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Further Thoughts on Inequality

I've been following the income inequality issue lately, and have learned a few more interesting tidbits:

Megan McArdle of The Atlantic further buttresses my earlier point about inequality rising and falling with the overall health of the economy.  That is to say, in terms of income the wealthy benefit disproportionately during times of prosperity, but their income also shrinks disproportionately during recessions.  Also note that unlike the studies I cited in my last post, McArdle looks back farther than the 1950s.  In fact, even according to these statistics income inequality is not too far out of line with the averages for the past century.

But then, what determines whether someone is in the top quintile of income earners, the bottom quintile, or somewhere in between?  Mark Perry of the University of Michigan has looked into the characteristics of households at each level, and has identified the most important variables.  Those at the top tend to share certain attributes--they have more than one income earner (that is, they are married), those earners are in their prime earning years (between 35 and 64), and they have college degrees.

All of this points to an argument made by Shikha Dalmia--that what is overlooked in the search for alleged bad news in income inequality is the fact that there is still tremendous social mobility in this country.  Indeed, there is perhaps more today than at any time in U.S. history.  Today's wealthiest Americans are almost certainly not the same as those at the top twenty years ago; many likely were at the bottom quintile at that time.

But there's another story that the statistics on inequality fail to reveal: the fact that ordinary people are living far more comfortably than they did in the 1960s.  When I was a child, growing up in a solidly middle-class family in the 1970s, a vacation meant a two-hour drive to a lake somewhere--having flown on a commercial jet was an indicator of great affluence.  So was ownership of a microwave oven, a portable telephone, or a computer.  For all the hype we hear today about the sufferings of the middle class, how many members of that class do not own these things today?  Are they not regarded as necessities of life?

Categories > Economy

Discussions - 12 Comments

This needs to be thought of in engineering terms--presume income inequality is a fact. Presume rising income inequality is a fact.

So what? Evidence of the presence of a phenomena is not automatic evidence for significance of the phenomena. Or to put it in design terms--presume income inequality somehow has deleterious effects. Before coming up with a solution, it would probably be nice to know something about what those deleterious effects were, and the mechanism by which phenomena A causes Effects B, C, and D. Because there may be more than one way to solve the problem, and in fact another solution with other benefits for other problems may be found than the one that was used as sort of a baseline to start with.

In short, if X=income inequality, and k=rising, it does not automatically follow that Y=higher taxes. Don't get me wrong--I'm *extremely* interested in the concrete reasons why this is thought to be a concrete problem, instead of reality intruding upon someone's preferred conception of heaven on Earth. But before I really get worked up about the issue, it is going to have to be shown to me why it is more of "concrete problem that causes b,c,d" and less "offends my moral sensibilities on how the world should be ordered".

Expanding on the above--I'm not concerned overly much about all this "inequality" stuff, because if the reason why others are concerned is that "it means common people won't have a say", then I am also concerned. It's just that instead of saying "no rich people" (as seems the answer for some), I, for some reason, think that the system can be arranged to allow both people to get rich and for the people to still rule in a self-governing way. It used to exist, and was called America. I here it is still out there, somewhere, waiting to be found again.

Unless, of course, this entirely income inequality discussion is more about "what's mine is mine, and what's theirs is mine too" than anything else--in which case, for those of that ilk, I have no solutions, only opposition.

And, as usual, I have mispelled/misused a word. "entirely". Nuts. I checked hard this time, too. "Man proposes, grammar disposes", it seems.

I have absolutely no problem with income inequality. I do, however, have a problem with income inequality in the US congress relative to the US population. When less than 1% of the US population has a net worth of 1M+, while 66% percent of US senators and 41% of US representatives (2009 data for all) have a net worth of $1M+ there is a problem. This disparity is even greater when considering multimillionaires. It's not that having money is inherently bad, but it does change your relative wants and needs.

"Megan McArdle of The Atlantic further buttresses my earlier point about inequality rising and falling with the overall health of the economy."

Where in your previous post do you make that point? The closest thing I could find was the much narrower assertion that "[i]t is clear that the [CEO-to-worker pay] ratio has been getting smaller over the years."

and even that isn't true, unless you limit the "over the years" to just the last few, in which the pay-rate gap has gone from cosmic dimensions to merely enormous.

From the Dalmia op-ed:
"But thanks to technology-driven increases in productivity, almost everyone can afford bypass surgery, vacations and Internet access."

With the likely exception of the last item in her list, that's just absurd.

http://healthcarebluebook.com/page_Results.aspx?id=29&dataset=hosp

Now tell me how "almost everyone" has either $55K or great health insurance.

As for the mobility issue... I don't think so:

http://www.americanprogress.org/issues/2006/04/b1579981.html

Nor should some people have access to heart surgery, etc. Why? Because many "poor" people make no contribution whatsoever to their fellow citizens, and so their fellows should have no obligation to pony up thousands or millions to benefit such people. Many people will want to contribute anyway, which is what charity is for. Using the coercive power of government to force such redistribution is another matter entirely, and is antithetical to American values. Mindless altruism is good for the ants, Craig, but it has never worked for long in our species.

Please recall that the very worst forms of inequality the human world has ever experienced have all been due to states and their laws. What the Left wants to do, down deep, is to reinstitute slavery.

"Nor should some people have access to heart surgery, etc. Why? Because many "poor" people make no contribution whatsoever to their fellow citizens, and so their fellows should have no obligation to pony up thousands or millions to benefit such people."

Oh, so you were part of the cheering throng during that GOP debate when Ron Paul (I think it was him) asked if some hypothetical ill person should just be left to die?

"Many people will want to contribute anyway, which is what charity is for."

