All Things being Unequal


December 25, 2015

NY Times Sunday Book Review | Ivory Tower

All Things Being Unequal

President Obama calls economic inequality “the defining challenge of our time.” Pope Francis tells us that “today we also have to say ‘thou shall not’ to an economy of exclusion and inequality.” The French economist Thomas Piketty writes a nearly 700-page book for Harvard University Press about long-term trends in inequality and, in the wake of the Occupy movement, is rewarded with a surprise best seller. Mitt Romney, of all people, now complains that “income inequality has gotten worse.” Economic inequality is bad. Everybody thinks so.

This simplifies somewhat. Some poll data suggest there exists a class of people who are not overly concerned about economic inequality, or at least not particularly interested in having the government do anything about it. (They are known, in statistical parlance, as “most Americans.”) Furthermore, the undesirability of economic inequality, as opposed to that of poverty, is not self-evident. Even Piketty concedes that inequality “is not necessarily bad in itself.” The question is whether it is justified.

For the economist William Watson, the answer is: It depends. His book THE INEQUALITY TRAP: Fighting Capitalism Instead of Poverty (University of Toronto, $32.95) is a lively and able, if familiar, defense of market capitalism and its effects. He grants that economic disparities that result from corrupt, coercive, anti-competitive or criminal transactions are “bad,” but he maintains that a great many others result from voluntary transactions that benefit all parties involved and are “good.” Still other economic disparities, like those that arise as byproducts of demographic changes, are neutral. For example: The growing tendency for wealthy people to marry other wealthy people — a development that has tracked the rise in women’s incomes — has been estimated to account for a 26 percent increase in household income inequality in the United States. But you would have to be quite an extreme redistributionist to support a policy that required wealthier people to marry poorer people.

Today’s preoccupation with economic inequality, Watson writes, breeds an unhealthy skepticism about capitalism and shifts our focus away from the issue of poverty and toward the wealth of the so-called 1 percent. Though he doesn’t blaze any new scholarly ground, anyone looking to play devil’s advocate with Piketty-purchasing friends would be well served by his book.

A more idiosyncratic argument is offered in ON INEQUALITY (Princeton University, $14.95), by the philosopher Harry G. Frankfurt. To those who think a gap between haves and have-nots is obviously unfair, Frankfurt poses a simple thought experiment: Imagine a policy wherein all incomes and personal wealth are kept equally below the poverty line. Everybody is now exactly as poor as everybody else. If this does not look like a solution, then inequality, as such, cannot be the problem. To Frankfurt, it seems clear that the relevant moral concern is not that people in our society have different amounts of money, but that too many people don’t have enough.

Most critics of economic egalitarianism, convinced that the only way to promote equal levels of wealth is to constrain people from acting freely, are troubled by a threat to liberty. This is not what troubles Frankfurt. He worries that a fixation on economic equality diverts our attention from fundamental questions that ultimately have nothing to do with how much money other people have. Namely: What is it that you want? What will satisfy you?

In this way, Frankfurt’s anti-egalitarianism is more of a philosophical challenge than a libertarian crusade. If your focus is on how your income stacks up against that of everyone else, you are allowing other people’s possessions to shape your sense of what you need and want. You are, in effect, alienated from yourself. Frankfurt also suggests that intellectuals, in devoting their attention to ratios of wealth, neglect a less precise but more pressing investigation: What is enough for a good life? What, for that matter, is a good life?

Frankfurt’s argument is unabashedly unempirical, and he freely concedes that economic inequality, though of no intrinsic moral concern, may have an array of undesirable consequences that themselves need to be redressed, such as disparities in political influence. In INCOME INEQUALITY: Why It Matters and Why Most Economists Didn’t Notice (Yale University, $40), the economist Matthew P. Drennan draws attention to what he believes is another, and surprisingly overlooked, example of such a consequence: Income inequality, he contends, was a decisive factor in precipitating the financial crisis of 2008 and the Great Recession that followed.

Most explanations of the 2008 crash, seeking the causes of an overly indebted economy, emphasize factors like low interest rates, relaxed borrowing standards, mortgage securitization — anything that increased the availability of credit. Drennan is interested in why people were moved to take advantage of this easy money. Purchasing homes, he argues, was only part of it. Something else was a significant driver of debt. He finds that lower- and middle-class families, struggling with declining or stagnant incomes, made use of second mortgages, home equity loans and other such instruments to support their spending, notably on necessities like medical care and education.

Why blame unequal incomes (as opposed to low ones) for this debt-fueled consumption? Drennan’s answer is that prices for certain necessities like medical care and education, which rose much faster than inflation in the years leading up to the crash, appear to have been driven up by heightened demand among the wealthiest 10 percent, whose share of income grew. In other words, it was an attempt by those with less money to compensate for costs created by others with increasingly more money that contributed to the instability of the economy.

