Monday, September 01, 2008

The costs of inequality...

I have posted occasionally about my concern over income and asset ownership inequality.  It is a subject that triggers strong reactions.  My recent comments on USFR about how modern democracies (even ours) are a mixture of capitalist and socialist policies brought a hail of accusatory responses.  My point - which got lost once I used the the word "socialism" - is programs like Social Security, Medicare, and even our beloved farm program are actually income redistribution programs designed to address inequality.  I also mentioned Greg Mankiw's idea of a revenue-neutral carbon tax returned as earned income credit to the poorest who would be most impacted by higher energy costs.

The issue of inequality and whether we should do anything about it will be one of increasing conceren I believe, as the trends show few signs of reversing. That's why this post on Freakonomics was illuminating for me.
Further, a growing body of research reveals that the social and medical costs of inequality are high. Here is the tiniest of samplings:

• Among both American states and Canadian provinces, homicide rates closely track income inequality, even after the absolute level of income itself is carefully controlled for. That homicide is not driven by poverty alone is demonstrated by Canada, where, because of aggressive redistributive policies, the poorest provinces have the lowest inequalities and also the lowest number of violent deaths.

• It is becoming increasingly obvious among obesity researchers that the primary underlying factors in this epidemic are social class and income inequality.

It is no accident that the U.S., with the highest income inequality among the world’s developed nations, also has the highest incidence of obesity and its attendant comorbidities: diabetes, hypertension, and vascular disease.

Obesity may also be the reason that the U.S., ostensibly the world’s wealthiest nation, ranks 29th in life expectancy, right behind Jordan and Bosnia. Those who think that these problems are primarily the result of voluntary lifestyle choices should reflect on the difficulty of providing a family of four with fresh fruits and vegetables on a minimum wage salary. [More]

As research uncovers more linkages to the social costs of runaway inequality it offers new reasoning to apply to what was formerly an emotional reaction to the growing gulf. Narrowing the gap - or at least providing more effective tools to bridge the income disparity (such as education) - can then be  seen as economically sound policy.

Idealogical purity, regardless of which point of view, seldom makes for effective economic policy. Between brain research and new economic models I think an awareness is growing that will add greater depth to our choices compared to simple p/q graphs.

8 comments:

Anonymous said...

The economic stimulus checks were another redistribution scheme. My wife and I received a letter stating we would have received a check for $1200, however our adjusted gross income was too high so the check would be $201.

steve said...

I think one of the primary complaints about wealth redistribution is deciding who gets the money. I agree that it isn't good for society for wealth to be concentrated into a few hands. In my opinion, any wealth redistribution should not be a hand out but should be designed as a carrot. Earn that money we are taking from those with plenty and giving to you. I don't really like giving people money for nothing because it encourages them to do nothing.

John Phipps said...

steve:

I have finally abandoned my search for a reasoned way of redistribution. All you say is true, and there are bad outcomes to doing it. This is the conservative point of view.

That said, I am convinced that worse outcomes occur when you do not at least try.

I will try to post more of this dismal conclusion soon.

Anonymous said...

John,

I think we are on treacherous ground when it comes to wealth redistribution. Everyone in this country has the same opportunity to make something of themselves. Sure, there are instances of discrimination, whether it be racial, social, etc. However, there are many successful people from all walks of life. Why should I be punished for being a successful, ambitious person by taking what I have earned and giving it to someone who has not showed a level of ambition to be successful themselves. The driving motivation in a capitalist economy is profit, and having too aggressive of a wealth redistribution program erodes that motivation. A society that takes away that profit to give to those who don't earn it themselves is dangerously close to being a socialist society. I do concede that we are nowhere near that point, however it is a very slippery slope. I hope and pray that we continue to have leaders that understand this, because I think that a socialist America would be a sad place to live.

John Phipps said...

anon:

I can find much to agree with in your position. However, ignoring growing inequality seems to me to be asking for trouble.

History is replete with examples of failure to address the tendency of wealth flowing to the already-wealthy and how tipping points are reached that don't help anybody.

All of American policy is on slippery slope - we constantly arbiter between the political power of opposing factions. And this tension has served us OK so far. I do not share your belief that modest efforts to redistribute will necessarily lead to outright confiscation by an undeserving underclass.

This trend could be fed by the nature of our economy, where the importance of capital (which can buy technology) is so much greater than labor. Until we adjust to this economic shift, I support efforts to provide ample ladders for economic mobility.

As for taxes, we are finding out you can't get blood from a turnip. You have to tax those who have wealth and/or income. It's very much like robbing banks, as they say.

From Virginia said...

I am afraid our great country is farther down the path of socialism than I want to admit (farm payments included). It is worth while to review the wisdom of Frédéric Bastiat quoted below.

"[The socialists declare] that the state owes subsistence, well-being, and education to all its citizens; that it should be generous, charitable, involved in everything, devoted to everybody; ...that it should intervene directly to relieve all suffering, satisfy and anticipate all wants, furnish capital to all enterprises, enlightenment to all minds, balm for all wounds, asylums for all the unfortunate,....for all oppressed people on the face of the earth.
Who would not like to see all these benefits flow forth upon the world from the law, as from an inexhaustible source? ...But is it possible? ...Whence does [the state] draw those resources that it is urged to dispense by way of benefits to individuals? Is it not from the individuals themselves? How, then, can these resources be increased by passing through the hands of a parasitic and voracious intermediary?
...Finally...we shall see the entire people transformed into petitioners. Landed property, agriculture, industry, commerce, shipping, industrial companies, all will bestir themselves to claim favors from the state. The public treasury will be literally pillaged. Everyone will have good reasons to prove that legal fraternity should be interpreted in this sense: "Let me have the benefits, and let others pay the costs." Everyone's effort will be directed toward snatching a scrap of fraternal privilege from the legislature. The suffering classes, although having the greatest claim, will not always have the greatest success." — from Journal des Economistes


"If socialists mean that under extraordinary circumstances, for urgent cases, the state should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions, we will, of course, agree. This is done now; we desire that it be done better. There is however, a point on this road that must not be passed; it is the point where governmental foresight would step in to replace individual foresight and thus destroy it." — from Journal des Economistes


"Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all. We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain." — from The Law

http://en.wikipedia.org/wiki/Fr%C3%A9d%C3%A9ric_Bastiat

Ol James said...

Well here's my $0.02 cents,( with inflation and the value of the dollar that comes to $300.00).
#1, Carbon Credits and Taxes. Are these not taking from the richer and distributing them to the lower class??
#2,(From Virginia), Albeit we are not yet a Socialist Society and may be on the way in some forms. After all we here in America are not guaranteed a Democratic form of government but rather a Republican,( Read the Declaration of Independence and then the Constitution). Socialism will not provide for those less destitute than the majority. City, County, State and Federal governments are cutting the fat in their budgets to impress the constituents. Services once provided like housing, health care, institutions, education and many more have been discontinued. Government relies more on the private sector and religious organizations to oversee these programs, and then they are strained to provide for a fraction of those in need.
Government should see to the needs of the public that has elected them to office.
Wouldn't it be something if a politician made a promise and kept it?? IMO I believe if they can't get the job done....hold them responsible financially and bring in the next contestant.
Sorry about the length Mr. John.

Dean Weichmann said...

I would like to point out that we have already been under a wealth redistribution policy for the last eight years or more. Unfortunately for most of us it has been taking from the poor and letting the rich get richer.