The Right Coast

Editor: Thomas A. Smith
University of San Diego
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Monday, November 8, 2010

All this talk of wealth inequality is stupid
Tom Smith

I am finding the spate of recent articles about the huge and growing inequality of wealth in the US pretty tedious.  I suspect they are making some basic mistakes.  They usually take the form of saying the wealthiest X percent of the US population owns Y percent of the wealth, where Y is a much bigger number than X.  What I don't get is, why should I care about the relationship of X and Y?

Now I understand that wealth is partly a relative good.  I know and I have felt first hand the irritation that arises when some neighbor displays wealth that is beyond my own.  For example, a neighbor of mine recently took to flying in and out of his house by helicopter.  Not only is this noisy and dangerous, but shows he had $350K (I googled it) to drop on is own helicopter that I certainly do not have. But, and this is a key point, once somebody becomes rich enough, they move out of my neighborhood and to Rancho Santa Fe or some such, and get out of my envious hair.  It is only the wealth immediately around me that annoys me.  And this means that as between unequal and even more unequal, I will be indifferent, if the people getting really, really rich are already so rich that I have no contact with them anyway.  If the guys with 100 foot yachts get to trade up to 200 foot yachts, I don't care, because I had no contact with them to begin with.  So I think it is only local inequalities that trouble us.  But the gross measures of X versus Y make it seem that every little bit of global inequality is something to be rued.  That's ridiculous.

Moreover, as much as I find it annoying that some other people are so much richer than I am, it is not as if I would pay very much to see them brought down a notch or two.  If they suffer some bad fortune, I might enjoy that, but I certainly would not pay one thousand dollars of my own hard earned money so some fund manager in La Jolla would lose a million.  I mean, I can spend that thousand dollars!  This makes me doubt that people really care that much about inequality. We humans are an envious breed, but we mostly put our own wealth ahead of equality.  And if I could be a few thousand dollars a year better off, at the cost, so to speak, of some guy who lives in some gated paradise I don't even drive by, becoming millions richer than he already is, well that is a sacrifice I am prepared to make.  As long as he is not around to rub my face in the fact that while he's buying a new jet, I'm just buying a riding mower, I don't care.

Finally, why should anyone think that say twenty percent of the population owning twenty percent of the wealth has anything to recommend it morally at all?  We know it has nothing to recommend it economically.  Inequality of wealth is endemic to human societies, both capitalistic and socialist. Wealth has a highly skewed distribution that evidently arises from a rich getting richer dynamic that occurs in any social network, even collectivized ones.  To get any degree of equality that impressed those who like to eyeball wealth distribution charts and pronounce them good would require a degree of intrusiveness and coercion that would shock even the most pious social democrat.  This would be totally different if we lived in a more predatory world, such as ancient Rome, where wealth was often simply plunder, the result of a zero or negative sum game.  But mostly we live in a very different world, where Peter is rich because he made Paul richer.  Of course Paul is going to envy Peter, but given the choice, Paul will put up with it so he can get richer himself.

And what is this business of asking people what they would say would be the optimal degree of economic inequality?  Oh, I don't know, maybe twenty percent of the people have forty or fifty-three percent of the wealth?  And while we're at it, why don't we ask them what the optimal thrust to payload ratio is for a solid fuel booster placing an object in a geostationary orbit?  As if their opinion is worth something, that is.  People's intuitions on both questions are utterly without value except as curiosities.  They only go to show how little most people know about each topic, an entirely rational ignorance on their part, as we don't design rockets by popular survey any more than we should consult the masses on what the global distribution of wealth ought to be.  Who dreams these things up, anyway?

I also suspect that the skew of these inequality figures is driven by a very small number of fantastically rich people.  But why on earth should I care whether Bill Gates has 10 or 50 billion dollars?  Both figures are beyond my comprehension as personal wealth and make little difference to his life style.  The only contact I have with Bill Gates is various Microsoft products, which may not inspire but mostly get the job done.  The good he has done me greatly outweighs whatever evil flows from his being so much richer than I and everybody I know. I am much more afraid of economists worried about inequality than I am of people richer than I am.  Instead of making rich people give up their property, maybe we should make economists worry about something else.  As rights violations go, the latter is probably a bigger winner, utility wise.

If some worthy can make an argument that net human happiness would be greater were systems put in place to reduce inequality of wealth, that would be different.  But I doubt very much any persuasive argument to this effect exists.  All you would get would be a powerful, intrusive class of taxers, more than we endure already, that would worry the rich and make the rest of us more miserable too.  The harm caused by the very rich is almost entirely statistical.

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Tom Smith
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Comments

[From memory] "{Thou shalt not covet thy neighbor's house, not his wife, manservant or maidservant or thy neighbor's ass (DADT!) or his ox or anything which is thy neighbor's" Exodus something:something.

Feeling bad because somebody else has more is not just sinful. it is childish fatuity. Why in the world should we ever feel bad because someone else has better toys? Plenty of people have better guns than me, better cars and boats. It is totally wacky that I should enjoy my things less because someone has bigger and better things.

Unfortunately, there is a lot of this particular sin going around. So much so that I am afraid that most people don't even recognize it when it consumes them. Ponder with me how liberating, how healthy, how constructive it is when we avoid the Devil's trap of so-called "relative deprevation."

Posted by: Lou Gots | Nov 8, 2010 5:57:03 PM

Great post. A couple of thoughts: You note that "as much as I find it annoying that some other people are so much richer than I am, it is not as if I would pay very much to see them brought down a notch or two. If they suffer some bad fortune, I might enjoy that, but I certainly would not pay one thousand dollars of my own hard earned money so some fund manager in La Jolla would lose a million." But would you pay $10 to see Paris Hilton made penniless? In other words, do you derive any utility from economic schadenfreude for which you would be willing to pay?

