). Is it compatible with thinking that social injustice is an emergent property (to return to Kevin’s basic proposal). Perhaps. But if so the emergence is a 5th wheel: all the work in generating the social injustice is done by individuals failing, in effect, to act justly in establishing institutional arrangements that satisfy the principles of justice. I am skeptical that we do have obligations of justice of the sort that this interpretation of Rawls requires. One reason for doing so is that (like Nozick) I suspect that these obligations of justice are incompatible with obligations of justice I am much more confident we have toward each other (such as obligations generated by desert). That’s why I think there is something deeply problematic about the Rawlsian conception of social justice. Those reservations are not alleviated by recourse to thinking that social justice (or injustice) is somehow emergent.

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Roger Koppl argues this week at ThinkMarkets that “Income inequality matters.” He thinks it matters so much that he says it twice. He believes “Austrian,” pro-market, economic liberals should be speaking up more on this “central issue.” I think Koppl could not be more wrong. The issue deserves all the inattention we can muster for it.

The problem I think is not Koppl’s motives. He rightly says that we should “watch out for ways the state can be used to create unjust privileges for some at the expense of others.” He is certainly right about that. He argues that unjust state policies may be skewing market results in such a way as to increase inequality. He may be right about that. But he is wrong in suggesting that we ought therefore to be paying attention to income inequality. We ought therefore to be paying attention to those policies. Whether they produce greater inequality is neither here nor there.

Koppl gives four examples: (i) policies that privatize profits and socialize losses, (ii) bad regulation, (iii) collapse of the rule of law, and (iv) public schools. I can certainly join Koppl in a hearty wish that we not only attend to these unwarranted policies, programs, and tendencies, but that we do so with a degree of urgency prompted, in part, by their effects on the poorest and most vulnerable among us. But talking about inequality is precisely a distraction from doing so.

In a great paper of a few years ago, Harry Frankfurt argued that “Egalitarianism is harmful because it tends to distract those who are beguiled by it from their real interests.”* Frankfurt thought that focusing on equality was actually pernicious because it distracted us from attention to real harms, of which inequality is at most an indicator. And he was right. It may well be that, for example, the evisceration of the rule of law results in greater income inequality. But it also might not. Whether or not it does so, however, it is unjust, and it deserves our attention. Similarly for the increase in moral hazard and regulation, to say nothing of the deplorable system of public education. All of these need attention, and one prime reason they do so is because of their effects on those least capable of circumventing their evils. If we care about the poor, what we ought to care about is bad policy, not indicators that may or may not have anything to do with policies that are making people worse off. As long as we are worrying about income inequality, we are worrying about the wrong thing.

* In “The Moral Irrelevance of Equality,” Public Affairs Quarterly, April 2000.

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