Economics, Social Justice

What’s with Income Inequality?

Many have been surprised by the rapid surge of the issue of income inequality. Thomas Piketty’s book spawned academic and popular interest in the topic. The idea that the main problem in society is income inequality was quickly and enthusiastically embraced by left-leaning philosophers, economists and, in an unusual move, by politicians running for high office.

Much has been written about the subject. In this post I offer a conjecture to explain the sudden surge of income inequality as a philosophical and political issue.

With the publication of John Rawls’ A Theory of Justice in 1971, academic writing on social justice centered on Rawls’ famous difference principle as the touchstone for justified institutions. The idea that political institutions should be arranged to benefit the poor was a powerful concept that for many years rallied political theorists of various persuasions. In particular, the principle seemed consistent with considerable amounts of economic freedom and entrepreneurship, as long as the state had the wherewithal to correct outcomes toward the Rawls-superior position, that is, to select, of the available institutional packages, the one that would place the least advantaged members of society in the best possible position. As is well known, Rawls expressly allowed for income inequality as long as it worked for the benefit of the poor.

Rawlsian liberalism became a sort of obligatory point of reference for the mainstream of the profession. For many decades, virtually all discussions about social and economic justice treated concern for the poor as the golden standard from which every discussion had to start —and often also end. True, some self-professed Rawlsians were a bit uncomfortable with the allowed inequalities of the model, but in general tended to go along with Rawls’ central idea.

Then, all of a sudden, something strange happened. It became quite clear on the available evidence that robust, well-functioning markets were a necessary condition to lift people out of poverty. This new evidence was devastating to the liberal left. Hundreds of academics, pundits, and politicians had built entire careers criticizing capitalism, markets, property, consumerism, and the like. How could they now ignore the evidence that robust markets help the poor? In all honesty, they would have had to concede that they had been wrong all along, and that the evidence now favored some form of capitalism as the best way to lift people out of poverty.

This, of course, would have meant unconditional surrender. So, the solution was for the left simply to abandon the concern for the poor and focus instead on the income gap between rich and poor. In that way, they could simultaneously show concern for the poor, since they could  decry how worse off they are with respect to the rich, and salvage their hostility to markets, since markets generate inequalities.

The inequality issue is, in my judgment, a non-issue, a kind of scam, for the very reasons that Harry Frankfurt offers in his long-awaited book, just released, and endorsed by Jason Brennan yesterday. I quote from the back cover:

“We are morally obligated to eliminate poverty—not achieve equality or reduce inequality. Our focus should be on making sure everyone has a sufficient amount to live a decent life. To focus instead on inequality is distracting and alienating.” 

Jason put it well:

“The problem isn’t that some people have more; it’s that some people don’t have enough. The poor of the third world die of starvation, not inequality. The poor suffer because they don’t get what they need, not because they get less than the rich.”

In my view, income-equality peddlers have one chief motivation: to avoid conceding that Rawlsian normative commitments require them to support markets. This is just a conjecture, but I have some evidence for it: I have yet to find one Rawlsian liberal who abandoned her prior hostility to markets and accepted, in the light of the massive empirical evidence, that she is required to support capitalism. Her move is instead to change tacks and suddenly declare that reducing income inequality, and not alleviating poverty, is the new ethical goal. You be the judge.

  • bristoleastman

    A bit of an odd post this, given that Piketty’s primary concern is with inequality of wealth and that he sees inequality in income from work as declining in importance as a source of inequality in the future as he thinks it will be swamped by the effects of capital ownership and inheritance. Did you read Piketty?

  • bristoleastman

    Gosh, reading this, there’s lots more besides. Capitalism is identified with markets (well that isn’t the case), Rawlsians are hostile to markets (also not true, since the Rawlsian ideal of a property-owning democracy has a central place for markets).

    Also the piece identifies the difference principle with compressing the income gap. Well, there are certainly formulations that support that view, but then there are also Rawlsians who think that the DP requires the selection of that basic structure that maximizes the expectations of the least advantaged. Under the lexical interpretation of the DP, that’s perfectly compatible with lots and lots of inequality.

    • Farstrider

      Correct. But you are under-selling it. The DP does not just permit but requires “lots and lots of inequality” if that works to the benefit of the least advantaged members of society.

  • John

    This argument is a strawman. Progressives aren’t against the market. They are against the accumulation of power (via money) by the few.

    So me libertarian economic evidence where power gets accumulated in the few and it works out better for that country than when it is more evenly distributed.

    • JoshInca

      Power is never evenly distributed through society.

    • matt

      There is something richly ironic about progressives denouncing concentrated power and then calling for us to concentrate ever more power in the hands of 535 people in Washington.

