Friday, November 26, 2010

Understanding Inequality

You can’t blame smart liberals for deploring rising inequality; that’s what liberals are for. Here are Jacob Hacker and Paul Pierson going about it in the standard way:
“Inequality Isn’t Inevitable.

“We should be skeptical because government policies don’t just reallocate income after the fact; they also shape how markets distribute the rewards. We should be skeptical because globalization and technological change, while creating pressures for inequality, don’t dictate economic outcomes.

“Other prosperous economies that are as globalized and networked as we are have seen limited growth in inequality. “Moreover, where such tendencies have emerged, their political systems have pushed back. It is the U.S. that stands out as an exception, as it moves closer to the distributional structure characteristic of economic oligarchies such as Russia, Mexico or Brazil.”
I couldn’t agree more with the first two paragraphs. If intelligent government regulation can't mitigate inequality, liberalism is a pointless affectation. But I’m a little perplexed about why Hacker and Pierson think that the third paragraph seals the liberal case against inequality. Is the mere fact that “we’re mov[ing] close to the distributional structure characteristic of economic oligarchies such as Russia, Mexico or Brazil” really all that deplorable?

The answer depends on what about inequality is really objectionable as a matter of sound political morality. It matters morally whether you understand combating inequality as a matter of closing the well-being gap between better-off and worse-off Americans or as a matter of  making the worse-off Americans as well-off, in absolute terms, as possible. Nothing is easier than promoting equality by diminishing the welfare gap between the better- and worse-off people by making the better-off people worse-off. But it’s hard to figure out why someone who really cares about the well-being of worse-off people should believe that a situation which I enjoy 5 units of happiness (according to your favorite metric) and you enjoy 10 is morally worse than a situation in which I enjoy 5 and you enjoy 7, which is morally worse, in turn, than a situation where we both enjoy 4 units. Liberals start saying and doing strange things when they forget that really caring about disadvantaged people is a matter of wanting them to be as well off as possible, even if that means letting people who are already well-off be still better-off.

So if you ask me, it’s a matter of moral indifference that the social product here is distributed as unequally as the social product is distributed in Russia, Mexico and Brazil as long as worse-off people here are a lot better-off than worse-off people in those societies--as in fact they obviously are. The only inter-societal comparisons that really matter morally are whether there are societies in which people are better-off than people here occupying the same distributive percentile, or whether we can imagine an alternative state of our own society in which people are better-off than people occupying the same distributive percentile here and now.

It’s surprising, when you think about it, how little time liberals spend trying to make such comparisons. They get all worked up, for instance, over the fact that median family income expressed in constant dollars is lower by a few thousand dollars now than it was in the early 1970s while the income of people in the top 5% is immensely higher now than it was then. Forget about all the bookkeeping considerations that complicate this comparison (like the fact that families are comprised of significantly fewer people now than they were then, that employer-provided health benefits and transfer payments don’t enter into the comparison because they aren’t taxable income, etc.) and ask yourself this: would you rather live now on the smaller median income (with your affordable micro-computer, cell phone, your statin prescription that controls your cholesterol, your flat-screen TV that allows you to DVR your favorite shows and zip through the commercials, the ATM card that keeps you from having to spend your lunch hour at the bank getting cash, your $100 air-conditioner, etc.) or then with the larger median income?  I don’t think that’s a close call, do you?

Liberal complaints about rising inequality would be a lot more credible if they represented it in morally compelling terms.

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