The Right Coast

Editor: Thomas A. Smith
University of San Diego
School of Law

A Member of the Law Professor Blogs Network

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.

http://rightcoast.typepad.com/rightcoast/2010/11/all-this-talk-of-wealth-inequality-is-stupid-tom-smith.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bf6e253ef013488d12d0e970c

Listed below are links to weblogs that reference All this talk of wealth inequality is stupid
Tom Smith
:

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

Torreysurfer,

Given how much we spend on education what in name of Socrates does (i) have to do with (ii)?

Posted by: john knox | Nov 9, 2010 7:14:52 AM

John,

I didn't state, or even imply, (i) had anything to do with (ii).

But now that you mention it, what does it mean that students who live in households in the top 25% of income who score in the bottom 25% of achievement (from standardized test scores) graduate from high school and college at a significantly higher rate than students in the top 25% of achievement but who come from families in the bottom 25% of income?

Again, I'm not asking whether this represents some underlying evildoer in our midst, but rather, whether it is a good thing for the United States as a whole.

Posted by: Torreysurfer | Nov 9, 2010 7:30:16 AM

Torrey,

Yes you did imply it!!! Read your first post. "All of these questions turn primarily on "inequality of wealth."" Good grief.

Posted by: john knox | Nov 9, 2010 7:36:02 AM

"Economic inequality" is to "poverty" what "climate change" is to "global warming". In both cases, a particular radical policy (redistributive taxation, energy rationing) was originally advocated as a solution to a particular problem (poverty, global warming). However, the public no longer finds the original problem particularly urgent, and has understandable doubts about whether the proposed solution would be necessary, effective, or even tolerable. So the problem statement has been made broader, more general, and more directly connected to the real, ideological motivation (class envy, nature-worshipping Luddism) driving the policy's supporters. The result is renewed enthusiasm among believers, and a lot of head-scratching from non-believers like Tom, who wonder where this problem came from, and why this crazy solution is being proposed for it.

Posted by: Dan Simon | Nov 9, 2010 9:11:30 AM

torreysurfer - Poverty and wasted potential is a bad thing. It is not, however, primarily caused by inequality of wealth.

If one were to totally equalize wealth on a per capita basis as of any given date, the inequality would rapidly recommence and shortly be back to about where it is today (although it would not be precisely the same people at the grand pinnacles of wealth).

Those people who have nothing and live in the perpetual underclass are not held in that poverty by some psuedo-fuedal lord, but by their own problems (dropping out of school, committing crimes, getting into drug/alcohol trouble, having children out of wedlock leading to long term or multigenerational single parent scenarios). Those are largely cultural/personal choice/maturity/morality/wisdom issues on the part of the underclass.

The underclass may have right to make poor life choices, but they will inevitably suffer the consequences of poor life choices.

Posted by: km | Nov 9, 2010 10:09:24 AM

I find much of the discussion of wealth inequality to be tiresome because it ignores many of the reasons why such inequalities exist.
If one scratches the surface of the inequality statistics, one would find is that wealthy people tend to be older than poor people. It does not surprise me or concern me that on average people in their 50's, 60's etc have more wealth than people in their 20's and 30's. Would the world be a better place if this were not so.

Posted by: PaulD | Nov 9, 2010 11:20:55 AM

PaulD, If I were one of the 30 somethings with more wealth it would be!

Posted by: john knox | Nov 9, 2010 11:33:09 AM

Just to be clear, I'm against poverty and for people having access to, for example, good schools. I am even in favor of social safety nets, so that if people are starving or simply being left uneducated, people who can afford it should chip in to help out those genuinely in need. Vouchers are probably a better idea than public schools and medicaid, but that's another argument. But "inequality" is a much broader claim than that. It is that there is some harm just from the fact that some people are much richer than others, even if the poorest are in some absolute sense pretty rich. I even recognize that people do suffer some psychic harm from being relatively poor. This harm however is much more easily remedied, by for example, developing a little character, espousing various ethical views about the badness of envy, etc., than it is by actually taking people's wealth and redistributing it. It probably is the case that to pull the poorest Americans out of poverty you would have to allow the richest to get even richer -- but that would be the thing to do, right?

Posted by: Tom Smith | Nov 9, 2010 1:52:04 PM

See Scott Sumner here http://www.themoneyillusion.com/?p=7091 and here http://www.themoneyillusion.com/?p=7215 . Money quote from second post:

"With apologies to Bentham, income inequality data is nonsense, and wealth inequality data is nonsense on stilts. It’s all about consumption."