  • Nick Cowen

    I agree that Rawls’s particular approach to economic thought is somewhat outdated, and some contemporary Rawlsians have not sufficiently updated his approach. But his primary concern always included inequality (not just supporting the least well-off). That is why the construction of the difference principle is subtly different from prioritarianism (on some definitions, if you can’t boost the position of the least well off group, then no one else is allowed to benefit). Why was he concerned about inequality? Its mostly to do with concerns with relational status and political power that does seem to be a very legitimate concern today, and this is precisely paralleled with Buchanan’s concerns with wealth leading to a political aristocracy.

    I still think it would be helpful that, compared to relevant institutional alternatives, the last couple of decades of globalised neo-liberalism have had enormous benefits for many of the least advantaged.

    • Theresa Klein

      I agree there are legitimate concerns about relational status and political power, although I don’t think that economic inequality is the only concern here. There are all sorts of other ways in which social inequality can be created and reinforced, besides money. To a certain extent, money can be a leveler, especially in a free market. For example, a poor black man from a ghetto can get fabulously rich selling rap music and end up owning a palatial home in Southern California, and there is nothing that any rich white east-coast WASP can do about it, other than not invite him to the charity ball. Where markets are constrained, wealth trends to be obtained even more through social and political connections, which tends to reinforce social class stratification. Also to the extent that the concerns of the “social justice” movement are focused on microaggressions, they are really not talking about economic inequality. They’re talking about how subtler forms of social status differentials.

  • Jameson Graber

    I think part of the left’s critique hinges on the idea that wealth = power. Now, when you take a quick glance at the world, that seems pretty close to being true. So “concentrated wealth = concentrated power” seems like a pretty plausible concern.

    On the other hand, there are two approaches you can take to solving the problem of concentrated power. You can try to diminish concentrated wealth–that seems to be a strategy favored by Piketty and friends. Or, you can try to sever the tie between wealth and power. I think Bryan Caplan and company actually provide compelling evidence that the latter is quite possible and, in many ways, is already true. The wealthy don’t have nearly as much political power as people seem to think. The political elite is simply not the same group of people as the wealthy elite.

    But yeah, I think as a basic moral concern, there’s absolutely nothing inherently wrong with wealth (or income) inequality. The only question is whether other problems arise incidentally from too much wealth inequality.

  • stevenjohnson2

    “Then, all of a sudden, something strange happened. It became quite clear on the available evidence that robust, well-functioning markets were a necessary condition to lift people out of poverty.”

    This is not at all clear. It seems to be a swindle heavily relying on post hoc ergo proper hoc and the No True Scotsman fallacy. As to why the sudden change, the fall of the USSR inspired a triumphalist disdain for reforms previously deemed tactically necessary. The unbridled reaction is stressing the so-called middle classes, for some segments of whom income inequality now seems to be a real interest, as opposed to charity for the poor in happier times. Obviously the OP would disagree, but really, if it can make unsupported assertions, so can I.

    Speculations as to the invidious personal motives of “Rawlsians” smacks of the petty, and wouldn’t actually be a real refutation even if it were true, which makes the OP a double loser in my opinion.

    • Jason Brennan

      Stevenjohnson2, I can tell by your astute posts here that you are well-versed in development economics.

      • stevenjohnson2

        I would be much more impressed at a professional philosophical demonstration as to how impugning the motives of “Rawlsians” demonstrates their principles actually require commitment to markets and their “Rawlsian” principles forbid other ethical/political concerns that prevent commitment to markets. Or how you possibly refute any opponents without actually citing their actual views.

        As to being well-versed in development economics:

        How do you separate the contribution of American food crops to increasing human welfare from the contribution from “robust, well-functioning markets” to increasing human welfare?

        What was the role of the Price Revolution of the sixteenth century in the development of the “robust, functioning markets” in Europe (and if there was a positive contribution, should it be attributed to internal factors or new American supplies of gold and silver?)

        How could there have been a massive population increase in Ming China if there had not been an increase in human welfare despite the absence of “robust, functioning markets” under the Ming emperors?

        But if you want to argue that increase of population should instead be interpreted as maintenance of Malthusian mean, what are the effects of population control on human welfare, and how do you really demonstrate that “robust, functioning markets” somehow caused that? What signals from the market inspired Percy Julian, for example?

        Somebody else’s credentials in development economics are not relevant here. There isn’t a scintilla of evidence to show I’m not the best versed in development economics here. Of course, I think you were just being rude, and don’t expect the slightest effort at any answers (and no, links to Amazon aren’t answers.)

        • Fernando Teson

          I would be a double loser if I were wrong on both counts.

        • Jason Brennan
        • Swami Cat

          Steven,

          This may not be the best forum for discussing the abbreviated guide to the modern breakthrough in living standards which began to emerge around 1776. There are as many theories as there are experts studying the issue, with most of them stressing that the causes were complex, contingent and multi-variate.