Unfortunately for Drennan, addressing ­inequality has never been an American priority. Or has it? In AMERICA’S FOUNDING AND THE STRUGGLE OVER ECONOMIC INEQUALITY (University Press of Kansas, $39.95), the political theorist Clement Fatovic argues that a concern with economic inequality has deep roots in the establishment of the United States. Tea Party heroes like Thomas Jefferson and Thomas Paine, far from seeing government promotion of economic equality as inherently at odds with individual liberty, often considered greater equality to be a precondition for liberty, a view that influenced such proposals as free public schools and a more progressive tax system.

Another cherished conservative narrative — that Democrats favor a big government to promote social welfare programs, while Republicans favor a small government that allows the free market to work its magic — is rigorously disputed by the political scientist Christopher G. Faricy in WELFARE FOR THE WEALTHY: Parties, Social Spending, and Inequality in the United States (Cambridge University, $99.99). Faricy’s contention is that for the past four decades, Democrats and Republicans have increasingly used big government to promote social welfare programs — but each party has employed different tools and targeted different beneficiaries.

Democrats, as we know, use higher taxes to fund programs like Social Security, Medicare and Medicaid, which serve society’s poor and vulnerable. That is the public welfare state. But Republicans do much the same thing in the service of a private welfare state: They use tax breaks to subsidize employer-sponsored 401(k) plans and employer-sponsored health insurance, which serve the better-off. Faricy observes that tax breaks, logically speaking, are just government spending in another guise (both cost the government money), and that programs like the 529 college savings account, which is supported by such a tax break, are welfare programs for rich families. (About 70 percent of that program’s benefits go to households making more than $200,000 a year, costing the government $1 billion over the next decade.)

For Faricy, the real question is not some fanciful speculation about whether you can tolerate a welfare state that hampers your freedom, but rather a matter of which of these two welfare states you want: the one that spends public money to increase economic inequality, or the one that spends public money to reduce it.

James Ryerson is a senior staff editor in The Times’s Op-Ed section.

A version of this article appears in print on December 20, 2015, on page BR27 of the Sunday Book Review with the headline: All Things Being Unequal.

 

16 thoughts on “All Things being Unequal

  1. What the US is going through now has all happened before… in the Great Depression.
    The causes were well articulated and the solution equally well worked out back then

    All Americans have to do is read the history of that period…If socialism means looking after the welfare of the down and out
    majority, then the New Deal was the most successful example of
    socialism ever. Their president went on to win three more times
    – I believe.

    Once they get their people back to work, they can then tackle the issue of income/wealth inequality. The solution there is equally simple.

    However well entrenched corporations are this time round, a second New Deal is possible

  2. Despite, the great mind’s thoughts on the political,socio-economic ramifications, INEQUALITY IS HERE TO STAY, unless there is an effective control over the world’s population growth relative to its economical and income growth, like what China had done(sacrificed from the past few decades) with the one child policy,now modified to two.Even then,inequality will be an issue, though lesser.

    The world’s livable space suitably availability and its natural resources just simply could not cope with the high standard living of the ever increasing human demands, even with the help of speedy technological and information advancement.

    Drawing from evolutionary sciences,living species are born unequal, in terms of intelligence, size and mobility. Inequality is inevitable. It is a matter of the variable degrees that could be considered beneficially acceptable.

  3. Sigh.. Is there no way out of this morass of deterministic evolutionary Karma?
    There is, but that would need triangulation and some form of distributism, not distributionism. Ownership Economics.

    So perhaps a Third Option based on Pico della Mirandola’s ‘De Hominis Dignitate’ (Oration on the Dignity of Man). If any of you consider yourself ‘unaddled’ and open-minded please go through the whole series of simple vids starting with the one below – and feel free to share this with less fortunate ones (which is almost everybody else):

    So does Kllau’s thesis on ‘evolutionary’ population economics bites the dust?

  4. Discussions of income distribution are inherently misleading in one fundamental respect: Income is not distributed, it is EARNED. This fact, while obvious, is often overlooked. A study done by Pacific Research Institute reported of the familes that comprised the lowest 20% in household income, 55% had no income earners at all; and even among family members who were employed, only 24% worked full-time. On the other hand, in the top 20% of income, 83% of families had 2 or more income earners. And, amazingly, 11% of families in this top income quintile included 4 or more income earners.(They are most likely Chinese.) In other words, most families with high incomes are hard working ordinary people. Most upper-income American families simply work more jobs and longer hours than their neighbors. It is fair to question whether the fact that harder work is typically rewarded with higher incomes really constitutes “inequality.”

