Friday, February 16, 2007

Some are more equal than others...

(C'mon - you didn't expect me to yammer on about equality without quoting Orwell, didja?)

As our now perpetual presidential campaign enters the desperate last 21 months, one topic batted around in economist circles and by amateurs like yours truly has been inequality. But I have certainly fallen into the unhelpful habit of not differentiating which measure of equality I'm talking about.

For example, there is a growing inequality in asset distribution - who owns what. At the same time (and perhaps for the same reasons) there is a significant inequality in income which may or may not be growing (depending on whether you look at the US or the world), and income growth which definitely is widening.

Foregoing the knee-jerk reaction of deeming all inequality growth a bad thing per se, we need to be careful which particular distribution we are ranting about at any given time.

A wonderful post on an Economist blog - Free Exchange - helped me understand the importance of this distinction.
I'm not sure that I care at all about the size of the gap between the rich and poor, provided that the poor have all the ingredients of a decent life. I don't think that they do, yet, in America or much of anyplace else, but I think the solutions to most of their problems lie elsewhere than in redistribution. Of course, I care about other inequalities that can be conferred by high socioeconomic status, such as extreme differences in power or autonomy, but I am very sure that those disparities cannot be rectified simply by taking money from the richer and giving it to the poorer. So it's hard to get worked up simply because CEO's have gotten a pay rise.

What I do care about, once basic needs are taken care of, is how easy it is to change one's position on the ladder. Or rather, since earning money is never exactly easy, whether place in the income distribution is conferred by who one's parents were, or by one's own efforts. The evidence in America is that where you start out has a lot to do with where you end up. This bothers me a great deal. But there's less evidence that the problem of income immobility is growing.

Even if it isn't, of course, I would prefer to live in a world where the children of Bill Gates, and an average welfare mother, have the same opportunity to succeed. While I doubt that this dream will ever be fully realised, I still think America could go much farther in that direction than it has, for starters by doing something about the appalling inequities in its educational system. Unfortunately, altering the socio-political structures that reinforce accident of birth is so difficult that almost everyone prefers to focus on the (comparatively) trivially easy task of moving cash from one person to another. [More]


I find this point very persuasive. Better access to education could mitigate many of the income and asset distribution problems, I believe. In fact, in an upcoming (probably April) issue of Top Producer, I will try to incorporate this factor into my idea of what a good safety net for farmers could look like.

3 comments:

brian said...

John,

I want to pose a question for you related to this topic. One concept of redistribution, going back, oh, about 3000 years, is in modernity known as an estate tax. Many progressives in American history have touted this as a way to avoid a moneyed gentry or aristocracy. For example, Sam Walton earned his money and that's fine, but why should his heirs be 4 of the 10 richest people in the world, and is that kind of legacy a problem for a country based on egalitarian principals.

On the other hand, in farm country and certainly in farm organizations, one of the rallying cries is about eliminating the "death tax." They argue that a family farm should be able to pass to the next generation tax free. Now I can understand the sentiment behind this, but to follow the logic of the Economist blogger you admired, the truck driver's son should have just as much opportunity as the farmer's son. Inherited land or wealth would seem to be a barrier to that kind of equality of opportunity.

So, is the estate tax a good policy for mitigating multi-generational inequality in wealth, earnings, and opportunity?

John Phipps said...

brian:

The theory of the estate tax seems plausible, especially when set with a high enough exemption - which is where incidentally, it looks like we are heading. I consider it a reasonable way to transfer some wealth. Lord knows there are worse.

The problem for this engineer is it's a very hard tax to write and be effective. People will pay 99 cents to avoid a dollar in estate taxes. Besides, I think an anthropological answer is in the offing even as we dither economically.

Wealthy citizens often are not propagating. And when they do they often don't parent well, with the result be dead-end kids, split families quarreling, etc.

Worrying about an aristocracy may be hyperventilating over a relatively small threat. It's really really hard to keep a dynasty going now.

The selfish don't inherit the earth. The happy and optimistic ones do. Economics often is blindsided by other factors.

The point I was really interested in and will be writing about is educational access. That seems to be a larger determinant of future success than even birth. College need not be so expensive.

1029barn said...

John:

I agree with Brian, to a large degree. However, in countries with a wealth tax like Pakistan, the elite simply use their political power to escape paying taxes.

If we are in a two tiered world of haves and have nots, we at least need equal access to power among the haves. Dynasties seem to pass away when the upper middle class feels the glass ceiling is holding them back; ie. the Stuart Dynasty in 1688 England.

Barn