          Certainly advances in productivity have been commonplace in history. As you state though, they have always eventually been eaten away by Malthusian forces (and/or human exploitation). Standards of living thus were attracted to something near subsistence. The breakthrough at the end of the 18th C was that productivity increases became so constant and so large that they were able to outgrow increases in population in places following a particular approach which includes science, open access institutions and markets.

          After the collapse of communism — the only real alternative to market based economics — it has become increasingly clear to most that markets are at least one essential ingredient in this phenomenon. Necessary but in absolutely no way sufficient. Long term, reduced fertility might be necessary too.

          • David Harrell

            “the modern breakthrough in living standards which began to emerge around 1776”

            I know that agricultural methods were a significant part of that, but surely other factors included: Americans escaping from British taxation; and the progressive opening up of an entire continent, providing plenty of land (i.e., opportunity) and tightening labor markets not only here, but also overseas.

            Henry George, in Progress and Poverty, demonstrated pretty well that it is not population per se that produced poverty, but population pressure against artificially restricted supply of land due to hoarding for speculation. E.g., “unemployment” as a large scale phenomenon was not known until at or around the closing of the frontier.

            In 1829, Thomas Skidmore, a leader in the Workingmen’s Party of New York, proposed an agrarian equal division of land. Of the advancing artificial scarcity of land in the East, he wrote:

            Those who have gone before us, have been first to sit down to the table, and to enjoy themselves, without interruption . . . they have disposed of the whole dinner, in such a manner, that nine-tenths of the beings that now people this globe, have not wherewith to dune, but upon terms such as these first monopolisers, or those to whom they pretend they have conferred their own power as successors, shall choose to dictate.”

            Achieving and maintaining equal distribution of land being impractical, George much later proposed the “distribution” of land via using it as the sole tax base.

            I like to remind people who think land isn’t important because we are allegedly in an “information economy” to please look down and tell me what they are standing on. Does their home stand on land? Do their places of business, recreation, where they shop, worship, etc.? Does this land have economic value? How then can it not be fundamental to the economy and also to the distribution of wealth and opportunity? But NCE was expressly designed to “disappear” land, as a distinct factor of production, from the picture. I wonder why.

      • matt

        Jason what do you make of Joseph Carens argument that you have can have markets without inequality?

    • Theresa Klein

      From what I have observed, the primary concern of the middle class is not “inequality” but the declining ability to purchase (at a median income) what was once considered the normal middle-class lifestyle equipment: namely a single-family home. That’s a problem that is largely not caused by markets but by deliberate efforts at the local and federal levels to limit development and drive up home values (for various reasons). Local building codes and regulations, partly driven by regulatory capture by local developers, are part of the problem. So-called “affordable” housing policies mainly focused on lending people more money on looser terms are another part.

      • Swami Cat

        While agreeing with you many ways, Theresa, isn’t the affordability index on single family homes at historic lows right now (meaning unusually affordable)? At least outside of areas dominated by progressive policies?

        • Theresa Klein

          What is the affordability index composed of? If it’s composed mainly of lower interest rates, then I dispute it’s usefulness as a measure of affordability.

          Where I live, a typical SFH is in the $400K-$500K range.
          Median houshold income is about $100K. Unless you are willing to borrow over 3x your income, which is a no-no according to conventional financial advice, you can’t afford a single family home at the median income (and this is houshold income so I’m already factoring both parents working). Interest rates are not a factor in this equation.

          The sole point of pushing lower rates is to try to compensate for rising prices/wage stagnation, but lower rates don’t really change the fact that you are borrowing more money relative to your income and paying more for the house – or, often, taking longer to pay for it with smaller down payments even. Some people consider “affordability” to mean “monthly payment relative to income”, which gives zero consideration to how long it takes to pay off the debt. I don’t want a low-low monthly payment if it’s going to take 30 years to pay off my mortgage. I want to own the property in a reasonable amount of time.

          • Swami Cat

            It is an index of the affordability of monthly payments of a median home, and it has been improving for over thirty years on a national level. Here is the definition and it is easy to google the chart.

            “A value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment and a qualifying ratio of 25 percent.”

          • Theresa Klein

            So, no mention of how long it takes to pay off the loan then?
            If people shifted from 15 year mortgages to 30 year mortgages, this measure would not account for that.

          • Swami Cat

            Just look it up and quit being argumentative. Geez, I believe it is clearly defined as a conventional 30 year with 20% down.

          • Theresa Klein

            It’s a statistic invented by the national association of realtors. You think maybe they might have an interest in making things LOOK like housing is getting more affordable? Just maybe? The fact that someone is more likely to qualify for a mortgage, doesn’t mean that mortgage is objectively more affordable according to rational financial advice. (As opposed to what realtors want you to think).
            You can qualify an FHA loan at 3.5% down, for 4.5x your annual income, but it’s still a stupid idea financially.

