Inequality

Chris Dillow posted recently about inequality. As always when he writes about this, I think his assumption that inequality is wrong clouds his thinking.

The Economist's blog asks egalitarians to point to some "tangible harm" from income inequality.
In some senses, the question is silly. To see why, imagine a slave society in which the slaves are reasonably content. It would be hard to point to a tangible harm, but something would be wrong.

Would it really be hard to point to a tangible harm? In fact, Chris points to one himself: "freedom creates prosperity better than slavery". But I'm still trying to imagine a contented slave society. If I'm trying to make a point about the real world, I can't really predicate it on a non-existent or impossible assumption. But that's what Chris does.

This just shows that the "tangible harm" criterion is psychologically, economically and philosophically naive. Psychologically so, beecause people adapt to their circumstances, so "losers" don't feel too bad.

Here's that assumption, that inequality is an unnatural state and "losers" would have to "adjust" to it. There's no basis for this - in fact, inequality is plainly the natural state. That doesn't make it right, but it does make a nonsense of the argument.

Economically, because a gain foregone should count as much as a tangible cost; in a slave society no-one can see that freedom creates prosperity better than slavery, but this fact should surely count in our judgment.

Well, quite. But since any form of redistribution involves a loss of freedom, this isn't exactly an argument for redistribution.

And philosophically, because inequality matters for more than consequentialist reasons. Justice matters too.

Yes, it does. But redistribution - which is at least in part the removal of wealth from those who have created it and the passing on of that wealth to people who have not created it - is not justice. In fact, the transfer of wealth from the diligent and hard-working to the feckless would be unjust.

Anyhow, let's address the question. Aside from the ill-health which the Economist mentions - as if death were not tangible enough - I'd cite five other possible harms

This is misleading, because worse health for some is not an inevitable effect of inequality in an advanced society (in Britain, it's more a cultural artifact, but one that correlates with wealth), and worse health care isn't a harm at all; it's an absence of benefit - which is quite different. But let's run with it anyway. Universal health care is certainly a transfer of wealth, a form of redistribution. But it's indirect - the provision of a benefit rather than the transfer of money that could buy that benefit. People who are healthy have not had their relative equality affected very much by this provision. Assuming the tax that pays for this falls unequally - which it does in practice, then there will be an effect. But at the moment, the consequence of high marginal tax rates for the poor is that it falls most heavily on the poor, which worsens inequality. It's also at least arguable that the inefficiencies intrinsic to the state provision of anything at all, including health, means that except for paupers an attempt to provide state health care means a worse service at greater cost for all but the very wealthy. In other words, the contribution to equality is at best mixed.

1. Crime. Basic economics says the relatively poor commit more crime than the relatively rich. This is because their opportunities to make money honestly are more limited, and the cost of being imprisonment - foregone earnings - is lower. Empirical work corroborates this. Is it really a coincidence that unequal countries (south America) have more crime than egalitarian ones (Japan, Korea, Scandinavia).

Is this really any more than saying that people will not steal money they have no valid claim to if that same money has been taken by the state and handed to them anyway? I thought there was supposed to be a moral component to this argument. I'm sure there's truth in it, but the idea that the common human impulse to force of arms and predation is best handled by the state acting as predator on behalf of criminals is not persuasive to me. In fact, one of the unarguably valid roles of the state is to protect the property of citizens against this sort of predation. Moreover, it is worth looking at things like cultural norms and prison regimes in, say, Japan before isolating equality as the reason for a social trend.

2. Lower social mobility. Societies with higher income inequality have lower social mobility. Politics in the US and the national media in the UK are now largely hereditary occupations. Many of you might think this unhealthy.

Blimmin flip, Chris. The lowered social mobility in Britain is a consequence of egalitarian politics. To the extent that there is a relationship at all, higher income inequality follows from this, it doesn't cause it.

3. Slower growth. There are some reasons to think inequality can retard growth, say, by reducing social capital and therefore investment, or by creating credit constraints that prevent potential entrepreneurs.

And there are reasons to think this is just plain wrong. Few societies have had less redistribution, more inequality or higher growth than Hong Kong between 1960 and 1980. Hong Kong's growth was the direct consequence of Cowperthwaite's laissez faire policies - of his refusal to redistribute.

4. Bad customer service and job dissatisfaction. The inequalities that matter are not merely of income, but of power. Some people have it, some don't. And in companies, these inequalities breed slovenliness and inefficiency. Cloke and Goldsmith put it thus:

Through years of experience, employees learn that it is safer to suppress their innate capacity to solve problems and wait instead for commands from above. They lose their initiative and ability to see how things can be improved. They learn not to care and to accept things as they are. They justify making mistakes and are allowed to be irresponsible and pass the blame to others for their mistakes. They become mindlessly obedient, fatalistic, intransigent and hostile.

The thing is, inequalities of power stem, to a very large degree in the contemporary world, from a lack of personal autonomy and freedom. We see egalitarian council officials taking babies away from the poor taxpayers who pay their salaries, in their attempt to meet an egalitarian government's adoption targets. A prerequisite for greater personal autonomy is a less intrusive - and by definition less egalitarian - state. Managerialism is a consequence of the type of thinking that leads to egalitarianism.

5. Inner-city blight. Another consequence of inequalities in power is that poor areas become bad areas, with urban decay, poor schools and crime, because the poor lack the power to get the state to provide proper policing and schools.

It's impossible to separate inner city blight from egalitarian central planning - the same planning that built the sink estates and housing projects in a direct attempt to redistribute wealth.

So, there are almost certainly tangible harms from inequality. The more awkward question for egalitarians is: would there be more harm done by reducing inequality?

No, these effects, where they are effects at all, are the effects of egalitarianism, not inequality. And while that is certainly an important question to ask of egalitarians, a more important one - one I have never seen a good answer to - is why equality is seen as being desirable, in a world that is plainly and intrinsically unequal and that draws its strength and adaptability from that very fact.