Crazy Pills

Much Ado About Nothing? by A Milder Despot
July 30, 2009, 4:19 pm
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A great deal of social science is devoted to measuring inequality and its discontents. Much of this is dishonestly distilled into platitudes about “the rich getting richer” and the way in which inequality inherently speaks to a societal injustice. These by-products of legitimate social science need to stop if we’re to have a serious discussion about inequality.

It is well-established that there has been a widening gap in income inequality over the past few decades. But Will Wilkinson makes a new intriguing case that this is overly pessimistic and represents an outdated and oversimplified way of thinking about inequality.

His recent Cato Policy Paper makes the case that if we want to seriously redress inequality in society we have to think of it in its actual terms. A compelling case is made that income inequality is severely lacking in presenting a picture of inequality in society at large. Consumption needs to be given more weight. This may present a clearer and more optimistic picture of inequality in society.

Though I’m not sure that Wilkinson is able to fully refute the popularized theory that real inequality is widening, he helps illuminate some of the rethinking that is occurring in inequality studies.

The definition of inequality must first be clearly defined Starting from the assumption that the rich are getting richer in real terms, we have to think in terms of, relatively, what is happening to the greater populace of “the poor.”

How are the poor doing in terms of overall material well-being (welfare)? Are the same elements of our political economy that cause widening disparities in or welfare the same elements that more rapidly help the poor improve their welfare?

If the poor, in absolute terms of welfare, are gaining at an unprecedented rate, do we think that there must be something inherently unjust about the system if the rich are gaining even faster? This raises further questions about inequality. In a discussion where the majority of debate is focused on the disparity between the rich and poor, the rate of welfare increase that the poorest segments of society are experiencing is too often neglected.

This makes us think about the laboratory of the mind. The rate at which the poor are improving their welfare must be considered along with the disparity between the poorest and richest, the rate of improvement of the richest, and the improvement of the vast middle ground. A society can be imagined in which the poorest improve at an astonishing rate, with rapidly dropping rates of how we traditionally measure poverty (starvation, nutrition, disease rates, and others), yet the richest are gaining faster. This may not necessarily be unjust. And it may be preferable to a society in which the welfare gap is narrowing but the rate at which society both rich and poor is advancing is stunted. It may not be possible for all these theoretical societies to exist but one must take into account what is possible, what is preferable, and what society should work toward.

As Wilkinson notes, financial and technological innovation are making so-called “luxury items” a thing of the past. While certain goods will always have a luxury component to them (owning a yacht), “luxury goods” are now considered certain kinds of widely-available goods. Wilkinson argues that the functional difference between someone owning, say, a Jaguar XJ8 and a Hyundai Elantra is not as great as the difference between owning an Elantra and not owning a car at all. “Luxury goods” have become less functional additions to someone’s life as an unnecessary piece of style over substance.

This is not to pretend to be an apology for the wealthy or a cold unsympathetic analysis of what it means to be poor in America. Inequality exists to the point of being a problem. It’s simply more difficult to think about than the common “income inequality” indicator.

Additionally, thinking about inequality in more sophisticated ways will hopefully dissuade harmful policy. It’s a false choice that we can only “remedy” inequality by simply taking away the income of the wealthy or that we can’t remedy it at all. But the most commonly-bought policies amount to little more than this.

To think about inequality in this way is to think about how welfare is distributed throughout society. There may not be something inherently unjust about a system in which the median welfare is low compared with the average welfare, implying a class of super-rich skewing overall average indicators upward while allowing the majority to be bunched together in an underclass. It may not be preferable to have welfare distribution exist as an extreme bell curve wherein every member of society is very equal in welfare (think low Gini coefficients). What matters is where, on an absolute level, the median welfare line is.

Inequality is a problem in the United States not because there is a great disparity of incomes (or due to most of the pop culture theories about inequality). Wilkinson makes a convincing case that inequality in the United States is a far different problem than has been conceptualized. The easy criticism to make is that Wilkinson doesn’t offer constructive solutions.


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