          • Swami Cat

            Well… Ok then. Thanks for the discussion and keeping an open mind to alternative data.

      • ThaomasH

        increase in the relative cost of housing is certainly part of it, but wage stagnation is probably more important. And allowing developers to build more dense housing that people are willing to pay for is part of the solution.

        • Theresa Klein

          Denser housing is an objective reduction in living standards. if you parents were able to buy a quarter acre lot, but you can only afford a townhome, you are less well off.

    • ThaomasH

      I agree about markets and growth being to lift people from poverty but I do not see growing agreement on this issue as being a cause for increase in inequality within developed nations.

  • JoshInca

    Perhaps its time to challenge the heart of Rawls principles regarding justice and equality.

    There is really no rational reason to believe that political institutions should be arranged to benefit the poor. In fact, I’d say that the claim is a half arsed residue of Christian morality.

    Further, the idea that a right to vote is more important than a right to freely contract or a right to own property is delusional. The former is much less important to a person’s material and psychological well being than the latter two.

    • Farstrider

      Rawls gives reasons why inequality (not “political institutions,” as you erroneously assert) should work to the benefit of the least advantaged members of society. What reasons do you have for disagreeing?

  • JoshInca

    One of the fallacies of Piketty’s world view is that the return to capital is greater than overall economic growth, with the implication that the wealthy will become ever wealthier at the expense of everyone else. This is only feasible by aggregating all wealthy people across many generations, which obscures the changing composition of that group over that time period.

    According to Piketty, the wealthy today should be entirely composed of the descendants of the wealthy from a century ago, with a decline in their absolute number.

    Which does not fit the historic record because it ignores the primary feature of capitalism, which Marx recognize but was most accurately described by Schumpeter as creative destruction.

    Rather than Piketty’s static view of the rich getting ever richer. capitalism is the history of one group of elites being supplanted by another who capitalize on social, technological and organization change by bringing superior productivity to the market, and along the way enrich everyone else in society via ever growing material abundance.

    • Steven Flaeck

      That’s not what Piketty argues.

      Piketty argues that when the return on wealth is greater than economic growth, wealth begins to stagnate. Worse, on his account, this can imply some death spiral mechanics as the need to protect, inherit, or take wealth leads to policies that further harm growth.

      He does not argue that this structure has to exist. He explicitly reviews periods in which it doesn’t.

  • Ezhutachan

    ‘Rawlsian liberalism became a sort of obligatory point of reference ‘ for stupid academics, yes. Scholastic availability cascades have nothing to do with reality.

    D’uh.
    Nobody gives a shit about you cunts in your University departments. I’ve made more money in the last two days than could tenure my own son.

  • ThaomasH

    I have a penchant not to try to speculate on the motives others may have for disagreeing with me but rather by trying to find agreement perhaps discover the difference in evidence and reasoning that leads us to different conclusions and perhaps at the end conclude that there may be some difference in basic preferences that account for the remaining difference.

    If asked nevertheless to explain a change in attitudes toward inequality, between opinion toward a direction I disagreed with, I’d guess that it has been an increase in inequality that has drawn attention to it.

    Admittedly I’m biased by my own history. I first read Rawles when The Book came out and found it a comfortable to my “neo-liberal” preferences for increasing the role of markets and trying to improve the lot of the poor without much concern for “inequality.” I think this made a lot of sense in the 70-80’s when roles of markets were expanding and world poverty was falling main due to the former but inequality did not appear to be getting worse.

    With evidence of increasing inequality, it appears that we need a new instrument to address a new objective. Increasing the role of markets and targeted redistribution to the poor are no longer enough. A much larger redistribution program is needed which, fortunately need have little effect on efforts to remove constraints to growth. It COULD HAVE a big impact if transparent, economically efficient redistribution is blocked by those who wish to see no more redistribution at all with the result being multiple, piecemeal, inefficient measures. The resistance to carbon taxation to mitigate CO2 accumulation in the atmosphere and the resulting multiple mandates, regulations, and subsidies is a possible cautionary example.

    • ThaomasH

      BTW I think Piketty is an rather unimportant example of the concern for inequality, not a cause.

    • Swami Cat

      See prasad’s and my comments above. Markets are global and global poverty is plummeting at its fastest rate ever over the last generation. Where is the “problem”?

      At worst, I see negative externalities of a greater solution. Specifically, the unprecedented reduction in global poverty over past thirty years is increasing standards of living for the billions most in need of gains, it is slowing the advance in prosperity of lower skilled wages in developed nations, and is enhancing returns to high skilled and capital. Thus we see global convergence and within country increases in inequality.

      Reframing the greatest advance in human wellbeing in the history of the human race as a problem is quite an act of rhetoric.