But I'm guessing you won't be one of them. I mean, really, why would you even want to? After all, odds are they've "made no contribution whatsoever to their fellow citizens" right?

But, what if....just what if... they have opted not to contribute to their fellow citizens, because they want to feel some "obligation to pony up"?

(Seriously, you don't see where the rationale, the logic just becomes absurdly circular? It's positively dizzying.)

I'm not sure why I waste my time on you, but here goes. Parasitism is a long-standing strategy of survival in Nature, and all animals engage in it at some point. Parasitism is a simple idea -- live off the work/energy of another without contributing anything toward your host's survival (indeed, harming their well-being). In small-scale human societies such parasitism is minimized because everyone knows everyone else. True helplessness is generally condoned only because 1) the 'host' is genetically-related to the needy, or 2) the needy have made significant contributions in the past and are thus allowed to draw on this 'capital'.

My point above was that their is no good way to handle such parasitism on a very large scale. Whenever you have strangers giving strangers part of their sustenance as a matter of force, we call this slavery. This is precisely what the Left has done to America for many years now -- forced millions of hard-working Americans to disproportionately contribute to the welfare of others. And no, Craig, people have NEVER been allowed to vote on these practices (actually, it shouldn't be a matter of voting -- it's just wrong to ask some to pay for others without choice).. All we get to do is vote for representatives and their broad agendas, which is the only way these practices can continue. Over the last 50 years, the Democrat Party has become a confederation of parasites, and that's what we are fighting.

If wanting to keep what I earn and control my giving to others is cold-hearted, then so be it. But I have no illusions about human beings.

"...the fact that there is still tremendous social mobility in this country. Indeed, there is perhaps more today than at any time in U.S. history."

Those are quite some claims, and I don't see where the evidence is (esp. for the wild "perhaps" assertion). There is substantial evidence to the contrary, however.

I meant to post these earlier:

From Feb. 2010:
http://economix.blogs.nytimes.com/2010/02/10/are-you-better-off-than-your-parents-were/

"It appears that the United States has less intergenerational social mobility than many other industrialized countries.

A new report from the Organization for Economic Cooperation and Development looks at various indicators of intergenerational social mobility, which refers to the “relationship between the socioeconomic status of parents and the status their children will attain as adults.” If the link between parents’ and children’s social status as adults is tight, the society is less mobile, and vice versa.

The report focused on educational and wage mobility. It found that parental socioeconomic background influences descendants’ education and income in “practically all countries for which evidence is available.” On multiple measures, though, the link between parents’ background and children’s outcome appeared especially strong in the United States."

Here's another:

Trends in U.S. Family Income Mobility, 1967–2004
Katharine Bradbury and Jane Katz

From the abstract (which appears to be an Aug. '09 update):

"Family income mobility—changes in individual families’ real incomes over time—
is one indicator of the degree to which the eventual economic wellbeing of any family is tethered to its
starting point. In the United States, family income inequality has risen from year to year since the mid‐
1970s, raising questions about whether long‐term income is also increasingly unequally distributed;
changes over time in mobility, which can offset or amplify the cross‐sectional increase in inequality,
determine the degree to which the inequality of longer‐term income has risen in parallel.

Using data from the Panel Study of Income Dynamics and a number of mobility concepts and measures
drawn from the literature, we examine mobility levels and trends for U.S. working‐age families, overall
and by race, during the time span 1967–2004. By most measures, we find that mobility is lower in more
recent periods (the 1990s into the early 2000s) than in earlier periods (the 1970s). Most notably, mobility of
families starting near the bottom has worsened over time.

(...)

Taken together, this evidence suggests that over the 1967‐to‐2004 time span, a low‐income family’s
probability of moving up decreased, families’ later year incomes increasingly depended on their starting
place, and the distribution of families’ lifetime incomes became less equal."

===

[BTW, in my last response to redwald, the penultimate paragraph was missing a "don't" - I've added it below:

"But, what if....just what if... they have opted not to contribute to their fellow citizens, because they don't want to feel some "obligation to pony up"?"]

Sorry, I left out the link to the Bradbury and Katz research in my last post. Here it is (in PDF form):

http://www.bos.frb.org/economic/wp/wp2009/wp0907.pdf


...and since I'm here, something from that recklessly leftist rag Forbes:

http://www.forbes.com/2007/10/09/income-mobility-opportunity-ent-dream1007-cx_th_1009harford.html

"On one very important measure, America offers less opportunity than almost any other rich country. The real lands of opportunity are places like Canada, Finland and especially Denmark.

The measure I'm using is hard to calculate but easy to understand: How much of your parents' income rubs off on you? If your father was rich at the age of 40, how likely is it that you will be rich at the age of 40? And if he was poor, are you also doomed to poverty?

The unfortunate news is that the children of poor American families end up being poor adults far more often than the children of poor Danish or Norwegian or Canadian families. And that chips away at the cherished myth that America is a land of opportunity for all."

I love how the Left creates social problems and then blames their creation on the Right. First, most of this "slowed" social mobility is because 1) lower rates of marriage and out-of-wedlock births, 2) massive immigration of poorly educated workers, and 3) government dependency. I should also add the lost of industrial jobs, but neither party wants to do anything about that (at least, no one since Reagan has actually attempted to force foreign manufacturers to build their factories here).

Income redistribution is not the answer, Craig. Give it up.

"...the fact that ordinary people are living far more comfortably than they did in the 1960s."

Like in Ohio, where currently someone who makes minimum wage would have to work 70 hours per week in order to afford the RENT on a 2-bedroom apartment at "Fair Market Value."

http://i.imgur.com/9VQeR.png

Sounds pretty comfortable!

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