Inequality Is a Symptom, Not the Disease

Or diseases, plural. Lane Kenworthy notes that the data are mixed when it comes to the effect of inequality:

The evidence supports a number of the most prominent hypotheses only weakly or not at all. As best I can tell from the available data, income inequality hasn’t reduced economic growth. It hasn’t hindered employment. It may or may not have played a role in fostering economic crises, including the Great Recession. It hasn’t reduced income growth for poor households. It may or may not have contributed to the weakening of household balance sheets by encouraging too much borrowing. It may or may not have reduced equality of opportunity. It hasn’t slowed the growth of college completion. It either hasn’t reduced the increase in life expectancy or the decrease in infant mortality or, if it has, the impact has been small. It looks unlikely to have contributed to the rise in obesity. It hasn’t slowed the fall in teen births or homicides since the early 1990s. It may or may not have weakened trust. It doesn’t appear to have affected average happiness. In the United States it has had little or no impact on trust in political institutions, on voter turnout, or on party polarization. And while it may have boosted inequality of political influence, we lack solid evidence that it’s done so.

On the other hand, income inequality has reduced middle-class household income growth. It very likely has increased disparities in education, health, and happiness in the United States. And it has reduced residential mixing in the U.S.

I think the focus on inequality has conflated cause and effect. If we were concerned about providing a living wage, reasonable working conditions, universal access to healthcare, equal resources to all public schools, a stronger safety net, increased funding for public institutions and facilities, then between decreased unemployment and higher taxes*, there would probably be at least some decrease in inequality. Were we to focus on specific problems and solve them (e.g., your dog shouldn’t have better healthcare than you do), inequality would be less important.

*I realize at the federal level there’s no need to raise taxes from an operational sense. However, between the belief that debts in a fiat currency can be problematic, legitimate concerns about inflation, and state and local contributions to these policies (the bills for which do come due), there would probably be higher taxes on the wealthy.

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5 Responses to Inequality Is a Symptom, Not the Disease

  1. Gingerbaker says:

    [Income inequality]…”. It hasn’t reduced income growth for poor households…”

    That seems to me blatantly impossible. The money supply is a finite quantity. If the ultra rich were not hoarding all the money, more would be distributed to the poor.

    For the same reason, the assertion that IE has not reduced economic growth, employment, or affected things like infant mortality, life expectancy etc, etc seems to me to be highly dubious. If more people have more money to spend, that money appears in multiple transactions. How could that fail to increase economic growth? How could more customers not increase employment rates?

    The U.S. has one of the highest rates of IE, and also has an extremely high rate of infant mortality, and a lowered life expectancy than it used to enjoy, and lower in comparison to other countries with less IE.

    Sorry, but I am highly skeptical of the premises of the author of this article.

    • Min says:

      “The money supply is a finite quantity.”

      Nope. Banks create money all the time. We create money when we use our credit cards. The Federal gov’t creates money when it spends.

  2. Leo says:

    Apart from the point Gingerbaker makes, and many other points I’d want the author to show evidence for, I agree with you Mike. I don’t really care if a CEO takes in 50, 500, or 5,000 as much as me. What I do care about is that I don’t have enough to live a moderately comfortable life, and that policies keep getting enacted into law which make it ever harder year after year.

  3. Min says:

    “legitimate concerns about inflation”

    Inflation is too low. Core inflation has fallen short of the Fed’s 2% target for 15 years. (And the 2% target is probably too low.)

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