      • ThaomasH

        What is wrong with wanting to have less inequality withing nations as well as between them?

        • Swami Cat

          Where do I start….

          First, there is nothing in inequality which intrinsically makes a higher or lower number better or worse. Poverty is bad. I can make as many arguments that more inequality is good as you can that it is bad, as long poverty is not affected.

          Much more importantly though, if you study my comment above you will see that I am suggesting the current trends in inequality are themselves partly side effects of the process which is bringing a billion people or more out of poverty. Specifically, we are seeing convergence in lower skilled wages between nations and higher returns to skill and capital as expected in economic theory as opportunities are capitalized upon. This is globalism at work.

          I am against interfering with markets which are allowing people to climb out of poverty in the mistaken belief that it will improve the world by reducing inequality. Bad ideas have consequences, and this one has horrific ones.

          • ThaomasH

            I agree that part of the reason for slow growth in lower wage earners’ incomes is trade with China and I do not oppose that trade. But taken together we have all benefited from China, but some more than others and some not at all. So part of what I want to see some artificial sharing of the gains from trade with low income people.

            There are plenty of other other reasons for increased inequality that are less innocent than China — too strict patents, endless copyright protection, invention of “carried interest”

          • Swami Cat

            I too am an old fashioned liberal, and I too agree with a role for the state which includes intelligent, well-designed safety nets to counteract the effects of creative destruction inherent in the dynamics of economic progress.

            I support progressively higher taxes on higher wealth, and agree that most reasonable people would choose such an arrangement behind a veil. Specifically, a uniform tax rate with a high exemption, say on the first $30-50K earned. This would be fair, with fairness defined as the rules people would choose prior to entering the game. I would not support targeting specific interest groups after the fact for many reasons which would take us off topic.

            I agree there are many things we can do to reduce poverty (regulation, patents, rent seeking, licensing, clamping down on unionized public service employees, etc). Again, I could care less for the effect on inequality, as inequality of outcome is just an abstract mathematical relationship of no inherent normative consequence. If Bill Gates could become a gazillionaire by enriching billions of people by a hundred dollars each, I am all for it regardless of the effect on the gini. The world would be a better place, and that’s what counts.

            Your (well, anyone’s) redistribution ideas could easily interfere with the global enrichment process. They would do so if they affected incentives or if they distorted return on investment in new ideas, products, factories, or processes. You can’t simultaneously tax income AND invest it in a new venture. Any such distortion reduces the problem solving capacity of the network.

            Most distortions specifically privilege people on one side of the border at the clear expense of those on the other side. Thus we get privileged victims (lower skilled people in wealthy countries who still live better than 99% of humanity historically) and unprivileged victims in third world nations living off two dollars a day.

            My personal experience with lower income people today (family and friends) is that they have all the wrong incentives. It is simply too easy to live off disability, state aid and such. The worst thing we can do for ourselves is to continue to over-pamper people. They are in effect being incentivized to become parasites. This is harmful long term not just to all of us, but specifically to them as well. More health care, child care, housing subsidies, food subsidies, college subsidies, etc will just make the problem worse. It is fostering parasitism and negative sum dependency. On the other hand, I am completely in favor of safety nets engineered in such a way to protect against short term changes in fortune or to support the truly “incompetent” (children, handicapped, elderly, mentally disturbed).I too am an old fashioned liberal, and I too agree with a role for the state which includes intelligent, well-designed safety nets to counteract the effects of creative destruction inherent in the dynamics of economic progress.

            I support progressively higher taxes on higher wealth, and agree that most reasonable people would choose such an arrangement behind a veil. Specifically, a uniform tax rate with a high exemption, say on the first $30-50K earned. This would be fair, with fairness defined as the rules people would choose prior to entering the game. I would not support targeting specific interest groups after the fact for many reasons which would take us off topic.

            I agree there are many things we can do to reduce poverty (regulation, patents, rent seeking, licensing, clamping down on unionized public service employees, etc). Again, I could care less for the effect on inequality, as inequality of outcome is just an abstract mathematical relationship of no inherent normative consequence. If Bill Gates could become a gazillionaire by enriching billions of people by a hundred dollars each, I am all for it regardless of the effect on the gini. The world would be a better place, and that’s what counts.

            Your (well, anyone’s) redistribution ideas could easily interfere with the global enrichment process. They would do so if they affected incentives or if they distorted return on investment in new ideas, products, factories, or processes. You can’t simultaneously tax income AND invest it in a new venture. Any such distortion reduces the problem solving capacity of the network.

            Most distortions specifically privilege people on one side of the border at the clear expense of those on the other side. Thus we get privileged victims (lower skilled people in wealthy countries who still live better than 99% of humanity historically) and unprivileged victims in third world nations living off two dollars a day.