  5. No matter what policies you introduce all things will remain unequal. If by some magic we are able to nationalize the wealth of the world and then divide it equally among all the citizens of the world five years form now you will find that all those people who are rich today will end up rich five years down the road. That is the law of life and we can do very little about it. Here is where governments have a role in trying to bridge that inequality through policies that keeps money out of the pockets of the ruling class. That brings you back to square one. Leadership with honesty, integrity, and free from corruption. They say that these qualities cannot be found even in heaven.

  6. The world ability to produce is finite and when a small group of people owned so much of the wealth,it also mean the rest of us have to do with less.Inequality in moderation may be useful but extreme inequality as it is today is disasterous for the economy because the middle class households are the biggest consumers in the world economy.Though the rich are earning more and more they wont consume more and more because their needs are already satisfied with what they already have.This maybe the reason for the extended slow economic growth the world is witnessing since 2007.

  7. Thanks for showing the vids on Ownership Economy,CLF. It is most enlightening and informative.

    Still, Capitalism , Socialism or its combinations is unable to provide satisfying solution for cases in the delivering of equitable distributions of wealth.The results of the achivement and prediction are far from desired or accurate.
    That has led me to think ,
    Is there a truth in Capitalism or Socialism as defined or it in itself flaw?
    Could quantum theory be the candidate in finding a new way of thinking in solving socioeconomic and political problems?

    But whatever it may be, education remains to play a central role in equitable or inequitable distribution and creation of wealth and opportunity.

  8. Kklau,
    “””
    Drawing from evolutionary sciences,living species are born unequal, in terms of intelligence, size and mobility.
    “””
    Alas. Ask yourselves against God or unknown gods. From what I have read, your have hardly evolved enough to convince me on your rhetoric as fellow homo sapien. So is logic from 1PM’s phoney Razak blue blood last name. Fortunately, even his borther disagrees with him.😜

  9. @C.L. Familiaris. Thanks for the link on the ownership society. Would love to see the Episode 10: on the debt.
    I am currently reading something written by someone who has worked on the top of Islamic Banking, but got booted out. Amen to all of the idea mentioned…

  10. Kllau and katasayang,

    What some us are saying is that Capitalism and Socialism cannot solve the present politico-socio-economic hubris that the world is mired in. Both are applicable only up to a point and any attempt to disregard Fundamental Human Needs will only lead to an Apocalyptical collapse, back to preindustrial era.

    The whole socio-economic theory has to be revised into a more “Organic” and Localized content i.e decentralization, deglobalization and decorporatization. An example of ‘success’ in nation-states would be the distributism policies that came about in Taiwan immediately after the KMT were kicked out of PRC. That lead to self sufficiency and rapid economic expansion without the horrendous Great Leap Backwards of the Maoists peabrains. And the unsustainable mating of Deng’s Cat raping the Mouse.

    While most folk are enamored with Maslowian hierarchy of needs, a more holistic approach would be Manfred Max-Neef’s ontological quantification. You may wanna wiki that..

    Quantum theory? You must be joking..! No superpositions and synchronicity whatsoever. More like a collapse of wave function.

  11. @ katasayang,

    If ” God or gods” can provide the answers, there is no need to ask ourselves or discuss on finding solutions. There will be no problem facing humanity.

    Also, the very fact that you claimed that I…. ” have hardly evolved to convince ” you of my belief is already proof of Evolution Science is at work. We were born and evolved unequally, and differently, where environment and survival instincts play a significant role in finding solutions through out our life-journey.That is why I have been unable to convince you earlier or never .

    Despite, disagreements between Najib,his brother , you and I, it appears that you sounds smarter of the lot, but the truth or the ultimate truth is, it might not be so, or never can know -unless with new ways of finding out.

  12. C.L. Familiaris: I am keen on the ownership model, and the co-op idea. If I am a Taukeh, I would definitely opt-in for that. But, it is a long way to go for Tech, and Financial. Probably earlier for some part of the Tech industry.

    Felda is a perfect project to be implemented as a Co-op project, rather than existing structure being floated as the second biggest IPO after facebook when it IPO’ed. But, let’s not look back😛

    I am keen to learn how it would handle sovereign debt, and money supply, exchange rates issue. Income disparity between CEO and an average worker is definitely issue that could be resolved. But, Macro-Economics issue still needs to be addressed.

  13. I believe all this economic inequality , with most pundits zeroing in on income inequality is a bit of a red herring. I think the real problem is educational inequality, healthcare inequality, services inequality .

    In my experience when these inequalities are addressed people more often than not correct the income inequality by themselves.

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