Yo also note that: "Finally, why should anyone think that say twenty percent of the population owning twenty percent of the wealth has anything to recommend it morally at all?" We are both Catholics, so I would be interested to see you engage Pope Benedict's encyclical Caritas in veritate, with its admittedly ambiguous teaching on inequality. A serious scholars steeped in economics like youself would do yeoman work by engaging constructively with Catholic social thought.

Posted by: Steve Bainbridge | Nov 8, 2010 6:32:50 PM

You can insulate yourself from the envy provoking rich, but only to a point. For example, sometimes you're clicking around on the internet, just passing the time not looking for any trouble, and you come across some guy casually dropping into a blog post that he lives in a neighborhood where being able to afford a helicopter might raise an eyebrow, but being able to afford fuel, a pilots, and the lot size to accommodate it all just goes without saying. ;)

Posted by: Anne | Nov 8, 2010 8:06:50 PM

Some rich people are jerks but so are some not-rich people. But we tend to notice rich jerks more than we notice poor jerks. (Which may mean, mostly, that if you are rich it is wise not to advertise your wealth.) Meanwhile, rich people and people trying to get rich create most of the jobs and the goods and services that we buy, which is how many of these of these people become rich. I think we should honor and reward such people rather than punish them.

Posted by: Jonathan | Nov 8, 2010 8:18:38 PM

Tom,
That's a good question.

Should one care that roughly half of the people in this country have near zero percent of its wealth while the other half have nearly all of it?

Should one care that roughly 1 out of 3 children in this country do not graduate from high school? Indeed, should one care at all whether anyone but one's own children receive any kind of education?

Should one care that roughly 1 out of 6 people in this country do not have, or cannot get, health care?

Should one care whether all, or merely some, of the children in the local school district receive vaccinations?

Should one care whether children in one's community suffer from malnutrition?

All of these questions turn primarily on "inequality of wealth." All things being equal, I suspect most people wouldn't begrudge another person for his or her wealth. But alas, all things are not equal.

Posted by: Torreysurfer | Nov 8, 2010 9:48:39 PM

Torreysurfer,

No they don't turn primarily on inequality of wealth. Inequality is an abstraction. Michael Jordan is grossly unequal to Bill Gates but who's shedding tears. All of the things you mention after inequality are material conditions. The problem with obsessing over "inequality" of wealth is that it leads to policies which make everyone including the poor worse off. Even the great saint of academic leftism, John Rawls, disavowed redistribution which makes everyone worse off.

Oh, and many of your litany of evils are incorrect or a joke. For most of human history starvation has been the greatest threat to the lives of the poor. In America, obesity is the newest "epidemic" but noticeably concentrated among the poor. Maybe they aren't getting arugala at Whole Foods, like our illustrious commander-in-chief worries about, but the idea that caloric intake, the fundamental issue with malnutrition, is a significant problem is ignorant. Plus the canard about 1 in 6 not having healthcare is getting tiresome. Count up illegal aliens, those who could have it but choose not to (young people who rationally opt for more pay), those who qualify for medicare but haven't enrolled and you're nowhere near your fabrication. Oh, and children qualify for medicare which includes vaccinations and school districts won't even let you in the door without them. Oh, and the highest spending school districts in America are typically failing urban one's indicating that it's not our devotion to helping the poor but the borderline criminal racket protecting entrenched interests which lefties like you love so much. Etc. etc. etc. Read up before laying on a load of emotional bovine scatalogy on us.

Posted by: john knox | Nov 9, 2010 5:34:15 AM

Torreysurfer,

It seems to me that those questions turn more on level of wealth than inequality. You could have all the things you mention in a poor society where 1/3 of the pop. is desperately poor, and the other 2/3 are just struggling. Would you rather have that, or a country that spans from the lower middle class to the multi-billionaire, but everyone has enough to eat and a high school diploma?

Posted by: Anne | Nov 9, 2010 5:36:12 AM

One clue to the fact that people care rather less than Bolsheviks might hope is that, whenever I see the detail explained, it turns out that they've anyway rigged the numbers to exaggerate the effect. If people cared so much, why bother to lie?

Posted by: dearieme | Nov 9, 2010 6:49:52 AM

I'm not taking a moral, ethical or political stance on the questions. I'm merely asking whether it's a good thing for the United States that, for example, nearly (i) half of the U.S. population has nearly zero percent of the wealth, or (ii) 1 in 3 high school students fail to graduate from high school.


Posted by: Torreysurfer | Nov 9, 2010 6:55:23 AM

That Norton and Ariely have written in many ways a lousy article does not mean that inequality is unimportant, or that views on inequality are driven (as Norton and Ariely seem to think) by, effectively, petulant envy. It is pretty clear that the big driver of growing inequality over the past several decades has been driven by high returns to education (by which I mean actual skills, as opposed to, say, degrees in women's studies). The implication is that for a lot of people on the bottom, they are not getting those skills. Why not? Is it a consequence of the poor being trapped in lousy government schools, whereas the well off send their kids to private school or quasi-private government schools in affluent suburbs? Or is it genetics, or maybe poor parenting? The answers to that question heavily affect useful policy. Inequality is not unimportant just because Obama is an ass who makes noises about taxing the rich while he bails out his rich Wall Street donors.

Posted by: William Sjostrom | Nov 9, 2010 6:55:41 AM