            My personal experience with lower income people today (family and friends) is that they have all the wrong incentives. It is simply too easy to live off disability, state aid and such. The worst thing we can do for ourselves is to continue to over-pamper people. They are in effect being incentivized to become parasites. This is harmful long term not just to all of us, but specifically to them as well. More health care, child care, housing subsidies, food subsidies, college subsidies, etc will just make the problem worse. It is fostering parasitism and negative sum dependency. On the other hand, I am completely in favor of safety nets engineered in such a way to protect against short term changes in fortune or to support the truly “incompetent” (children, handicapped, elderly, mentally disturbed).

          • ThaomasH

            I don’t see a lot of difference in our outlooks. I support progressive consumption taxation over income taxation but within the income tax world I don’t think higher marginal tax rates would necessarily be bad even though I’d start with substituting partial tax credits for tax deductions.

  • prasad

    A related point is that it’s not just global poverty, even global inequality is stalling or going down, since poor countries are growing faster than rich ones. The left focuses solely on within country measures (and that predominantly within rich countries) even though about 70% of the total inequality among people is explained by between-nation effects.

    Again, we may notice that this success doesn’t trace to any particular global application of proper Rawlsian norms – heck, Rawls himself was opposed to applying his difference principle across nations, for reasons that are hard to square with his original position (if wholly consistent with preferred political outcomes). It’s much truer to say that it traces rather to capitalism red in tooth and claw.

    • Swami Cat

      Building on this comment… Not only do they ignore between-country inequality, but they dismiss the dynamic that growth in wages in developing nations and relative stagnation of lower skilled wages in developed nations are almost certainly related phenomena. The narrative is to frame the issue as a zero sum game between winners and losers here, rather than a dynamic of wage convergence which is on net benefitting humanity.

      Pointing this out to intellectuals on the left results in a combination of confusion and anger.

      • ThaomasH

        “They”

        I agree it is NOT a zero sum game between nations and within nations. I recognize that are some costs in reduction in consumption by high consumption individuals as income is transferred to lower consumption individuals, but I’d argue this is NOT zero sum in any but an accounting sense.

    • ThaomasH

      Why do yo see a conflict between reducing inequality within and between nations?

      • prasad

        First, it doesn’t matter to my point whether there is – the fact is overall inequality is plateauing or going down, because between country inequality is falling faster than within country inequality is rising. The Left goes on and on
        about the within trends, but is completely silent on the other, arguably larger phenomenon.

        But to take your question on, here’s a toy model of globalized labor in a setting where some countries are much richer than others. Take two countries A and B, each with two inhabitants.
        Initially, A’s inhabitants A1 and A2 earn 100 and 80. In B, B1 and B2 earn 30 and 10. Now say there’s labor competition between A and B, so the new wages look like 110 and 75 in A and 40 and 15 in B.

        [I actually think, looking at the inequality numbers since China took off, that this isn’t a terrible model of what’s going on – large gains in B, gains in A but with distributional issues.] But notice that inequality is lower for the four people as a whole, but rises within each of A and B, and there’s a complete coming apart of between and within country inequality trends.

        Really, it’s not that surprising that variance between and within groups might trade off against each other, is it?

        • ThaomasH

          If your question is if we had to choose between state P(100,80,0,10) and state Q(110,75,40 15) should we reject Q, No. I am happy that residents of China have become wealthier because China and even more happy that this has (not surprisingly) come about through greater economic freedom. May it lead to greater individual liberty.

          I don’t keep track of the ideological orientation of who talks about China’s progress and the shirking gap between incomes and wealth per capita between the US and China, about I don’t think its ignored by “the left.”

          But in my view of the world there are lots of things that we could do that would decrease inequality in the US at little or no cost to growth (or harm the poor in developing countries). In your toy model there could be a state Q'(101 84,40,15) which is better than state Q.

          Three more points

          1) I would agree that increasing the absolute levels of the poor is more important than “inequality” but again, I don’t see those as necessary trade-offs.

          2) I’m more anti-anti-anti-“inequality” than I am anti-“inequality.” I sense that many things that I think would be good to do, increase the EITC, tax carbon are examples, are blocked because these would lead to in the first case or would risk in the second case higher taxes on the consumption of high-consumption individuals. That is, they are rejected because they would result in less inequality although reducing inequality was not their objective.

          3) When you get right down to it, I not know of anyone that wants to “do something” about “inequality” per se. They want to finance more universal health insurance, or pay for more people to go to college, or subsidize child care or not have arbitrary caps on the budgets of NASA and the Parks Service and would pay for these things partly with higher taxes on of high consumption people.

          • Swami Cat

            To frame resistance to your ideas of enlightened state planning as a desire to preserve inequality is kind of amusing. It might be simpler to consider that higher income individuals just want to keep what they legitimately earned, and others might disagree because we see your state-driven solutions as penny wise and pound foolish. Specifically, some of us are convinced that the investments of skill and capital is essential to continue to propel the free market innovation machine which is enriching so many people world wide, and that your redistribution plans would interfere with this process.