There are other measured outcomes about which we can worry, some of which TorreySurfer pointed out - for moral an utilitarian reasons. But those aren't battled by attacking people based on the amount of money they take home in a given year, or even how much they accumulate.

Posted by: Gimlet | Nov 9, 2010 2:53:24 PM

That would indeed be the right thing to do.

The only way to really remedy "unequal distribution" of benefits is to equalize everyone at the poorest levels.

We don't do this as to looks or atheletic prowess, we shouldn't be doing it is at the fruits of one's labors either.

Posted by: km | Nov 9, 2010 3:01:26 PM

>>The only way to really remedy "unequal distribution" of benefits is to equalize everyone at the poorest levels.

>>We don't do this as to looks or atheletic prowess, we shouldn't be doing it is at the fruits of one's labors either.

But see Kurt Vonnegut, Harrison Bergeron, in Welcome to the Monkey House.

Posted by: Tung Yin | Nov 9, 2010 3:47:28 PM

John,
Is it seriously your argument that wealth and high school graduation rates are unrelated? The data certainly doesn't support that position.

Posted by: Torreysurfer | Nov 9, 2010 4:23:10 PM

Torrey,

Is it seriously your argument that you didn't imply a link between the two? It's like arguing with a schizophrenic.

My point is simply that you can't say that we are neglecting the poor based on graduation rates. We spend vast sums of money to support failing schools. You can't say that it's a lack of "redistributing" money.

Yes, wealth is of course related to graduation rates. But the question is both how to create wealth (or habits that create wealth) as well as what kind of schools (hint: not government monopolies that protect employees at the expense of students) that are best at providing a good education and shepherding disadvantaged students through to graduation.

The bottom line is that family structure is the best predictor of family income which is the best predictor of educational achievement. Policies that erode the intact family structure, which redistributionist policies notoriously do (ask Bill Clinton), are catastrophic for the longterm economic and educational success of the most disadvantaged (and that's leaving aside things like physical and sexual abuse, juvenile delinquency, etc which are attendant to the breakdown of the family). Like Tom, I have no problem with a basic social safety net but just dumping money on people to make you feel good about the abstraction of inequality will make the very people you claim to care about worse off. That's pernicious moral preening (evidenced by your first post) that we could all do without.

Posted by: john knox | Nov 9, 2010 4:48:24 PM

John,

You seem awfully hung up on this "link" issue, but I have no idea what you're talking about.

The fact that nearly half of U.S. residents have nearly zero percent of its wealth certainly constitutes "inequality of wealth," not in the sense that it's right or wrong, good or bad, better or worse; but rather, that it's not equal, plain and simple. Dictionary.com defines "inequality" as "the condition of being unequal." And so it is. I'm not sure what implication you're drawing from that.

The fact that 1 in 3 high school students drop out before graduation is also related to the "inequality of wealth" given the demographic data on high school student drop-out rates. Again, I'm not sure why that would be objectionable either. It is what it is.

I'd be curious to know what you mean by (and what data supports your position) that "family structure is the best predictor of family income." As an initial matter, what is "family income?" Do you mean household income? And what is "family structure?"

Also, I'm not sure where you get "moral preening" from the first post. Perhaps you should re-read the first post (perhaps you are projecting your own morals onto the various questions?).

Moreover, I never said "we are neglecting the poor based on graduation rates" or that "it's a lack of 'redistributing' money." It's like arguing with someone who rattles off a series of straw man arguments based on claims that I never made. No wait, it's not "like" that, it "is" that.

Posted by: Torreysurfer | Nov 9, 2010 5:35:51 PM

Oh, come on Torrey, give me a break. You can't even keep track of what you said and got called on it and didn't have the chops to admit it. You're the one arguing in bad faith. Now you say that you weren't calling for redistributing money. Hey, if you're down with income inequality don't let me get in your way. But any literate person, as well as anyone who has seen your previous posts on here, knows that your high-minded (does that suit you better than moral preening?) list of questions, in light of Tom's post, was implying that we need more redistribution. There was no straw man. "All things are not equal" you said so you're quite obviously were implying that we need to take someone else's wealth so that your exaggerated or fabricated horrors can be ameliorated. To help you out I'll copy your entire post below.

Don't be dim and ask what's meant by family structure or income. Start with Brad Wilcox's research on the family and go from there. Or hell, "Dan Quayle Was Right" from the early 90s will cover the main points and its conclusions have only been repeatedly confirmed since.

"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: john knox | Nov 9, 2010 6:15:10 PM