            You do realize that you are viewing higher consumption individuals instrumentally…right? That they are means to your ends rather than human beings whose opinions and desires matter every bit as much as anyone else’s? People are not fodder for your plans, so please quit treating them as if they are.

            If you want to get more of their taxes (odd as they pay a massively disproportionate share already), then it is critical to convince them of this. I would argue they pay more than enough, and that their money is better spent in consumption (buying things non skilled workers helped build) or investing in new ways to serve our fellow man (possibly creating a few hundred million jobs in the process).

            “…finance more universal health insurance, or pay for more people to go to college, or subsidize child care or not have arbitrary caps on the budgets of NASA and the Parks Service and would pay for these things partly with higher taxes on of high consumption people.”

            Again, you view living souls instrumentally. Bad form. Here you list a bunch of things which are to a great extent poorly reasoned hand outs to middle class individuals. How about allowing people to pay for their own child care, their own park visits, their own affordable health care? Massive state interference is in great part responsible for the high costs of college, and way too many kids go to them already. I could go point to point on your list, but let’s stick to the subject.

            Your path to problem solving is the “Big Kahuna” approach. It is a simplistic, almost childish, model where central planners whose ideas matter get to use force to override the decentralized voluntary actions and interactions of people actually creating value for each other. And brief review of history will review the folly of your approach (though I will agree that some problems such as public goods and imminent catastrophe may be best served with some central planning and coercion).

          • ThaomasH

            I’d say all of us are convinced that the investments of skill and capital is essential to continue to propel the free market innovation machine which is enriching so many people world wide, but that some of “us” think that my redistribution plans would interfere with this process.

            Is every tax to pay for every public expenditure using the taxpayer as an “instrument.”

            Subsidized child care is centralized planning? Please update your rhetoric. I could be persuaded that it does not pass a cost benefit analysis — Matt Yglesias has his doubts, for example — but my sense about this is that we can’t have this discussion because anything that might risk higher taxes on high consumption people is off the table. That what I mean be being anti-anti-anti-inequality.

  • Noah Carl

    The poor also care about national identity and culture. Neither libertarians or leftists seem to understand this.

  • John A

    I thought that Rawls’s Difference Principle dealt with equity not equality. Equality plays a role in his Equal Liberty Principle where everyone has the same basic liberties, but not in the Difference Principle where the emphasis shifts to the fairness of the process by which social inequalities are to be distributed. I imagine that it follows then that if the system of distribution is fair (equitable) then the resulting inequalities are fair. Critics of capitalism, or markets more generally, as it functions in contemporary society think that the system of distributions of social goods is not equitable and hence wrong. The unfairness of the distribution is not that some are rich and some are not, rather it is that the starting point that results in the actual distribution of social goods gives an unfair advantage to some.

  • John A.

    As a person who likes Rawls let me say that I agree that the present market scheme(s) has lifted many people out of poverty. My question is what does this have to do with his Difference Principle? If one is going to use this principle then one needs to apply it the formation of the basic institutions that make up the markets. In this way it is a Ideal theory. The point that I think Rawls is making is that a system that is fair (equitable) will not allow for distribution schemes that allow for some people to live lives that are not sustainable; there is an economic baseline below which people are not allowed to fall. A rational person, as understood by Rawls, making decisions on the principles of justice to be used to establish basic institutions under a veil of ignorance, would not choose a system that allowed for people in poverty. After all, besides being a Kantian, he was also a Rousseauean. That said, economic systems are just if the starting point is fair such that this criterion is met. And as noted by Tesson this would allow for income inequality. So, the issue is not one of income inequality, but income fairness. So those if us who use the phrase ‘income inequality’ probably are using a phrase that is misleading (like ‘global warming’ can be misleading) unless one is clear that here ‘inequality’ refers to the choice environment where supposed equals are not being treated equally, not to a system that would result in an equal income for all. ‘Income equality’ then would mean that everyone starts out in a fair system where everyone has a fair chance to move up the economic ladder, but those that are passed up are not harmed by having to live an unsustainable life.

  • Farstrider

    Is this post sincere?
    Of course Rawls is not hostile to markets. He would say that people in the Original Position would be very favorable to markets precisely because “well-functioning markets were a necessary condition to lift people out of poverty.” In fact, free markets are the perfect embodiment of the Difference Principle, insofar as they consist of social and economic inequalities that (a) work to the benefit of the least advantaged members of society and (b) are attached to positions and offices available to all.
    This is pretty basic stuff, not an obtuse point of Ralwsian thought that a professor at a national university should get so wrong. Accordingly, I can only conclude that the good professor is trolling us all.

  • CFV

    I think you overestimate the “available evidence.” There is no consensus among economist on many things. See, e. g., Michael Hudson’s Killing the Host: http://store.counterpunch.org/product/killing-the-host-digital-book/

  • David Harrell

    “The problem isn’t that some people have more; it’s that some people don’t have enough.

    This argument makes me want to tear out my hair. Is he suggesting there is no connection whatsoever between a small minority having far more than they need, and the majority having far less than they need?

    And is he suggesting that, as long as the majority just have a “decent life” (bare subsistence?) that it’s not still wrong and dangerous that a small minority has wealth equaling thousands of “decent lives”? 

    As to the first point, 
    Louis F. Post:

    There is no man that works who gets the full product of his labor. I do not have to go to Washington for statistics to prove that. All I need to do is to point to the men who get a great deal without labor. They cannot get it from any other source than from the men and women who do labor. *

    It should be quite obvious that  Gates doesn’t have 100 million times more wealth than his typical worker (or customer) because he is 100 million times more productive. He has billions because he is enabled by national and international legal devices, which should be classed as privileges, to appropriate part of what is produced by millions of other people.
    That is not a mere “inequality” — some accident of fate or mystery of nature. That is robbery. Even if mostly unconscious, unintended, via a system we inherited from others.
    i don’t want the state to determine and attempt to engineer “correct outcomes,” but I do want the state to stop robbery, and to stop otherwise distorting outcomes — so that we can produce (and keep) whatever wealth our talent and effort merit. 

  • David Harrell

    “The problem isn’t that some people have more; it’s that some people don’t have enough.

    This argument makes me want to tear out my hair. Is he suggesting there is no connection whatsoever between a small minority having far more than they need, and the majority having far less than they need?

    And is he suggesting that, as long as the majority just have a “decent life” (bare subsistence?) that it’s not still wrong and dangerous that a small minority has wealth equaling thousands of “decent lives”? 

    As to the first point, 
    Louis F. Post:

    There is no man that works who gets the full product of his labor. I do not have to go to Washington for statistics to prove that. All I need to do is to point to the men who get a great deal without labor. They cannot get it from any other source than from the men and women who do labor. *

    It should be quite obvious that  Gates doesn’t have 800 million times more wealth than his typical worker (or customer) because he is 800 million times more productive. He has billions because he is enabled by national and international legal devices, which should be classed as privileges, to appropriate part of what is produced by millions of other people.
    That is not a mere “inequality” — some accident of fate or mystery of nature. That is robbery. Even if mostly unconscious, unintended, via a system we inherited from others.
    i don’t want the state to determine and attempt to engineer “correct outcomes,” but I do want the state to stop robbery, and to stop otherwise distorting outcomes — so that we can produce (and keep) whatever wealth our talent and effort merit. 

  • David Harrell

    “The problem isn’t that some people have more; it’s that some people don’t have enough.

    Is he suggesting the two facts are totally unelated? That there is no connection whatsoever between a small minority having far more than they need, and the majority having far less than they need?

    And is he suggesting that, as long as the majority just have a “decent life” (bare subsistence?) that it’s not still wrong and dangerous that a small minority has wealth equaling thousands of “decent lives”? 

    As to the first point, 
    Louis F. Post:

    There is no man that works who gets the full product of his labor. I do not have to go to Washington for statistics to prove that. All I need to do is to point to the men who get a great deal without labor. They cannot get it from any other source than from the men and women who do labor. *

    It should be quite obvious that a Bill Gates doesn’t have 800 million times more wealth than his typical worker (or customer) because he is 800 million times more productive. He has billions because he is enabled by national and international legal devices, which should be classed as privileges, to appropriate part of what is produced by millions of other people.
    That is not a mere “inequality” — some accident of fate or mystery of nature. That is robbery. Even if mostly unconscious, unintended, via a system we inherited from others.
    i don’t want the state to determine and attempt to engineer “correct outcomes,” but I do want the state to stop robbery, and to stop otherwise distorting outcomes — so that we can produce (and keep) whatever wealth our talent and effort merit. 

    And if you want the full story on that, forget Piketty; read Henry George or contemporary Georgists such as Fred Foldvary, Fred Harrison, or Mason Gaffney.

  • FZ

    Sorry, I´m
    a physicist, not philosopher or economist, so take my 5 cents for whatever its
    worth. Inequality seems to me, is a symptom, rather than the problem itself. I
    suspect that in a really free market where competence is randomly distributed, the
    probability should be very low that someone is personally able to secure such
    large proportion of available assets to himself. I assume almost linear behavior,
    which might not be true, but nevertheless…. With that in mind, the appearance
    of large inequalities would be evidence of large biases in the market and unjust behavior
    of some or many players, specially the ones that benefit from it.

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